The central bank has reduced cash incentive rates on garment exports using local yarn for the second time in six months, setting new rates from 4 per cent to 1.5 per cent, which has upset entrepreneurs. Business leaders argue that the government made this decision based on misleading information from the Export Promotion Bureau (EPB). They have urged the government to restore the previous rates and consider alternative policies.
To address these concerns, the Bangladesh Textile Mills Association (BTMA) organised a press conference on Saturday at its Karwan Bazar office in the capital. Additionally, the two apex bodies of the apparel sector - the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) - are planning to hold a joint press conference soon.
At the press conference, BTMA President Mohammad Ali Khokon criticised the EPB for providing inflated export data, which he claimed led to flawed government policies. "EPB’s actions seem like part of a conspiracy, causing suffering to our industries," he remarked.
The BTMA president also mentioned that when they questioned the EPB's data, Bangladesh Bank Governor Abdur Rouf Talukder rebuked them, adding that the central bank reduced cash incentives citing preparations for LDC graduation, a process expected to continue until 2029.
In a circular issued on June 30, the central bank reduced the cash incentive for local export-oriented textile mills from 3 per cent to 1.5 per cent, following a previous reduction from 4 per cent. The actual incentive rate now stands at 1.2 per cent, calculated at 80 per cent of the Free on Board (FoB) price.
According to EPB data, Bangladesh earned $47.47 billion through exports in the July-April period of FY24, marking a 3.93 per cent year-on-year growth. However, using the BPM-6 method, Bangladesh Bank reported earnings of around $33.68 billion for the same period, suggesting the EPB overstated export earnings by approximately $13.8 billion.
During this period, the country experienced a 6.8 per cent year-on-year negative growth. The apparel sector earned $29.68 billion, a 6.7 per cent decline year-on-year, according to Bangladesh Bank, while the EPB reported $40.49 billion with a 4.97 per cent growth.
This downturn is particularly challenging as Bangladesh faces a persistent dollar shortage, high inflation, and implemented a new wage structure in December with a 56.25 per cent minimum wage increase. Additionally, production has been cut by 40 per cent due to severe gas and electricity shortages.
BGMEA Vice President (Finance) Md Nasir Uddin highlighted the impact of gas and electricity issues, stating, "Since this April, gas pressure in industrial areas has dropped almost to zero, and we are facing up to 7-8 hours of load shedding daily."
Why are cash incentives still needed?
The BTMA claimed that local textile mills contributed over $27 billion to exports last year despite competition from Indian mills.
BTMA President Khokon noted, "India graduated from Least Developed Country (LDC) status in 2004 but still provides subsidies to boost textile and RMG exports, even when sourcing yarn locally. They profit $0.22 per kg of yarn exported at production cost rates.
“But we have to import cotton to produce yarn. End of the day, we are saving billions of USD yearly as we meet 80 per cent of knit and 45 per cent of woven fabric demand."
He emphasised the need for continuous cash incentives and strong backward linkage for LDC graduation, citing high bank rates, gas, and electricity shortages as major challenges, saying, “Without incentives, how will we survive? We lack adequate gas and electricity, and bank rates are as high as 15 per cent.”
"We need the continuation of cash incentives and an alternative policy before 2029," he added.
Khokon also urged the NBR chairman to consider the history of global apparel industries, noting that many leading countries in the sector did not produce any cotton.
NBR Chairman Abu Hena Md Rahmatul Muneem recently stated that since Bangladesh does not produce cotton, the government will not maintain the duty-free facility for cotton imports and yarn production for an extended period.
