Industry and trade analysts warn that the country may face major challenges during the upcoming month of Ramadan mainly due to political instability, slowdown in industrial output growth and fall in imports of goods.
These factors may also disrupt the supply of goods as uncertainty has been created due to drop in imports of goods against rising demand, they said, suggesting that the government take practical measures immediately to speed up the business activities and encourage entrepreneurs after allaying their concerns.
Entrepreneurs say that the business sector has been sluggish for years. The Covid-19 pandemic and Russia-Ukraine war have led to global economic headwinds that have also affected Bangladesh, they added.
Trade and commerce faced severe disruptions due to multiple factors, including steep rise in import costs of fuel, food products, industrial raw materials, and machinery as well as devaluation of taka against dollar. Even many banks were unable to open Letters of Credit (LCs), hindering import of essential goods.
Additionally, genuine entrepreneurs failed to take out loans to meet their needs due to an increase in government debt and widespread corruption in the banking sector.
Even after substantial investments in new industries, many businesses could not commence production for lack of gas connections and uncertainty over fuel and electricity supplies. This stagnation in production meant that domestic output of food and other products failed to keep pace with rising demand, worsening the supply-demand imbalance.
Abul Kasem Khan, former president of Dhaka Chamber of Commerce and Industry (DCCI), said, “Political shifts have affected all sectors of trade and commerce. A sense of discomfort prevails among businesses. In this situation, the government must enhance engagement with businesspeople to create a business-friendly environment and facilitate frequent discussions.”
Despite the political changeover on August 5, businesses still face an unfavourable environment. Entrepreneurs are burdened by high-interest bank loans, electricity and gas crises, and legal and financial harassment, such as factory attacks, frivolous lawsuits, frozen bank accounts, travel bans, and propaganda. Changes in bank loan regulations have added to the struggles of genuine businesspeople, some of whom, despite never defaulting in the past, now find themselves listed as defaulters.
For instance, if a company within a business group defaults on loan, the entire group is penalised by having its credit facilities suspended. This has created difficulties in opening LCs for imports, further hindering business operations.
Businesspeople are also facing challenges in importing goods due to issues with LCs. Typically, importers bring in raw materials and other products under the Usance Payable at Sight (UPAS) LC system, which allows a 270-day repayment period. Importers take this time to process and sell products, using the revenue to repay suppliers.
However, the sharp rise in dollar exchange rates over the past year has made it difficult for importers to settle payments. They prefer to pay based on the exchange rate agreed upon when opening the LC, but banks are demanding payment based on current market rates, resulting in losses of up to 20 per cent. If UPAS LCs are converted into long-term loans, this burden could be eased. Otherwise, many LCs could turn into defaults, doubling the volume of default loans in the banking sector.
The current LC-related complications, coupled with losses from imported goods, have discouraged importers from bringing in new raw materials. This has created uncertainty about the supply of many products during Ramadan.
Bangladesh Trade and Tariff Commission (BTTC) has expressed similar concerns.
According to a BTTC report sent to the Ministry of Commerce, imports of key commodities have decreased significantly compared to the same period last year.
Raw sugar imports fell by 367,591 tons. Palm oil LC openings dropped by 77,930 tons. Palm oil imports decreased by 174,386 tons. Soybean seed imports declined by approximately 33,000 tons. Imports of refined edible oils, sugar, and onions have also dropped compared to the previous year.
The volume of LCs required to ensure adequate supply of these products has been far below expectations. If practical measures are not taken now, there may be a severe shortage of goods in March during Ramadan.
BTTC has proposed several measures to mitigate the crisis. These include reducing interest rates on bank loans for importing essential commodities and ensuring uninterrupted gas and electricity supply to mills producing edible oil, sugar, and lentils.
Some factories cannot start production despite significant investments due to gas supply delays. For instance, a major industry group has set up a soybean oil mill with a daily production capacity of 1,000 metric tons, but production has not begun due to a lack of gas supply. Even after paying the necessary fees to Titas Gas Transmission and Distribution PLC, the gas connection has not been provided. This has not only stalled production but also prevented an increase in the supply of edible oil to the market.
Businesspeople argue that they are being restrained from all sides, leaving genuine entrepreneurs struggling to sustain their operations. Many are becoming increasingly disheartened. If these issues are not addressed soon, the overall economy could suffer significant consequences. Inability to maintain business operations could lead to massive unemployment and a sharp decline in government revenue.
Professor Dr Muinul Islam, former president of Bangladesh Economic Association (BEA), said, “If the government can encourage investments, it will bring dynamism to the economy. However, this will take time because the previous administration’s corruption and economic mismanagement have caused severe damage. Billions of dollars have been siphoned off from the country, and we will continue to feel the effects of this for some time. There is no easy solution to this crisis.”
