Industrial production slowest in 4 years as imports slump

The import of capital machinery, raw materials, and intermediate goods has seen a significant decline in the current fiscal year, leading to adverse effects on both industrial production and employment levels in the country.

Data released by the Bangladesh Bureau of Statistics (BBS) on Monday revealed a marked slowdown in factory output growth, with estimates showing a drop to a mere 6.66% for FY24.

This is a notable decline from the 8.37% growth recorded last year and a sharp fall from the 9.86% and 10.29% growth rates observed in the two preceding fiscal years.

According to Bangladesh Bank data, overall imports fell by 15.5% to $49.22 billion in the July-March period of the current fiscal year, compared to $58.27 billion in the equivalent period the year before.

Ahsan H Mansur, executive director of the Policy Research Institute, told The Business Standard, "Even though the prices of most products have fallen in the world market, Bangladesh is still not able to finance imports due to various internal factors, mainly the dollar crisis.

"Besides, there is pressure to maintain foreign exchange reserves. There is also pressure to pay dues. As a result, imports have decreased. This has reduced production. Investment is not increasing. Overall growth will slow down."

The former economist of the International Monetary Fund said that despite the decrease in imports, foreign exchange reserves cannot be maintained. The only solution is to increase the inflow of foreign exchange. Therefore, exports, remittances, and budget support should be increased.

"The financial account should be positive. To make this happen, the exchange rate of the dollar should be stable. If investment stagnates like this, employment will not be created, which will only create frustration for the vast workforce of the country," he added.

Central bank data show that the import of industrial intermediate goods dropped by 14.2% to $29.66 billion in July-March, down from $34.55 billion a year ago. Intermediate goods are typically used in the production of finished products in industry.

The import of other intermediate goods decreased by 20.2%. Clinker imports were worth $715 million in the first nine months of this fiscal year, compared to the previous year's $927 million.

Similarly, imports of oil seeds dropped by 10.1%, chemicals by 7.2%, fertiliser by 47.4%, plastics and rubber by 13.8%, and iron, steel, and other base metals by 8.7%.

Imports of the country's main export item, apparel-related goods, fell by 9.1% year-on-year in the first nine months of FY24. A breakdown shows that raw cotton imports decreased by 24.9% to $2.58 billion from $3.44 billion a year ago.

Additionally, yarn imports dropped by 10.2%, textiles and articles thereof by 8.2%, staple fibre by 6.1%, and dyeing and tanning materials by 3.1%.

Jahangir Alamin, former president of the Bangladesh Textile Mills Association, told TBS that the main reason for the low import of raw cotton and yarn is that textile mills are not getting electricity and gas as per demand.

"It has reduced production. Besides, demand is relatively low. Imports have also decreased as many factories have earlier stocks of cotton or yarn," he said. "If an uninterrupted supply of gas and electricity is not ensured, production will not increase."

The import situation for capital goods is also quite dire, with inbound shipments falling by 22.5% to $8.07 billion in the period from July to March, compared to $10.41 billion a year ago.

Within this category, the import of capital machinery decreased by 23.7%, dropping to $2.85 billion from $3.73 billion in the same period of the previous fiscal year. Imports of other capital goods fell by 21.8%.

Regarding the decrease in the import of iron, steel, and other base metals, Tapan Sengupta, deputy managing director of BSRM Group, said demand for such products has declined as development activities in the country are slower than before.

"Due to this, the production of companies has decreased, and the import of raw materials has also declined," he added.

Biswajit Saha, director at City Group, the country's top local consumer goods importer, told TBS that big importers are being discouraged from importing due to the dollar crisis, the high value of the dollar, and some products entering the market illegally.

Another importer said banks are not extending credit limits to most importers. Due to the increase in the dollar rate, the same amount of goods cannot be imported with the limited dollars available under the old limits.

Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue, told TBS that this is the result of the approach taken by the government or the Bangladesh Bank to control the import of foreign exchange reserves for the last two years.

"Demand for capital goods and raw materials also fell due to uncertainty among investors about overall conditions, including volatility in exchange rates. Small importers faced losses and reduced imports. On the other hand, imports have decreased due to relatively low demand for exports," he added.

The economist said another reason for the decrease in imports is under-invoicing. The value of the dollar has increased, but there has been no change in the tariff rate; the same product is more expensive than before and also incurs higher duties. Under-invoicing is done to avoid extra duty.

He said, "Owing to the decrease in imports, there is a negative impact on investment, production capacity, employment, and GDP growth."

According to the workforce survey data for January-March 2024 published by BBS, the number of unemployed people in the country is 25.9 lakh, which marks an increase from 24.7 lakh in December.