News / Uproar as Bangladesh government cuts apparel subsidies

02/02/2024

Bangladeshi apparel factory owners fear an economic catastrophe, following the government’s decision to withdraw cash incentives for five garments items which account for 55% of the industry’s total exports.

In addition, the rates of cash incentives in the case of other apparel items have been halved from 1% to 0.5%, effective from January 1, 2024.

The government has also lessened subsidies for other export items too, ahead of Bangladesh’s scheduled graduation from least developed country (LDC) status to developing country status, in October 2026.

Bangladesh provides cash incentives against exports of 43 types of products to make them more competitive in the international market. They range from between 1% and 20% of the export price.

Apparel, being the top export item, is also the top beneficiary of cash incentives, which, together with low cost labour, has turned Bangladesh into the second highest exporter of apparel worldwide.

As a developing nation, Bangladesh would not be allowed to provide incentives, and so has begun lowering cash incentives in phases to avoid shock, a Bangladesh Bank official explained.

Shahidullah Azim, vice president, Bangladesh Garment Manufacturers & Exporters Association (BGMEA), estimates that exporters will lose some $450m because of the withdrawal of incentives from five basic apparel items.

The loss will be more if entire export items are taken into consideration, he said.

“The incentives withdrawal will be disastrous for the sector,” he told The Loadstar.

The BGMEA will appeal to the Prime Minister, if necessary, for reconsideration of the decision, he said.

Jasim Uddin, former president, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) said the cash incentives has been withdrawn or lessened in many sectors, at a time when orders have dropped significantly from major markets.

He suggested that if cash incentives cannot be given directly, the government could instead incentivise exports by providing power and energy at low cost.

Otherwise, he said, “Bangladeshi export items will lose competitiveness severely”.