Balancing banking reforms and ensuring business survival

The shutdown of garments factories belonging to many prominent conglomerate sends the wrong message to buyers and the international community. Photo: Rajib Dhar

The reform measures in the economy seem to be confined only to the banking and financial sectors so far. The heart of the economy—that is, business itself—appears to have taken a back seat, at least in this regard. The banking sector is undoubtedly key to the economy; it is meant to supply money to the business sectors. Otherwise, it has little role to play.

The central bank aims to establish stability in the macroeconomy, for example, by stabilising the exchange rate, increasing reserves, and controlling the money supply. In light of the damage inflicted upon the financial sector over the past fifteen years, these measures were urgently needed. 

However, the government's approach can best be described as akin to strengthening the superstructure rather than the base structure, though it was supposed to be the other way around. At the very least, these efforts should have progressed in tandem.

The reality is that while the government and the central bank are focused on restoring macroeconomic stability, businesses are bearing the brunt. The closure of factories operated by the Beximco Group, a major garment manufacturer, has led to the devastating loss of employment for 30,000 workers. 

This well-reputed company, known for its high-quality products and efficient operations, supplied garments to global brands. However, the closure of its factories threatens to shift production to competitors such as India and Vietnam. The shutdown of factories belonging to such a prominent conglomerate sends the wrong message to buyers and the international community.

This is not an isolated incident. Many industrial groups, whose owners were complicit with the previous regime, are now facing severe challenges. The S Alam Group, for instance, has already ceased operations at some of its factories, leaving 12,000 employees jobless. Furthermore, another leading company is facing money laundering charges, jeopardising the livelihoods of thousands more. 

Systemic obstacles are often insurmountable for small enterprises. If they are constantly distracted by external issues, their primary business operations will inevitably suffer. Sri Lanka, in its battle against high inflation and a declining economy, facilitated the growth of smaller enterprises, which have already started yielding positive results.

The Gazi Group, once a major employer, has also halted operations. These closures not only cause immense hardship for workers but also threaten to disrupt the country's economy, potentially increasing reliance on imported goods such as tyres.

This situation highlights a critical issue: the disproportionate focus on protecting banks, often at the expense of businesses. I am not suggesting a direct causal relationship between the two, but it appears that the government is disproportionately concerned with the banking and financial sectors. When banks engage in corrupt practices, the government consistently intervenes to safeguard them. This misplaced priority undermines the foundation of Bangladesh's economy.

Businesses are the engines of economic development. Their growth fuels national progress, creates jobs, and improves living standards. By allowing businesses to fail, we are not only harming individual workers but also jeopardising the nation's long-term prosperity. Establishing a business is no easy task, but the closures of businesses do not seem to have captured the attention of policymakers.

The government's efforts to reform the banking sector are a positive step, but comprehensive business reform is equally crucial. New enterprises should not be hindered by bureaucratic obstacles. Large corporations possess established networks and resources to navigate challenges effectively. 

In contrast, systemic obstacles are often insurmountable for small enterprises. If they are constantly distracted by external issues, their primary business operations will inevitably suffer. Sri Lanka, in its battle against high inflation and a declining economy, facilitated the growth of smaller enterprises, which have already started yielding positive results.

We must shift our focus. While it is essential to hold individuals accountable for wrongdoing, the indiscriminate destruction of businesses is unacceptable. Salman F Rahman, the vice-chairman of Beximco, has been implicated in numerous financial crimes. Many citizens may feel that justice would be served if he were punished, but the closure of his factories benefits no one.

The share of industry in our national GDP has risen sharply over the last two decades. Even policies enacted by the previous Awami regime facilitated industrial growth, as testified by industrialists themselves. Governor Ahsan Mansur has stated that the Bangladesh Bank is not closing any business accounts; only those individual accounts are suspected of wrongdoing. Yet we continue to see businesses shutting down.

Political stability is key to a vibrant economy. Since August 2024, that stability and an environment of certainty have been largely absent. No business can thrive under such uncertainty, let alone consider expansion. Simultaneously, the monetary tightening measures implemented by the Bangladesh Bank to control inflation have exacerbated the situation. Financing has become more expensive than ever. 

Business leaders claim that the central bank's new rules regarding defaulted loans are punitive measures against the private sector. These rules are likely to hinder investment, impact employment, and ultimately affect the country's macroeconomic stability. They argue that these factors could lead to an economic crisis in the near future, accompanied by a spike in unemployment.

Amidst all these challenges, Bangladesh is preparing for its graduation from Least Developed Country (LDC) status in 2026. We must create an environment that supports and nurtures businesses, ensuring a level playing field for all. Achieving this requires a balanced approach that prioritises economic growth while upholding the principles of justice and accountability.

Protik Bardhan is a Senior Sub-Editor at Daily Prothom Alo. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.