Daily Advisor

Situation

Bangladesh’s industrial engine is stalling at a speed that threatens employment, exports, and the government’s revenue base. The sector expanded by only 2.86 percent in fiscal year 2025–26, its weakest performance in a decade [The Daily Star, August 4, 2026]. This occurs even as overall GDP grew to 4.14 percent, up from 3.49 percent in the previous year [Bangladesh Bureau of Statistics, August 4, 2026], and against a backdrop where the IMF projects growth of 3.5 percent for the current fiscal year [IMF, August 2026], while the World Bank and Asian Development Bank issued forecasts of 3.9 percent and 3.7 percent respectively in mid-2026 [World Bank, June 2026; ADB, July 2026]. Manufacturing plants across key belts are operating at only 30 to 40 percent of capacity [The Daily Star, August 6, 2026], a level that erodes fixed-cost coverage, loan servicing ability, and formal employment. The slowdown is both a symptom and a cause: energy supply disruptions have crippled output, private sector credit growth has fallen to a 33-year low [The Daily Star, August 4, 2026], and the National Board of Revenue missed its collection target for a tenth consecutive year [The Daily Star, August 4, 2026], leaving the state with little fiscal space to invest in reliability. If left unaddressed, the interplay of energy fragility, demand contraction, and fiscal atrophy will lock the industrial sector into a low-activity equilibrium.

Evidence

The industrial growth figure of 2.86 percent [The Daily Star, August 4, 2026] sits far below the economy-wide expansion, signaling that services and agriculture are carrying aggregate GDP, not manufacturing. Capacity utilization in the range of 30 to 40 percent [The Daily Star, August 6, 2026] means most factories are burning cash. The proximate trigger was a July 21 technical fire at a liquefied natural gas terminal that cut the national gas supply by roughly 450 million cubic feet per day, equating to 17 percent of total supply [Petrobangla / News Reports, August 2026]. Over the subsequent two weeks, factory production across glass, steel, textiles, garments, ceramics, and consumer goods fell by approximately 40 percent [Prothom Alo, August 4, 2026]. Firm-level data illustrate the machinery of disruption: Mitali Fashion’s dyeing section shut for eight days, idling 18 of 30 sewing lines [Prothom Alo, August 4, 2026]; Shasha Denims, which needs 8 pounds per square inch of gas pressure, received only 2 to 3 PSI, leading to ruined dyeing batches, equipment damage, and a shift to diesel generators that raised operating costs by about 20 percent [The Daily Star, August 6, 2026].

Meanwhile, the demand side has collapsed. Private sector credit growth has fallen to a 33-year low [The Daily Star, August 4, 2026], indicating that firms cannot finance working capital or investment. On the fiscal front, the NBR’s decade-long streak of missed targets [The Daily Star, August 4, 2026] is compounded by a tax return filing rate that dropped to 38 percent of Tax Identification Number holders [The Daily Star, August 3, 2026], a multi-year low. This means the formal industrial base, already strained, is contributing less to the exchequer, further shrinking the resources available for gas infrastructure and energy subsidies.

Prescription

1. Restore and enforce industrial gas supply standards immediately. The Ministry of Power, Energy and Mineral Resources, through Petrobangla, must accelerate the full repair of the damaged LNG terminal and, while repair proceeds, impose an emergency protocol that delivers at least 8 PSI of gas pressure to all bulk industrial users, starting with export-oriented sectors. Non-compliance by distribution companies should trigger management penalties. This directly addresses the experience of firms like Shasha Denims [The Daily Star, August 6, 2026] and stops the unnecessary shift to diesel, which raises unit costs by about 20 percent [The Daily Star, August 6, 2026].
2. Create a temporary industrial working capital line. The Ministry of Finance, in coordination with Bangladesh Bank, should establish a 180-day credit facility for manufacturing firms that can demonstrate a production loss of at least 30 percent during the gas crisis. Loans would be channeled through commercial banks with a partial central bank guarantee of, say, 50 percent, using the refinance window. The facility aims to bridge the cash flow gap of factories like Mitali Fashion, where 18 out of 30 lines were idle [Prothom Alo, August 4, 2026], and to arrest the credit growth plunge that is at a 33-year low [The Daily Star, August 4, 2026].
3. Link bulk utility access to tax filing compliance. The NBR, with support from the power and gas distribution companies, must enforce a rule that no industrial gas or high-voltage electricity connection is renewed or expanded for a Tax Identification Number holder whose return filing status is not current. With only 38 percent of TIN holders filing returns [The Daily Star, August 3, 2026], this measure can materially widen the tax base without new legislation, using existing administrative authority. Revenue gains would then be earmarked for the energy sector’s maintenance and expansion, creating a self-reinforcing cycle.
4. Launch an industrial consolidation and retooling fund. The Ministry of Industries, working with Bangladesh Bank and development partners, should design a facility that offers concessional long-term loans to firms in subsectors where capacity utilization is stuck at 30 to 40 percent [The Daily Star, August 6, 2026]. The fund would finance mergers, debt restructuring, and adoption of energy-efficient machinery, reducing the economy’s exposure to a single fuel source and raising the productivity floor.

Risks and tradeoffs

The most immediate risk is that the LNG terminal repair faces technical or contractual delays, prolonging the gas shortage and turning the working capital facility into a permanent subsidy. Linking gas access to tax compliance could provoke industrial lobbying and litigation, especially if smaller firms lack the administrative capacity to file quickly; a phased implementation, beginning with the largest 500 gas consumers, would mitigate this. The credit guarantee scheme may increase contingent liabilities for the central bank and could be misallocated if commercial banks simply substitute it for existing exposure, requiring strict performance-based gateway criteria. Finally, private sector credit growth is at a 33-year low [The Daily Star, August 4, 2026], meaning the working capital facility must be designed with pre-qualified lender panels to bypass the weakest institutions.

Bottom line

The industrial growth collapse to 2.86 percent is not just a cyclical dip but a signal that energy unreliability, credit starvation, and fiscal weakness are now mutually reinforcing. A simultaneous push to restore gas pressure, inject targeted working capital, and condition utility access on tax compliance can break the loop without recourse to large, unfunded public spending.