QuickPost News | March 4, 2025 | Dhaka

DHAKA—Bangladesh’s economy faced a fresh blow this week as Switzerland suspended its humanitarian aid package, a move that threatens to exacerbate an already dire financial situation. The decision, confirmed Monday by the Swiss Agency for Development and Cooperation, follows the U.S. suspension of USAID programs in February, citing governance concerns after months of political upheaval. With inflation soaring at 9.8%, foreign reserves dwindling, and the garment sector teetering, analysts warn the South Asian nation is on the brink of a deeper crisis.

Aid Cuts Compound Economic Woes

Switzerland’s aid, valued at roughly $50 million annually, supported rural infrastructure and poverty alleviation—key pillars for a country where exports and remittances drive 80% of GDP. The cut comes as Bangladesh’s foreign exchange reserves hover at a precarious $18.2 billion, down from $20 billion in November 2024, per the Bangladesh Bank. The taka has shed 15% of its value since August 2024, when mass protests ousted former Prime Minister Sheikh Hasina, plunging the nation into interim governance under Nobel laureate Muhammad Yunus.

“The timing couldn’t be worse,” said Rashed Khan, an economist at Dhaka University. “Political instability has already scared off investors, and now donor fatigue is kicking in. We’re looking at a potential liquidity crunch by mid-2025 if this continues.” Foreign direct investment (FDI) has nosedived to $800 million in the first half of fiscal 2025—down from $3.2 billion in 2024—reflecting a 75% drop, according to central bank figures.

Garment Sector Feels the Pinch

The ripple effects are stark in Bangladesh’s $36 billion garment industry, which employs 4 million workers and accounts for 85% of exports. Retail giants like GAP and Tesco have reportedly slashed orders by 20% since January, citing supply chain disruptions tied to protests that have claimed 91 lives since the year began, per local reports. “We’re seeing cancellations weekly,” said Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). “Brands are shifting to India and Vietnam—our edge is slipping.”

Ballari, India, has seen a 30% surge in jeans fabric production as buyers pivot, noted Hindustan Times last month. Meanwhile, Dhaka’s factories face a double whammy: rising import costs for cotton (up 12% due to the weak taka) and a domestic gas shortage hobbling production. “We’re running at 60% capacity,” lamented a factory owner in Gazipur, speaking anonymously. “Orders are down, and power cuts are up.”

Inflation and Debt Pressures Mount

Households are reeling too. Inflation hit 9.8% in February, driven by a 14% spike in food prices, according to the Bangladesh Bureau of Statistics. The interim government’s contractionary monetary policies—hiking interest rates to 8.5%—have slowed private sector lending to its lowest in 42 months, per bdnews24.com. Yet, the measures have failed to tame price pressures, with imported fuel and fertilizer costs soaring.

Foreign debt is another ticking bomb. Bangladesh owes $2.1 billion in repayments this year, including $1 billion to the IMF, which recently lowered its growth forecast to 3.8% for fiscal 2025 from 4.5%. “The IMF’s $1 billion offer isn’t enough,” said Finance Adviser Salehuddin Ahmed in a The Daily Star interview. “We’re pushing for $2 billion to shore up reserves and fund reforms.” Talks are ongoing, but donor skepticism looms large.

A Nation at a Crossroads

The Swiss pullout, echoing the U.S. stance, hinges on demands for political stability and human rights improvements—conditions the Yunus administration struggles to meet amid protests and a fractured polity. The European Investment Bank, however, pledged €2 billion in January to bolster green energy, a lifeline Dhaka hopes to leverage. Still, with retail exports faltering and FDI evaporating, the economy’s resilience—once buoyed by garments and remittances—is fraying.

“This is a perfect storm,” Khan warned. “Without swift stabilization, we risk famine for the poorest and mass layoffs in apparel.” For now, Bangladesh’s 170 million people watch as their economic lifeline unravels—one aid cut, one canceled order at a time. QuickPost News will track this unfolding saga—stay with us.

Data Sources & Validation:

RELATED ARTICLESMORE FROM AUTHOR