Potential Boost for Local Yarn Apparel Exports

Bangladesh’s export-oriented garment industry may soon receive a significant policy stimulus, as the government considers sharply increasing cash incentives for apparel manufactured with locally produced yarn. The proposed move would raise the existing cash support rate from 1.5 per cent to as much as 5 per cent, following preliminary consensus between the Ministry of Finance and leading industry bodies. If approved, the additional 3.5 percentage points would represent one of the most substantial short-term incentive enhancements for the sector in recent years.

The proposal emerged from a high-level meeting held last Tuesday at the Ministry of Finance, attended by Finance Secretary Khairuzzaman Mozumder, Commerce Secretary Mahbubur Rahman, and representatives of the Bangladesh Textile Mills Association (BTMA), the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). Discussions focused on domestic and global market conditions, export performance trends, rising production costs, and the constraints Bangladesh will face in providing direct export subsidies after its graduation from least developed country (LDC) status.

Industry stakeholders argue that enhanced incentives tied specifically to local yarn usage would create a dual benefit. On one hand, apparel exporters would gain some relief from narrowing margins amid declining orders and intensifying competition, particularly in the European Union market. On the other, domestic spinning mills—many of which are struggling with unsold inventories and weak demand—would see a revival in orders, strengthening backward linkages within the textile value chain.

Before taking a final decision, the government has constituted a ten-member committee comprising senior officials from the finance and commerce ministries alongside representatives from key textile and apparel associations. The committee has been instructed to submit its recommendations within ten working days, after which the Ministry of Finance will decide whether to formally approve the enhanced cash assistance.

In a separate meeting on the same day, the finance secretary assured BGMEA leaders that Tk 25 billion of overdue cash incentives would be released within a week. At present, total outstanding cash support claims in the garment sector stand at approximately Tk 60 billion. The partial release is expected to ease liquidity pressures faced by exporters, many of whom are grappling with higher borrowing costs and production disruptions linked to elections and Eid holidays.

BKMEA Executive President Fazle Shamim Ehsan cautioned that once Bangladesh exits the LDC category, direct cash incentives will become increasingly difficult to justify under global trade rules. He stressed that with barely seven months remaining before graduation, swift implementation of the proposed support could help cushion export declines and reduce excess yarn stocks at local mills. However, disagreements persist over the proposed withdrawal of duty-bond facilities for imported yarn, an issue that continues to divide industry groups.

BTMA Director Khorshed Alam warned that while new incentives may offer temporary relief, lasting solutions require stricter enforcement against illegal yarn imports. He alleged that forged certificates and false declarations, sometimes facilitated by corrupt customs officials, are allowing large volumes of foreign yarn to enter the country, undercutting domestic producers.

Meanwhile, BGMEA has announced plans to demand the resignation of the commerce secretary, blaming unilateral consultations for recent tensions between textile and apparel stakeholders over yarn imports and duty-bond policies.

Amid shrinking export orders, rising global competition, and mounting operational challenges, industry leaders continue to press for low-interest financing and faster disbursement of incentives. Many believe that timely implementation of the proposed cash support could provide much-needed momentum to both the spinning and garment sectors, at least in the short term.

Indicative Cash Incentive Scenario

Overall, policymakers and industry participants alike see the proposed incentive enhancement as a critical, time-sensitive intervention to stabilise Bangladesh’s apparel export ecosystem during a period of transition and uncertainty.