Staff Reporter :
Bangladesh’s private sector credit growth experienced a significant decline, dropping to 9.95 percent in January this year from 12.62 percent in the same month of the previous year.
This downturn is primarily attributed to liquidity shortages and the escalating interest rates prevailing in the financial market.
According to Bangladesh Bank data, private credit growth stood at 10.13 percent in December last year, followed by 9.9 percent in November and 10.09 percent in October of the same year.
Economists have raised alarms regarding the implications of this dwindling private sector credit growth, particularly concerning employment. With the private sector employing over 80 percent of the labour force, the lower credit growth implies a potential shortfall in job creation.
However, the central bank has set a private credit growth target of 10 percent for the January-June period of the fiscal 2023-24 amid Bangladesh Bank’s contractionary monetary policy that keeps interest rates higher to diminish the loan appetite for businesses.
The Bangladesh Bank also continued foreign currency sales, which functioned as automatic quantitative tightening measures in the money market, significantly absorbing liquidity from the system, it said.
Over the past 31 months, the central bank sold approximately $30 billion from its reserves, with $9 billion allocated to banks in July-January of the current FY24, $13.5 billion in FY23, and $7.62 billion in FY22.
Experts said the private sector credit growth is down for two main reasons. In particular, the deposit growth in banks gradually decreased, and as a result, banks are suffering liquidity crises another reason is government borrowing.
The economic crisis has been continuing for the last two years. Importers cannot import adequately due to the USD shortage. The demand for bank loans has decreased to importers for less investment, they marked.
According to a Bangladesh bank report, imports dropped by $21 billion last year due to various restrictions imposed by the central bank to tackle the dollar shortage, leading to a slump in investment which eventually slowed down the country’s economic growth.
