Concerns Over Economic Crisis During Ramadan

Economic and business analysts have raised concerns that the country could face significant challenges during the upcoming Ramadan. They point to political instability and reduced imports due to various complications, which have created uncertainty around meeting the increased consumer demand. Experts suggest implementing pragmatic measures to address these issues and encourage entrepreneurs to revive economic activity.

Abul Kasem Khan, former president of the Dhaka Chamber of Commerce and Industry (DCCI), stated, "Political changes have impacted every aspect of business, causing discomfort among entrepreneurs. The government must engage more closely with business stakeholders to create a business-friendly environment and establish regular dialogue."

Over recent years, Bangladesh's economy has been sluggish, impacted by several factors. The COVID-19 pandemic, the economic downturn from the Russia-Ukraine war, rising energy costs, and the devaluation of the Bangladeshi Taka against the US dollar have severely disrupted business operations. In addition, limited access to loans, worsened by unprecedented corruption in the banking sector, has prevented many entrepreneurs from securing the necessary funding. Large investments in industries have been delayed due to shortages of gas and electricity, hindering production and the scaling up of food and commodity production to meet rising demand.

Despite political changes following Sheikh Hasina's resignation on August 5, the business environment has not significantly improved. Entrepreneurs and industrialists continue to face pressures such as high-interest loans, energy crises, and issues with law enforcement. These challenges have stalled production recovery, leaving many hesitant to invest further. Instances of factory raids, harassment lawsuits, frozen bank accounts, travel bans, and unfounded allegations have created fear among business owners.

Recent changes to banking loan regulations have exacerbated the situation. Longtime compliant borrowers now struggle under new rules, with even successful companies being labeled as defaulters due to technicalities. For example, if one subsidiary in a business group defaults, the entire group faces restrictions on obtaining new loans, creating bottlenecks, especially in opening Letters of Credit (LCs) for imports.

Businesses importing raw materials through Usance Payable at Sight (UPAS) LCs are also facing difficulties. Under this system, importers are allowed 270 days to pay suppliers after selling processed goods, but the rise in the exchange rate for the US dollar has created complications in meeting payments. Banks are demanding payments at the current exchange rate, causing importers losses of up to 20%. To ease the burden, businesses have called for converting UPAS LCs into long-term loans. Without such measures, many LCs could default, potentially increasing non-performing loans in the sector.

The issues with UPAS LCs and losses from previously sold products have discouraged many from importing new raw materials. This uncertainty in supply chains has raised concerns about potential shortages of essential commodities during Ramadan, with the Bangladesh Trade and Tariff Commission (BTTC) issuing warnings.

BTTC reports show a significant decline in imports of essential commodities from July to October 2024 compared to the previous year. For example:

• Crude sugar imports fell by 367,591 tons.
• Palm oil LC openings dropped by 77,930 tons, with actual imports down by 174,386 tons.
• Soybean seed imports decreased by nearly 33,000 tons.

These reductions have heightened the risk of supply shortages during Ramadan unless immediate action is taken.

To address these challenges, the Tariff Commission has suggested reducing interest rates on loans for importing essentials and ensuring a stable supply of gas and electricity to mills processing edible oil, sugar, and lentils. However, many businesses with large investments in industries are unable to operate due to gas shortages. For example, a major soybean oil mill with a daily production capacity of 1,000 metric tons remains closed, despite fulfilling its payment obligations to the gas authority.

Rising gas prices, which have tripled, have significantly increased production costs. Many industries, including ready-made garments, have closed, leaving businesses unable to repay loans or maintain operations.

Entrepreneurs are struggling to keep their businesses running in this challenging environment. If the situation does not improve soon, it could severely impact the broader economy. Businesses unable to operate normally risk causing widespread unemployment, while reduced activity could further diminish government revenue.

Professor Moinul Islam, former president of the Bangladesh Economic Association, commented, "Encouraging investment is crucial to revitalizing the economy, but this will take time. The previous government's mismanagement and corruption have severely damaged the economy, with billions of dollars siphoned out of the country. We must endure the consequences of these actions for a while longer, as there is no quick fix."