Bangladesh's apparel industry is at a critical juncture. Export growth has decelerated from double digits to single digits, while global buyers demand ever-tighter pricing and lead times. The upcoming FY2026-27 national budget is not just a fiscal document; it is a decisive factor in whether the sector can maintain its position as the world's second-largest garment exporter.
Industry Challenges: Slowing Growth and Cost Pressures
Public data shows a clear slowdown in Bangladesh's garment export growth. In the first seven months of FY2024-25, ready-made garment exports grew by only about 6% year-on-year, far below the 15%+ recovery rate post-pandemic. Simultaneously, domestic production costs have surged: natural gas prices have risen, the minimum wage was significantly increased in 2024, and raw material imports are hampered by dollar shortages. These factors have severely compressed factory profit margins, with some small and medium-sized factories reducing output or even shutting down.
More concerning is the erosion of Bangladesh’s 'low-cost dividend' in the global sourcing landscape. Competitors like Vietnam and Cambodia have advantages in automation levels and trade agreement coverage. While the EU's 'Everything But Arms' preferential treatment remains, it comes with increasingly stringent labor and environmental standards. This means low cost alone can no longer sustain order growth.
Budget Directions: The Tax vs. Incentive Balancing Act
Industry expectations for the FY2026-27 budget center on reducing operating costs and enhancing export competitiveness. The most urgent need is corporate tax relief. Bangladesh's current corporate tax rate for apparel firms (around 22.5% for listed companies, higher for non-listed) is above Vietnam (about 20%) and Cambodia (about 20%), directly weakening pricing negotiations. The industry broadly hopes the budget will lower rates to 15%-18% and extend tax holidays for export-oriented enterprises.
Another focus is import duties on raw materials. Bangladesh's apparel sector relies heavily on imported fabrics and trims, with local sourcing below 30%. Current import duties and surcharges on fabrics can reach 25%-35%, significantly raising production costs. A budget that eliminates duties on imported inputs for export processing and simplifies customs clearance would directly improve factory cash flow. The industry also calls for shifting subsidies from finished exports to raw material procurement to ease financial strain.
Policy Impact: Transmission to Industrial Zones and Supply Chains
The budget's effects will first be felt in major industrial zones like Dhaka and Chittagong. If tax cuts materialize, large factories could see profit margins recover by 3-5 percentage points, enabling investment in automation upgrades. Small and medium factories are more focused on cash flow improvement—lower import duties mean reduced costs per fabric shipment, directly alleviating raw material shortages caused by letter of credit difficulties.
From a supply chain perspective, if the budget supports local dyeing and fabric industrial parks (e.g., in Bangladesh's export processing zones), it could accelerate 'import substitution.' Bangladesh currently imports about $8 billion worth of fabrics annually. Raising local sourcing to 50% would not only save foreign exchange but also shorten lead times by 10-15 days—critical for fast fashion orders.