Bangladesh government is considering providing an additional 3.5% cash incentive on garment exports produced with locally manufactured yarn, in a move aimed at supporting domestic spinning mills and easing pressure on Bangladesh’s textile value chain.
According to industry sources, the proposal received initial consent in principle from the Ministry of Finance at a recent meeting attended by Finance Secretary Khairuzzaman Mozumder, Commerce Secretary Mahbubur Rahman, and representatives of the Bangladesh Textile Mills Association (BTMA) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
Currently, eligible garment exports receive a 1.5% cash incentive. If the proposal is approved, the total incentive would rise to 5% for exporters using locally produced yarn. Sector stakeholders argue that the measure would encourage higher domestic yarn consumption at a time when spinning mills are grappling with falling orders, rising inventories, and liquidity stress.
Review committee formed
Before taking a final decision, the government has formed a 10-member review committee to examine domestic and global market conditions, fiscal implications, and sectoral impact. The committee includes representatives from the Ministries of Finance and Commerce, BTMA, Bangladesh Garment Manufacturers and Exporters Association (BGMEA), and BKMEA. It is expected to submit its recommendations within 10 working days.
Cash incentive backlog to be released
On the same day, during a separate meeting with BGMEA leaders, the finance secretary said the government plans to release Tk 2,500 crore in outstanding cash incentives for the garment sector within the coming week. According to industry estimates, the total backlog of unpaid incentives stands at around Tk 6,000 crore, which has significantly strained exporters’ cash flow.
Disagreements over bonded facilities
While there is broad support for the proposed incentive increase, differences remain over BTMA’s demand to withdraw bonded warehouse facilities for imported yarn, particularly in the 10–30 count range. Garment exporters argue that any abrupt withdrawal could disrupt production and competitiveness.
Due to these unresolved issues, the matter has been referred to the committee, and a final resolution is now considered unlikely in the immediate term.
Concerns over illegal yarn imports
A BTMA director said the proposed incentive could provide temporary relief to the textile sector but warned that illegal yarn imports from neighboring countries, often through false declarations and forged documents, continue to severely undermine local mills. He added that such imports typically increase ahead of Eid, and without stronger enforcement, structural challenges would persist.
Export slowdown and financing concerns
Meanwhile, a BGMEA vice president said recent tensions between textile and garment associations stemmed from policy decisions taken without adequate consultation with yarn-consuming sectors. He also claimed that garment exports have declined for six consecutive months, describing the trend as unprecedented.
BGMEA has urged the government to ensure access to low-interest financing to prevent the closure of small and medium-sized garment factories, warning that prolonged downturns could lead to job losses and capacity erosion across the sector.
