May 6, 2025 1:29 am
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Declining Loan Flow Amid Instability: Is Bangladesh’s Economy Heading Toward Crisis?

Shahnewaz Babul

Private sector loan growth in Bangladesh has been steadily declining for four consecutive months, hitting a 41-month low in October. Bangladesh Bank’s recent report attributes this trend to political instability following the government transition, along with diminishing confidence among investors.
The report, released on Thursday, reveals that loan growth in October dropped to 8.30%, the lowest since May 2021, when it was 7.55% during the pandemic-induced lockdown. The downward trend began in July, coinciding with the onset of student protests, and continued each subsequent month.
In July, loan growth stood at 10.13%, but it fell to 9.86% in August, the month the Awami League government was overthrown. By September, it had further declined to 9.20%, marking the lowest level in three years.
Challenges Under the New Government
The political transition has brought several challenges, including frequent labor unrest, deteriorating law and order, and increasing inflation. These factors, combined with rising interest rates, fuel and power shortages, and legal actions against business leaders, have discouraged entrepreneurs from making new investments.
Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), explained the difficulties faced by businesses: “Given the country’s current situation, there’s no scope for new investments. Business owners, especially in the garment sector, are struggling just to survive.”
Hatem highlighted the lack of discipline in the banking sector, where loan interest rates have soared to 15%. “This significantly raises financing costs,” he said. “On top of that, gas shortages are forcing factory operations to shut down. The available gas pressure is simply insufficient for production.”
Even industries that remain operational are not faring well. For the past four months, major industrial hubs like Gazipur, Savar, and Ashulia have witnessed worker protests over unpaid wages, often leading to road blockades.
Worker Protests and Investor Confidence
Ongoing wage disputes are making it increasingly difficult for businesses to sustain operations. Mohammad Hatem warned that prolonged labor unrest could deter foreign investors. “No one invests in an unstable environment,” he said. “This issue needs immediate resolution.”
Bank Asia’s Managing Director, Sohel RK Hussain, echoed similar concerns, noting that investment decisions are heavily influenced by domestic demand, global market conditions, and political stability.
Economic Implications of Declining Loan Flow
Economists caution that reduced private sector loan flows directly affect investment levels. A decrease in investment slows down the establishment of new industries and the expansion of existing ones, ultimately reducing job creation.
Business leaders emphasize that the rising cost of production, fueled by gas shortages and high interest rates, is further deterring potential investors.
High Interest Rates: A Barrier to Growth
During a recent dialogue with top business leaders, concerns were raised about rising interest rates, energy shortages, and policy uncertainties. Participants questioned, “Who will take the initiative to address these issues?”
Anwar-ul-Alam Chowdhury Parvez, President of the Bangladesh Chamber of Industries (BCI), remarked, “No one is comfortable in the current situation. Inflation has driven up production costs, gas shortages are disrupting operations, and interest rates continue to climb. Under such uncertainty, no one will risk investing.”
Parvez also dismissed claims that businesspeople excessively benefited under the previous government. “The idea that everyone gained massively is baseless. Only 1% did,” he said.
The Cycle of Instability
Former FBCCI Vice President Mir Nasir Hossain highlighted the unsustainable nature of current interest rates for businesses. “If businesses are struggling to sustain existing investments, how can they consider new ones?” he questioned.
Abdul Awal Mintoo, former FBCCI President and BNP Vice Chairman, criticized the lack of structural reforms and governance. “Who will bell the cat? No one in the government appears willing to take responsibility,” he said.
Mintoo emphasized that political stability and social cohesion are essential for creating a conducive investment climate. “Business and investment drive employment. However, businesspeople are often the most persecuted. Without social capital and stability, investments cannot flourish,” he added.
Bangladesh’s economic challenges—political instability, rising production costs, and inconsistent policies—are creating a hostile environment for both local and foreign investors. Restoring stability and confidence is essential to break the cycle of low investment, job losses, and social unrest.

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