Bangladesh s RMG Sector Sees Modest Growth Amid Global Headwinds

Bangladesh’s ready-made garment (RMG) industry, the backbone of the country’s export economy, recorded a 4.2% year-on-year increase in export earnings for the first quarter of the fiscal year 2024-25, according to data released by the Export Promotion Bureau (EPB) on Tuesday. The sector earned $12.3 billion between July and September, up from $11.8 billion in the same period last year, signaling resilience despite persistent global economic challenges.

Industry insiders attribute the growth to a slight uptick in orders from European and North American buyers, who are diversifying sourcing away from China amid geopolitical tensions. However, the pace remains below the 8% target set by the government, as high inflation in key markets and a slowdown in global retail demand continue to weigh on the sector. Bangladesh is the world’s second-largest apparel exporter after China, and the RMG sector accounts for over 80% of the country’s total exports.

“The growth is encouraging but not enough to meet our annual target. We are seeing cautious buying from retailers who are still dealing with inventory gluts,” said Mohammad Ali, a director at the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). He noted that factory owners are also grappling with rising energy costs and higher wages following a minimum wage hike for garment workers earlier this year.

In a separate development, Bangladesh’s central bank announced a series of policy measures aimed at stabilizing the foreign exchange market. The Bangladesh Bank on Monday increased the interest rate on the Export Development Fund (EDF) by 50 basis points to 4.5%, effective immediately. The move is intended to curb demand for foreign currency and ease pressure on the taka, which has depreciated by nearly 7% against the US dollar over the past 12 months. The central bank also tightened import financing rules for non-essential goods, including luxury vehicles and electronics, to conserve foreign reserves.

Economists say the measures are necessary but could further slow economic growth. “The central bank is walking a tightrope. Tightening monetary policy will help stabilize the currency but may dampen investment and consumption,” said Dr. Zahid Hussain, a former lead economist at the World Bank’s Dhaka office. Bangladesh’s foreign reserves stood at $24.8 billion as of October 15, enough to cover around 4.5 months of imports, down from six months a year ago.

On the international front, Bangladesh’s trade ties with India received a boost this week as the two countries signed a memorandum of understanding (MoU) to streamline customs procedures at the Petrapole-Benapole border, the busiest land port between them. The agreement, signed during a virtual meeting between Bangladeshi and Indian commerce officials, aims to reduce cargo clearance times from an average of four days to under 24 hours by digitizing documentation and introducing single-window processing. Bilateral trade between Bangladesh and India reached $15.9 billion in the fiscal year 2023-24, with Bangladesh’s exports to India growing by 12% to $2.2 billion.

Meanwhile, the Dhaka Stock Exchange (DSE) saw a mixed week, with the benchmark DSEX index closing at 5,423 points on Thursday, down 0.3% from the previous week. The decline was driven by selling pressure in textile and pharmaceutical stocks, though bank and energy shares posted modest gains. Market analysts say investor sentiment remains cautious ahead of the national budget announcement scheduled for November 15, which is expected to include new tax measures to boost revenue collection.

In the energy sector, the government approved a proposal to import 500 megawatts of electricity from Nepal through India, a move that could help alleviate chronic power shortages during the peak summer months. The electricity is expected to be transmitted via Indian grid infrastructure, with commercial operations beginning by mid-2025. Bangladesh currently imports about 1,200 MW from India, and the additional supply would bring total imports to 1,700 MW, helping to bridge a domestic generation gap of around 2,000 MW.

Overall, the business landscape in Bangladesh remains a mix of cautious optimism and persistent challenges. While the RMG sector shows signs of recovery, currency volatility and inflationary pressures continue to test the resilience of the economy. Policymakers are likely to maintain a tight monetary stance in the coming months, even as they seek to attract foreign investment in sectors like renewable energy and technology to diversify the export base.