Since the fall of the Awami League government on August 5 last year, Bangladesh’s private sector has been grappling with a severe recession. Project development has slowed to a near standstill, loan disbursements have dried up, and production has halted in many factories. This chain of disruption has not only weakened business confidence but has also deepened the employment crisis, as layoffs across major sectors have surged.At the root of the current stagnation lies a combination of political transition, institutional disruption in the banking system, rising interest rates, and a cautious monetary approach by Bangladesh Bank. 
According to the latest data, the growth of credit to the private sector has dropped to 6.4 percent as of June 2025-the lowest level in over two decades.With Bangladesh Bank preparing to unveil the monetary policy for the first half of the 2025–26 fiscal year (July–December), many business leaders and economists are urging the central bank to prioritize revitalizing the private sector-arguing that doing so is crucial not just for economic recovery, but for social stability as well.Factories Closed, Investment Frozen: The private sector, once seen as a vibrant driver of growth and employment, has taken a sharp downturn since August last year. Factory shutdowns have become a weekly occurrence, particularly in garment, textiles, footwear, and light engineering sectors. In Chittagong alone, over 50 factories have ceased operations in the past seven months. Business leaders attribute these closures to a severe financing crunch and rising uncertainty surrounding political  and economic stability.According to sources at the central bank, more than 1,200 industrial entities have applied to restructure or regularize their existing loans—many of which are now in default. Of these, only around 100 businesses, mainly those considered politically neutral or tied to opposition parties, have been given loan restructuring support. The fate of the remaining 1,100 institutions remains uncertain, further fueling concerns about mass business closures.Experts say that banks have become extremely risk-averse, preferring to invest in government securities such as treasury bills and bonds rather than extend credit to the private sector. In fact, nearly one-fourth of commercial banks have all but suspended new loan disbursements entirely, citing regulatory tightening, liquidity mismatches, and rising loan defaults.Political Upheaval Disrupts Financial Ecosystem: The fall of the previous government has had a ripple effect throughout the business landscape. Many large conglomerates with close ties to the ousted administration have seen their operations disrupted and finances scrutinized. A number of these companies, previously considered too influential to fail, are now facing large-scale defaults and bankruptcy risks.Business insiders say that at least 20 factories from one of the country’s largest industrial groups have ceased operations, leaving nearly 40,000 workers unemployed. These shutdowns were triggered after banks froze credit lines to the group, following an increase in default risk. The group reportedly owes over Tk 50,000 crore to more than 20 financial institutions.Another major conglomerate, previously believed to control over Tk 1.5 lakh crore in credit across several banks, has also scaled down operations significantly. Multiple factories affiliated with this group, including units managed by the next generation of family leadership, are no longer operational. A similar pattern is being observed across multiple business families and groups that were politically aligned with the former government.In addition, Bashundhara Group, another major industrial player, has also reportedly shut down several factories due to lack of liquidity and access to new financing. The group has not made any official statement, but industry sources confirm that retrenchments and production halts are in progress.Employment in Crisis: The closure of factories and suspension of new investments have had a predictable but devastating effect on employment. Tens of thousands of jobs, particularly in the industrial belts of Narayanganj, Savar, Gazipur, and Chittagong, have vanished in the span of months. Many more are feared to be at risk if the credit situation does not improve.”The current recession is hitting the middle and lower-income segments the hardest,” said Dr. Farhana Nizam, senior economist and industrial development analyst at The Daily Industry. “When you close factories, you don’t just lose GDP—you lose livelihoods, social security, and long-term development potential.”She added that the loss of jobs and wages also dampens demand in the economy, creating a vicious cycle of declining investment, sales, and revenue for businesses.Lending Paralysis: Banks Shift Focus to Government Securities: Commercial banks, already burdened by ballooning non-performing loans (NPLs), are now hesitant to lend to the private sector. Instead, they are moving funds into safer investment options—mostly government securities—which offer predictable returns with virtually no risk.The central bank’s own figures confirm this trend. While private sector credit growth stands at just 6.4%, investment in government bills and bonds has surged over 25% in the past year. Bank officials say the choice is straightforward: “Why take on risky private clients when the government is offering attractive yields with guaranteed repayment?”According to Hasan Mahmud Khan, a financial analyst writing for The Daily Industry, “Banks are simply taking the path of least resistance. With so many defaults in the market, there is no incentive to fund new projects unless the borrower has pristine credit history and substantial collateral.”Central Bank’s Dilemma: Inflation vs Growth: Bangladesh Bank is set to announce its monetary policy later this week, but many economists believe the bank is in a tight corner. It must balance two critical but conflicting objectives: controlling inflation and stimulating private sector growth.”The monetary authorities have been far too focused on inflation management, ignoring the deteriorating health of the private sector,” said Dr. Mustafa K. Mujeri, former chief economist of Bangladesh Bank, in a statement to The Daily Industry. “While inflation control is important, you cannot starve the private sector of credit without damaging long-term economic growth.”He urged the central bank to take urgent measures to restore liquidity and offer policy incentives to troubled businesses. “Many viable companies are being pushed into default due to regulatory indifference and systemic inertia,” he warned.Interest Rates and Defaulted Loans: A Double Blow: Adding to the woes, bank interest rates have been rising steadily over the past nine months. The central bank’s decision to raise policy rates in response to inflationary pressures has translated into higher borrowing costs across the board. 
For businesses already facing falling revenues, rising debt servicing costs are proving unsustainable.”Interest rates on working capital loans have jumped from 9–10% to over 14–15% within a year,” said Sajjad Hossain, an SME business owner in Dhaka. “It’s impossible to stay afloat when your costs go up and your sales are down.”Moreover, the total volume of defaulted loans has risen dramatically, creating a further drag on the banking sector. As businesses collapse or delay payments, banks are forced to make larger provisions, shrinking their capital base and reducing room for future lending.Calls for Immediate Policy Intervention: Stakeholders across sectors are calling for targeted policy interventions to rescue the private sector from collapse. The most commonly proposed measures include: Loan restructuring facilities for viable but distressed businesses, Special interest rate caps for export and manufacturing sectors, Targeted stimulus packages to revive employment and production, Increased transparency and oversight in the disbursement of credit. 
Public-private dialogue to rebuild business confidence: “We are not asking for handouts,” said Mizanur Rahman, a member of the Bangladesh Chamber of Industries, speaking to The Daily Industry. “We are asking for fair access to capital and a policy environment that does not punish the private sector for systemic failures.”Government Caught in Transition: The interim government, while promising reforms, is still navigating political instability and economic fallout. Officials claim that major irregularities in the banking sector have been identified and curtailed. However, restoring public and business trust will take time.Internal reports suggest that over Tk 3 lakh crore in defaulted loans are now under review. While efforts to recover misappropriated funds and prosecute willful defaulters are ongoing, the pace of resolution has been slower than expected.Looking Ahead: Critical Months Ahead: With investment frozen, employment dwindling, and credit in decline, the road to recovery for Bangladesh’s private sector appears steep. The monetary policy decision later this week will be closely watched as a potential indicator of the government’s seriousness in addressing the crisis.Experts stress that unless immediate, coordinated steps are taken to reinvigorate private sector activity, the country risks prolonged economic stagnation.”The strength of an economy lies in its private sector,” said Dr. Afsana Rahmat, professor of development economics and contributing columnist to The Daily Industry. “Without decisive action, we could lose years of progress in just a few months.”