The central bank has twice reduced the cash incentive rates on clothes exports made with local yarn over the past six months, lowering the rates from 4% to 1.5%, based on the incorrect data by Export Promotion Bureau (EPB).
Business leaders are urging the government to restore the rates and consider alternative policies, arguing that the decision was based on inaccurate information from EPB.
The Bangladesh Textile Mills Association (BTMA) held a press conference on Saturday in the capital, and the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) along with the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) have scheduled a joint press conference for Sunday in Dhaka.
During the BTMA press conference, President Mohammad Ali Khokon said the EPB provided fabricated export information, leading the government to make misguided policy decisions. He stated: “We believe the EPB’s actions are part of a conspiracy, and our industries are suffering because of it.”
Khokon also mentioned that when they questioned the EPB’s data, the central bank Governor, Abdur Rouf Talukder, reprimanded them.
Despite the expectation that the incentives would continue until 2029 to prepare for LDC graduation, the central bank reduced them. According to a circular issued on June 30, the cash incentive for local export-oriented textile mills has been cut from 3% to 1.5%, after already being reduced from 4% six months earlier. The actual incentive rate now stands at 1.2%, calculated at 80% of the Free on Board (FoB) price.
In May, the EPB announced that Bangladesh earned $47.47 billion from exports during the July-April period of FY24, reflecting a year-on-year growth of 3.93%.
However, when the Bangladesh Bank used the BPM-6 method, the figure dropped to around $33.68 billion, suggesting that the EPB may have overstated export earnings by $13.8 billion. During this period, the country experienced a 6.8% year-on-year decline in growth.
The apparel sector earned $29.68 billion during the same period, which is 6.7% lower year-on-year, according to the Bangladesh Bank. The EPB, however, reported that the sector earned $40.49 billion with a 4.97% year-on-year growth.
This downturn comes at a challenging time for Bangladesh, which is dealing with a persistent USD shortage, high inflation, and a new wage structure in the apparel sector, where minimum wages were increased by 56.25% last December. Additionally, production has been cut by 40% due to severe gas and electricity shortages.
BGMEA Vice-President (Finance) Md Nasir Uddin stated: “Since April, gas pressure in industrial areas has dropped to almost zero, and we are facing up to 7-8 hours of load-shedding daily.”
Why are cash incentives still necessary?
The BTMA argues that local textile millers contributed over $27 billion to exports last year, despite competition from Indian textile millers. BTMA President Khokon explained that India, which graduated from LDC status in 2004, still provides subsidies to its textile and RMG sectors to boost exports. Indian textile millers can export yarn at a profit. In contrast, Bangladeshi millers have to import cotton to produce yarn, saving billions of USD annually by meeting 80% of knit and 45% of woven fabric demand.
Khokon emphasized that strong backward linkage is a major condition for LDC graduation. Without continued incentives, industries will struggle, especially given the lack of gas and electricity and high bank rates. He called on the government to maintain cash incentives and develop alternative policies before 2029.
Khokon also urged the NBR chairman to look at how other countries address such issues, noting that many leading apparel industries do not produce cotton. Recently, NBR Chairman Abu Hena Md Rahmatul Muneem stated that since Bangladesh does not produce cotton, the government will not continue the duty-free facility to import cotton and make yarn for an extended period.
