Bangladesh is entering a new phase of international financial diplomacy. The IMF has agreed in principle to begin negotiations on a new loan program to replace the existing $5.5 billion arrangement. For the world’s second-largest garment exporter, this is not just a fiscal lifeline but a critical stabilizer for its textile supply chain, which has been under severe forex pressure.
Forex Reserves at Critical Levels, Textile Mills Feel the Squeeze
By early 2025, Bangladesh’s foreign exchange reserves had dropped from a peak of $48 billion in 2021 to around $20 billion, covering less than four months of imports. The textile sector, which accounts for over 80% of the country’s exports, relies heavily on imported cotton, man-made fibers, and dyes. The forex shortage has made it difficult to open letters of credit, forcing many small and medium-sized mills to cut production or shut down. Industry data shows that Bangladesh’s textile imports fell by about 12% year-on-year in 2024, with Chinese exports of synthetic yarns to Bangladesh hit particularly hard.
New Loan Conditions Likely to Tighten Exchange Rate and Credit Valves
IMF loans typically come with structural reform conditions. Based on past cases, Bangladesh will likely be required to move toward a more market-determined exchange rate, reduce fiscal subsidies, and strengthen bank non-performing loan resolution. The most immediate impact on the textile sector: the taka may continue to depreciate, raising the cost of imported raw materials; meanwhile, tighter interbank liquidity will push up corporate financing costs. The central bank has raised its policy rate to 10%, but actual lending rates have already reached 14%-16%. For garment factories operating on profit margins of just 5%-8%, this is a severe burden.
Risk of Order Diversification Rises, Chinese Suppliers Need to Be Vigilant
Bangladesh’s cost advantage is eroding. On one hand, taka depreciation helps export pricing, but the larger increase in imported raw material costs squeezes actual profits. On the other hand, some Western brands have begun diverting orders to Vietnam and Indonesia to reduce single-source country risk. China is Bangladesh’s largest supplier of fabrics and yarns, exporting about $8.5 billion in 2024, roughly 15% of China’s total textile intermediate exports. If Bangladeshi factories face payment defaults or delays due to liquidity issues, Chinese suppliers’ accounts receivable risk will rise significantly.
Medium-Term Window: Forcing Industrial Upgrading in Bangladesh
On the flip side, external pressure may accelerate the survival-of-the-fittest process in Bangladesh’s textile industry. If the IMF loan stabilizes the macroeconomic environment, leading companies could gain access to cheaper international financing, enabling investment in automation and eco-friendly dyeing technology. Bangladesh updated its garment industry sustainability roadmap in 2024, pushing for more factories to obtain LEED certification—the country already has over 200 LEED-certified factories, the highest number globally. For Chinese equipment and technology providers, this opens a window to export green textile solutions.