Impact of Currency Devaluation on Bangladesh Apparel

Currency devaluation can either be a blessing or a burden, depending on how a nation’s economy adapts—and for Bangladesh’s thriving RMG sector, it’s a mix of both. When the Bangladeshi Taka weakens against major foreign currencies, it reshapes everything from export earnings to input costs. For a country where garments make up over 80% of export revenue, understanding the true impact of currency devaluation on Bangladesh RMG is not just important—it’s critical for future growth and competitiveness.

Currency Devaluation Bangladesh RMG: A Double-Edged Sword

The immediate effect of currency devaluation on Bangladesh RMG exports is often seen as positive. A weaker Taka makes Bangladeshi garments cheaper in dollar or euro terms, giving the country a pricing advantage over competitors like Vietnam, India, and Cambodia. International buyers may ramp up orders, seeing cost benefits without compromising on quality.

Indeed, the export volume tends to rise during devaluation periods, and remittance inflows from overseas workers also increase, strengthening the foreign currency reserve. These trends initially appear to bolster the economy, particularly in labor-intensive sectors like garments. However, the story doesn’t end there.

While devaluation helps on the revenue side, it also increases the cost of imported raw materials, chemicals, accessories, and machinery—nearly 60% of which are sourced globally. Items priced in USD or EUR become significantly more expensive, putting upward pressure on production costs.

For example, dyeing chemicals, synthetic fibers, and trims must be imported. A 10% devaluation could translate to an 8–12% increase in input costs, squeezing margins for manufacturers already battling tight buyer contracts. Additionally, loan repayments and freight costs tied to foreign currencies also become more burdensome.

Effect on Profit Margins, SMEs, and Buyer Negotiations

While large exporters may absorb cost hikes or negotiate better with buyers, small and medium enterprises (SMEs) face a tougher battle. Their contracts are often fixed-price, with minimal room for renegotiation. As raw material costs surge, these factories struggle to break even. Some are forced to compromise on quality, delay shipments, or lay off workers to manage overheads.

Furthermore, currency devaluation impacts long-term contracts and pricing predictability. Buyers often seek stability, and unpredictable exchange rates complicate future commitments. Some retailers might demand discounts, anticipating the exporters are benefiting from the devaluation—often overlooking the parallel rise in input costs.

To counter this, smart exporters are investing in better financial planning and forex risk management strategies. Hedging instruments, forward contracts, and dollar invoicing are gradually entering the financial lexicon of Bangladesh’s RMG players. The Bangladesh Bank and private financial institutions are also playing a role in educating exporters on currency risk mitigation.

However, many SMEs are still outside this financial loop and are vulnerable to sudden currency shifts. Addressing this gap is crucial for inclusive growth of the RMG sector.

Government Policy and Institutional Support

The government has taken several steps to ease the burden of devaluation on the RMG sector. Export subsidies, duty drawback facilities, and cash incentives (often 4%–5%) are provided to exporters to offset the impact of rising costs. Bangladesh Bank also intervenes occasionally in the foreign exchange market to stabilize the Taka and ensure liquidity.

Policy recommendations from organizations like BGMEA and BKMEA have prompted fiscal interventions during periods of extreme currency volatility. These include temporary reductions in interest rates, access to export development funds, and special refinancing schemes for raw material imports.

Moreover, industry-specific forex advisory services and training are being offered to RMG exporters to build awareness. The long-term goal is to increase value addition within Bangladesh to reduce dependence on imports. More local textile mills, synthetic fiber production units, and accessory manufacturers would make the sector more resilient to currency shocks.

Building Long-Term Resilience Amid Currency Fluctuations

While Bangladesh’s RMG sector benefits from devaluation in the short run through export gains, sustainable competitiveness requires more than just favorable exchange rates. Forward-looking strategies include backward linkage development, diversification into non-cotton items, and exploring new markets like Latin America and Africa.

Additionally, digital transformation and automation can enhance productivity and offset cost hikes. Industry 4.0 practices are slowly being adopted in cutting, sewing, and finishing processes to reduce dependency on costly manual labor and imported tech.

Also, collaboration between financial institutions and garment exporters can promote better financial literacy, forex planning, and working capital solutions tailored to the unique needs of the RMG industry.

Wikipedia provides more insights into the historical performance of the Bangladeshi Taka and its effects on trade.

Ultimately, the impact of currency devaluation on Bangladesh RMG lies in how well the industry adapts. From cost control to financial planning, resilience is the new competitive advantage.

FAQs

How does currency devaluation benefit Bangladesh’s RMG sector?

It makes exports cheaper in global markets, increasing order volumes from international buyers and improving competitiveness.

What are the negative effects of devaluation on garment exporters?

It increases the cost of imported raw materials, trims, and logistics, putting pressure on profit margins—especially for smaller factories.

Are there government schemes to help exporters during devaluation?

Yes, the government offers cash incentives, export subsidies, and financial training programs to support RMG exporters facing currency-related challenges.

How can exporters manage risks from currency fluctuations?

By using hedging, forward contracts, and working with financial advisors to plan for currency volatility.

What long-term steps can reduce the impact of devaluation?

Investing in local raw material production, improving efficiency, and exploring new markets can help reduce dependency on imported inputs and enhance stability.