The Bangladesh government’s decision to reduce cash incentives for exports across 43 products by 50 per cent will significantly impact the garments and textiles industry as it receives 65 per cent of these incentives, as per the Finance Ministry. This policy shift is part of a broader strategy to recalibrate the country's export incentive framework in preparation for LDC graduation in 2026.
Historically, the textile and garment industry has benefited from substantial government support to enhance its global competitiveness. However, the new policy reduces the special incentive rate for the readymade garment sector from 0.5 per cent to 0.3 per cent, as outlined in a central bank circular issued on June 30. This adjustment takes effect from July 1, 2024, and remains valid until June 30, 2025. The incentive for crust leather is the only one to see an increase, rising from 0 per cent to 6 per cent.
Expressing concern regarding the move, Mohammad Hatem, Executive President, BKMEA, highlightsthe increase in costs due to higher gas and electricity prices, rising workers' wages, and elevated interest rates on bank loans have already strained the industry. The government should reduce the incentives in 2025 or 2-2026, he suggests.
Faruque Hassan, former President, Bangladesh Garment Manufacturers and Exporters Association (BGMEA), points out, many orders were taken based on the previous incentive rate, leading to financial losses under the new policy. Industry leaders argue that sudden reductions without alternative support measures will make it challenging for the sector to survive. They urge the government to provide policy benefits similar to those in India, China, and Vietnam to maintain competitiveness.
Professor MustafizurRahman, Fellow, Centre for Policy Dialogue, adds, exporters have benefited significantly from the devaluation of the taka against the dollar, with the exchange rate increasing from Tk86 to Tk118 per dollar. Despite this, traders face rising costs, with loan interest rates climbing from 9 per cent to 14 per cent over the past year. Rahmanemphasises on the need for alternative support measures if subsidies are reduced, including mitigating high transportation costs and ensuring hassle-free government services for exporters.
