The decision to hurt export growth: Businesses

 Staff Reporter :
The interest rate of the Export Development Fund (EDF) loan has gone up further to discourage loans from the fund.
But the businesses said the decision will hurt the country’s export-oriented industries severely as they will lose competitiveness.
The central bank has increased the EDF loan interest rate to four per cent from three per cent, which will be effective from November 13, according to a circular issued by Foreign Currency and Policy Division of the BB on Tuesday.
The authorised dealer banks from now will collect loans from the EDF at the interest of 2.5 per cent from the central bank, which earlier was 1.5 per cent. And the dealer banks will lend to the exporters at the rate of four per cent, the circular said. Exporters believe the move is aimed at discouraging borrowing from the EDF and it may reduce the use of foreign currencies but they will remain under pressure.
Md Shahidullah Azim, Vice-President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The New Nation on Tuesday, “The decision has been taken at a time when the country’s export-oriented industries are struggling to survive. It will hurt export growth severely.”
He said, “The country’s export is falling down gradually due to local and global factors. Manufacturing cost has already gone up significantly due to gas and electricity shortages.”
“The production has come down by 50 per cent of our factory capacity. In such a situation, the increased interest rate will be a big burden for us,” Azim said.
A member of Bangladesh Textile Mills Association (BTMA) and BGMEA can borrow $30 million from the EDF. The limit was $25 million earlier, which was increased during the Covid-19 pandemic. The central bank relaxed many conditions of borrowing from the EDF during that time.
Mohammad Hatem, Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said, “Production cost had already gone up due to the increase in import expenditures, fuel prices, and tax at source. So, the additional loan interest will accelerate the ongoing crisis in the export-oriented industries.”
We demand withdrawal of the decision for the sake of the country’s export growth, he added.
GM Abul Kalam Azad, Executive Director and Spokesperson of the BB, said, “It is true that the Bangladesh Bank now wants to save dollars. Increasing interest rates will reduce the demand for loans and dollars will thus be saved.”
In March 2022, the size of the EDF was increased to $7 billion from $6 billion to meet the growing demand among exporters.
In June 2021, the EDF went up to $6 billion from $5.5 billion, while the fund rose to $5.5 billion from $5 billion in March of the year. It increased to $5 billion from $3.5 billion in April 2020.
Exporters can borrow in foreign currency from the EDF to buy raw materials and components for export products. The fund is aimed at facilitating export growth. The EDF was launched in 1989 to support the export sector.