The industrial stagnation gripping Bangladesh has deepened further, with letters of credit (LCs) opened in July, the first month of the 2026–27 fiscal year, for imports tied to industrial establishment and production declining across the board, as did LC settlements, according to recently published Bangladesh Bank statistics.

Central bank data show LC openings for capital machinery fell 3.57 percent in July, while settlements dropped 8.60 percent. Imports of this basic input for industrial establishment and development had already declined 10.68 percent in the 2025–26 fiscal year.

Raw materials directly linked to the production cycle also recorded a substantial contraction: LC openings fell 5.78 percent in July and settlements dropped 6.92 percent. In the previous fiscal year, raw material imports also declined 3.33 percent.

Imports of miscellaneous machinery for small and medium-scale industries fell even more sharply. LC openings in this segment dropped 9.87 percent in July, while settlements fell by more than 10 percent.

Industry stakeholders said the sector has been in a prolonged state of stagnation and sluggishness, with new investment falling to almost zero. The broader economic standstill has been compounded by a severe energy crisis, including shortages of electricity and gas. These pressures have driven the sharp fall in LC openings and settlements for every industrial input.

Alongside the decline in industrial imports, production is also facing a significant contraction.

According to the July edition of the central bank’s Major Economic Indicators: Monthly Update, the large-scale industrial production index fell to negative 0.38 percent in the July–March period of the 2025–26 fiscal year compared with the same period a year earlier. That compares with positive growth of 6.2 percent in FY 2024–25, 4.65 percent in FY 2023–24 and 7.37 percent in FY 2022–23.

Industry figures said the large-scale industrial production index’s slide into negative territory is the first such occurrence in the country’s history.

Private sector credit tells a similar story. Bangladesh Bank data show credit growth in the sector stood at just 4.47 percent at the end of June, against an 8.5 percent target set under the central bank’s contractionary monetary policy stance. Actual growth was only slightly more than half the target.

By contrast, public sector credit grew by 30.43 percent in the FY 2025–26, nearly seven times faster than private sector’s borrowing.

The decline in LC openings for capital machinery and industrial raw materials reflected wider economic pressures, Arif Hossain Khan, a Bangladesh Bank spokesperson, told Bonik Barta.

“The economy is in a state of stagnation,” Khan said, adding that while the central bank had recently cut the policy rate despite high inflation, private sector credit growth would remain constrained until structural and energy bottlenecks were resolved by the government.

Bangladesh Bank figures show that total LC openings in July, the first month of FY 2026–27, amounted to $6.90 billion, while settlements reached $6.28 billion. Total LC openings were 13.74 percent higher than in the same month a year earlier, but the increase was driven almost entirely by fuel and food imports. Fuel imports rose nearly 69 percent, while food imports increased 26.48 percent, as higher global prices for fuel oil and LNG pushed up import costs.

Mosleh Uddin Ahmed, managing director of Shahjalal Islami Bank, identified the gas and electricity crisis as a principal driver behind the contraction in capital imports and the slowdown in private sector credit growth to around 4 percent.

“Our electricity generation capacity is 29,000 megawatts, but in reality we can’t produce more than 15,000,” Ahmed told Bonik Barta, pointing to unpaid government bills to private power plants that have left lending banks exposed. “Unless the energy crisis is resolved, it would be wrong to expect private sector credit growth to recover.”