BB report: No momentum yet in beginning of FY27

Capital machinery and industrial raw materials serve as crucial indicators of future industrial activity.

Whether investment in a country is rising or falling can be understood from the flow of import growth or contraction for these two inputs over a specific period.

Generally, when bank and financial sector rules, policies, and regulations are industry-friendly, imports of capital machinery and industrial raw materials increase, driving future investment activities.

Everything currently appears favorable on paper: loan interest rates are falling, liquidity is sufficient, and import policy has been relaxed.

Naturally, private investment momentum was expected to increase compared to earlier periods, but reality indicates otherwise.

In July, the first month of the current FY27, capital machinery imports fell by 8.60%.

During the same period, industrial raw material imports dropped by 6.92%.

This indicates that entrepreneurs' interest in setting up new factories, expanding production capacity, or acquiring new machinery has declined compared to before.

Updated data from Bangladesh Bank shows that in July of this year, Letter of Credit (LC) settlements for capital machinery imports stood at $149.5 million, compared to $163.5 million during the same period last year—a decline of $14 million.

Meanwhile, LC settlements for industrial raw material imports reached $1.9377 billion during the same period, down from $2.0817 billion in July 2025.

This represents a $144 million decrease in raw material import settlements year-on-year.

Asked why imports of capital machinery and raw materials are declining despite favorable conditions, economists and business leaders cited the country's recent situation.

The stagnation in investment can no longer be explained solely by high interest rates or liquidity shortages.

A deficit in business confidence, gas and electricity supply uncertainties, rising production costs, sluggish demand, policy instability, and ongoing uncertainties serve as major hurdles.

According to Bangladesh Bank data, the average bank lending rate dropped to 11.81% in July, down from 12.14% a year earlier.

Interest rates on large industrial loans fell to 12.05% from 12.49% a year ago.

Agricultural loan rates also declined to 11.64%, down from 11.69% last year.

Shams Mahmud, president of the Bangladesh-Thai Chamber of Commerce and Industry, noted that entrepreneurs are not just looking at interest rates. They are considering uninterrupted gas and power supply, production costs, stable market demand, and the feasibility of returns on investment.

Last July, Bangladesh Bank lowered the policy interest rate by 50 basis points to 9.50%.

Additionally, it initiated the implementation of a Tk60,000 crore incentive package to boost investment. Despite these measures, the dry spell in private investment persists.

Dr Zahid Hussain, former lead economist at the World Bank's Dhaka office, emphasized that increasing the money supply alone will not boost investment. Policy confidence and stability are essential, alongside manageable production costs, reliable energy supplies, efficient infrastructure, and access to new markets.

Despite excess liquidity in banks, credit growth to the private sector remains weak, signaling depressed demand for productive investment loans, he added.