Central bank of Bangladesh to set up $500m fund for both general and textile manufacturing

Bangladesh’s central bank will set up $500 million of funding for the country’s manufacturers, the funds will be divided into two parts. One for manufacturing in general and the second at textiles, including export oriented ready made garment factories. This will be an effort to stimulate economic growth, the head of the bank said on Thursday.

Garments are a key foreign-exchange earner for Bangladesh. The country’s low wages and duty-free access to Western markets have helped make it the world’s second-largest apparel exporter after China.

Central bank Governor Atiur Rahman said that two new support windows will be opened. The first is a $300 million World Bank-funded lending window in foreign exchange for manufacturing units and the second is a Bangladesh Bank funded $200 million window for refinancing in foreign exchange to export-oriented manufacturing units in the textiles, apparels and leather sectors.

Atiur said that the funds were aimed at helping the Bangladesh economy grow seven per cent this fiscal year, which ends June 2016. The economy grew 6.5 per cent last fiscal year.

Credit from the domestic banking system for the current fiscal year grew only 10.4 per cent up to May 2015, Atiur said, compared with a projection of 17.4 percent for the entire fiscal year. He blamed inadequate infrastructure, tepid global output growth and political turmoil.

Growth performance would clearly have been better had the economy not faced the disruptions from political unrest. Political conflict early in 2015 left more than 120 people dead, mostly from petrol-bomb attacks on vehicles. The unrest eased in April.

Some analysts say setting high targets for credit expansion is needed to stimulate the economy. Others say pumping in liquidity without repairing infrastructure and addressing other impediments to investment would stoke inflation and encourage unproductive speculation.

Atiur said that they have therefore been taking care in adopting a cautious, restrained monetary stance ensuring adequacy of credit growth but at the same time avoiding undue excessive expansion. This stance is serving their economy well in maintaining inflation moderation and stability on a sustained basis.