The recent data from Bangladesh Bank revealing a record low in private sector credit growth — falling to just 8.30 per cent year-on-year in October — paints a concerning picture of the nation’s economic landscape.
This decline, attributed to high interest rates, reduced lending capacity, and a contraction in import trade, signals a troubling trend that could stifle economic growth and innovation.
Our newspaper on Monday reported that the downward trajectory of credit growth, which has dropped from 10.13 per cent in July to 9.2 per cent in September, reflects a stagnant business environment exacerbated by political instability and widespread disruptions.
The central bank’s decision to revise the private sector credit growth target for the first half of the 2024-25 Fiscal Year from 10 per cent to a lower figure is a clear indication of the challenges ahead.
The historical context is equally alarming. Private sector credit growth has fluctuated significantly over the past few years, with figures of 13.66 per cent in FY 2021-22 and a mere 8.35 per cent in FY 2020-21.
The current environment, marked by a liquidity crisis in the banking sector and the fallout from massive loan scandals, has led businesses to adopt a “wait-and-see” approach.
This cautious stance is understandable, yet it further diminishes credit demand and stifles potential investment.
Moreover, the persistent inflation and rising lending rates, compounded by poor loan recovery, create a perfect storm for businesses struggling to navigate these turbulent waters.
The recent increase in the policy rate to 10 per cent, following a series of hikes, is a necessary step to combat inflation but may also deter borrowing and investment.
The decline in the opening of fresh Letters of Credit (LCs) by 1.22 per cent in the July-October period of FY 2025 underscores the impact of austerity measures and the prevailing uncertainty.
As businesses grapple with these challenges, the government and the central bank must foster an environment conducive to growth.
To reverse this trend, stakeholders must prioritise stability and transparency in the banking sector, enhance lending capacity, and create a more predictable business environment.
Only through concerted efforts can Bangladesh hope to restore confidence, stimulate credit growth, and pave the way for a more resilient economy.
The time for decisive action is now; the future of our economic landscape depends on it.
