Amid rising interest rates, businesses in Bangladesh are stalling investments, significantly impacting growth prospects. Shasha Denims, for instance, has scaled down its planned investment for a new factory in the Dhaka Export Processing Zone from Tk 6 billion to Tk 1.6 billion, citing the current interest rate of 14%, which has surged from 9% just a year ago [e7fbedef]. This decision reflects broader concerns in the business community, as inflation has also reached 9.92%, further straining financial resources [e7fbedef].
The economic landscape is challenging, with letters of credit (LC) openings down 13% in the first two months of the fiscal year 2024-25, indicating a slowdown in trade activities [e7fbedef]. Private sector credit growth has also slowed to 9.84%, raising alarms among economists and business leaders alike [e7fbedef]. Ahsan H Mansur, an economist, has noted that the Bangladesh Bank raised the repo rate to 9.5% following the establishment of an interim government, a move aimed at curbing inflation but which has also raised borrowing costs for businesses [e7fbedef].
Small and medium-sized enterprises (SMEs) are particularly feeling the pinch, grappling with a liquidity crisis that threatens their operational viability [e7fbedef]. Business leaders have expressed concerns over profitability and the potential deterrent effect on foreign investment, as high interest rates make it increasingly difficult to finance new projects and expansions [e7fbedef]. The Bangladesh Bank has indicated that interest rates will continue to rise until inflation is brought under control, suggesting a prolonged period of financial strain for businesses [e7fbedef].
In contrast, Bangladesh Bank recently reported a record profit of Tk 40,000 crore for the fiscal year 2023-24, with net profits reaching Tk 15,100 crore, which has been partially attributed to its sales of US dollars and short-term lending practices [0b6a5a2d]. However, this financial success stands in stark contrast to the challenges faced by the private sector, highlighting a disconnect between banking profits and real economic growth [0b6a5a2d]. As the country navigates these economic challenges, the balance between controlling inflation and fostering a conducive environment for business investment remains critical [0b6a5a2d].
