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Saturday, July 13, 2024

RMG fears rise in costs as export incentives further cut from July 1

Apparel sector that is the single largest export earner and also the biggest beneficiary of generous export support is going to lose the most as incentives for all export items have been reduced for the second time in five months.

The government states that it is beginning to prepare the private sector for LDC graduation in 2026. According to a central bank circular issued on 30 June, the special incentive for the readymade garment sector – the most incentivised sector in terms of amount in the economy – has been cut from 0.5 percent to 0.3 percent.

Apparel sector does not see the incentive cut as a good decision during the current crisis period, despite having more time before graduation from LDC status. According to them, exports will decrease in the coming days due to the incentive cut in two phases.

The circular, which takes effect from today and will remain valid until 30 June 2025, however raised the incentive for crust leather from 0 percent to 6 percent, making it the only product to see an increase in incentive.

A senior central bank official said the government spent around Tk8,000 crore on incentives in the fiscal 2022-23, which is expected to fall in FY24 due to the reduction in the incentive rate. Additionally, incentives for venturing into new markets have been reduced by 1 percentage point to 2 percent. This reduction applies to various sectors, including jute and jute goods, leather and leather products, frozen fish, agro products, and more.

According to the Bangladesh Bank circular, the government has been providing cash incentives for 43 export items. Finance ministry data show that a substantial 65 percent of these cash incentives primarily benefit the garments and textiles industry.

Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said it is not the time to cut incentives and the decision will hurt domestic spinning mills He said if the incentive is given directly on repatriated export earnings, our harassment would be reduced to some extent.

Exporters said the incentives could have been reduced in 2025 or 2026 instead. The fear that exports will decrease due to the reduction of incentives at a time when gas and electricity prices have gone up, workers’ wages have increased, and the interest rates on bank loans have also risen.

Faruque Hassan, former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), now Bangladesh would lose export competitiveness. They would suffer losses on orders accepted on the previous incentive rates.

Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, suggested that incentives for LDC graduation should be reduced, and businessmen need to acknowledge the reality. Businessmen must confront the challenges they are facing, Rahman stressed.

The circular mentioned that as per the WTO Rules, these cash incentives are considered as Subsidies Contingent upon Export Performance. According to the Agreement on Subsidies and Countervailing Measures (ASCM), no subsidy/cash incentives will be allowed after graduation from the LDC status, it says

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