Bangladesh garment owners seek more time to repay pandemic loans

Despite an uptick in exports, garment factory owners have asked for more time to repay the loans disbursed by the government under a stimulus package to help the key sector offset the economic fallout from the global coronavirus pandemic.

Abdur Rahim Badal>> , Chief Economic Correspondentbdnews24.com
Published : 20 Sept 2020, 06:10 AM
Updated : 20 Sept 2020, 06:18 AM

The owners took out loans of Tk 105 billion at a minimal interest rate from the government fund to pay worker salaries and allowances for the months of April to July.

The scheme requires factories to clear the debts in 18 equal instalments over two years, with a grace period of six months. But now the owners have applied for five years' time to pay back the loans.

Rubana Huq, president of garment exporters' lobby Bangladesh Garment Manufacturers and Exporters Association, wrote to Commerce Minister Tipu Munshi about the demand on Sept 9.

The BGMEA chief solicited 'cooperation' and 'compassion' from the commerce minister, who himself is a former president of the lobby.

Photo: Asif Mahmud Ove (File Photo)

"The garment sector is passing through a tough time due to the COVID-19 pandemic. That is why we asked for five years' time to repay the loans," BGMEA Secretary Abdur Razzak told bdnews24.com.

But Prime Minister Sheikh Hasina will have the final say on the matter, according to Finance Minister AHM Mustafa Kamal.

The BGMEA's letter highlighted the travails of the industry during the pandemic and said it will take eight to nine months to receive the payment for recent and past work orders placed by the buyers. Therefore, it will be 'nearly impossible' to repay the loan within the stipulated time, it argued.

The government announced 20 incentive packages worth Tk 1.1 trillion until now, to combat the COVID-19 pandemic and reverse the economic slowdown it caused.

The first stimulus of Tk 50 billion was given to the export-oriented garment sector to pay their workers during the crisis. The package for the months of April to June was announced on Apr 1 as the owners took out the loan with a 2 percent service charge from commercial banks and paid their staff.

The fund was empty before the repayments were made for June, prompting the government to add another Tk 25 billion to it.

But the BGMEA and BKMEA appealed for more financial support from the government to pay their workers from July to September.

File Photo

The government arranged a loan for the owners to clear the salaries for July from the Tk 300 billion fund created for the industries and services sector. It later injected another Tk 30 billion into the fund.

On Jul 24, Bangladesh Bank wrote to the chief executives of banks to provide loans to the owners to pay their workers. The owners could take out a final loan for paying the salaries due in July, the letter said. Only those who took out loans to pay June's salaries could apply for a loan under the programme.

But the interest rate was set at 9 percent, including a government subsidy of 4.5 percent, with the borrowers responsible for paying off the rest.

On Aug 20, the garment factory owners once again sought a loan to pay the workers' salaries for August, September and October. But this time, the government did not respond.

"Like BGMEA, we believe that our demand is legitimate," Mohammad Hatem, vice president of BKMEA, told bdnews24.com about the appeal for a time extension to repay loans.

The buyers began to cancel or defer the work orders when the coronavirus pandemic upended the apparel market in the United States and Europe. Also, Bangladesh imposed a lockdown in a bid to curb the spread of the coronavirus in the country, shutting all factories on Mar 26.

According to the Export Promotion Bureau, garment exports slumped to $360 million in April due to the pandemic. It subsequently climbed to $1.23 billion in May and then $2.25 billion in June. Garment exports surged to $3.24 billion in July, the first month of the fiscal year, and $2.46 billion in August.

The readymade garment sector saw no growth in July and August, but the income still surpassed the target by 2 percent.