The government’s decision to cut export incentives for the garment sector has sparked debate. Industry leaders warn the move will cripple exports during a time of rising costs and global economic instability.
The garment sector, Bangladesh’s biggest export earner, heavily relies on these incentives. With the reduction, exporters fear losing competitiveness in the global market.
They argue the timing is detrimental, coinciding with rising gas, electricity prices, and worker wages.
The government, however, maintains the cuts are necessary to prepare the sector for graduating from least developed country (LDC) status by 2026. LDC graduation entails losing preferential trade benefits, necessitating increased competitiveness.
The apparel sector has long benefited from generous government support. This support has been pivotal in establishing the country as a major player in the global textile market.
However, the current economic landscape poses unique challenges.
Rising costs of fuel, electricity, and raw materials, coupled with increased wages and higher interest rates, have already put considerable pressure on garment manufacturers.
The additional burden of reduced incentives could exacerbate these challenges, potentially leading to a decline in exports, as industry leaders have highlighted.
A phased approach, with gradual reductions in incentives accompanied by targeted support measures, could help mitigate the impact on exporters.
Enhancing policy benefits, as seen in countries like India, China, and Vietnam, and focusing on reducing operational costs could provide the necessary buffer for the apparel industry.
Additionally, direct incentives on repatriated export earnings, as suggested by industry insiders, could simplify the process and reduce bureaucratic hurdles.
Supporters of the decision believe exporters have profited from the taka’s devaluation against the dollar, offsetting some incentive reduction. They urge businesses to adapt to a more competitive environment.
The debate centers on balancing short-term challenges with long-term competitiveness. While the immediate impact on exports is a concern, the industry must prepare for a future without preferential trade terms.
Government support for improving efficiency and navigating the post-LDC landscape could ease the transition.