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Primary textile millers have urged Bangladesh Bank to expand the Export Development Fund (EDF) and cut its interest rate, warning that rising costs and financing constraints are eroding the sector’s export competitiveness.

In a letter sent on January 26 to the central bank governor, Bangladesh Textile Mills Association (BTMA) President Showkat Aziz Russell called for a rationalisation of EDF policies to ensure uninterrupted imports of raw materials for export-oriented industries.

BTMA represents 1,869 spinning, weaving and dyeing-printing-finishing mills and has attracted about $23 billion in private investment, the largest in any sector of the economy. Textiles and apparel together generate around 85 percent of Bangladesh’s export earnings, while local mills supply nearly 70 percent of raw materials used by the garment industry.

The primary textile sector retains roughly 30 percent of foreign exchange and saves about $8 billion annually by substituting imports for a population of nearly 170 million, making it a key pillar of export support, the association said.

However, the sector is under growing strain from global geopolitical tensions, economic slowdown, domestic political uncertainty, higher energy and gas prices, rising labour and raw material costs, elevated lending rates and increasing overheads. These pressures have limited capacity utilisation, while heavy reliance on imported cotton continues to expose mills to global price volatility.

BTMA said EDF financing has been crucial in enabling local mills to meet nearly 90 percent of knitwear and about 60 percent of woven garment raw material demand. But current EDF rules have become a major bottleneck.

Under existing guidelines, firms face a uniform EDF ceiling of $20 million or the value of export proceeds realised over the past 12 months, whichever is lower. BTMA argued this does not reflect differences in production scale or export performance, restricting large and regular exporters from importing sufficient raw materials.

The association also flagged the higher EDF lending rate, now set at Overnight SOFR plus 1.5 percent. With SOFR at around 3.66 percent, the effective rate stands near 5.16 percent. Delays of up to four months in fund disbursement force firms to rely on additional financing at extra cost, further pushing up borrowing expenses.

“Earlier, the EDF limit for BTMA member mills was $30 million with a total interest rate of 3 percent, which was more supportive of export-oriented industries,” Russell said.

To improve efficiency, BTMA proposed linking enterprise-level EDF limits to actual export performance by setting the ceiling at 60 percent of export proceeds realised over the most recent 12 months, instead of a single cap for all firms.

The association also welcomed recent improvements in foreign exchange reserves, saying this creates room to raise the overall EDF size beyond the current $2.0 billion to meet growing trade financing needs.

BTMA said rationalising EDF limits and interest rates is critical to contain production costs, sustain export capacity and safeguard the competitiveness of the primary textile sector amid mounting global and domestic challenges.