Private sector credit growth decelerated to its slowest pace in at least 11 years due to uncertainty in the investment environment following the recent political changeover.

In December last year, credit flow to private firms grew 7.28 percent, the lowest growth since at least 2015, according to data of the Bangladesh Bank.

The flow of credit to the private sector increased 7.66 percent in November.

The current investment environment, banks' go-slow strategy after the political changeover, persistent inflation, an increasing lending rate, and lacklustre loan recovery weighed on credit growth, industry insiders said.

"Investors, both local and foreign, do not invest without predictability," said Fahmida Khatun, executive director of the Centre for Policy Dialogue.

She said that historically, private investment remained almost stagnant, between 23 percent and 24 percent of the country's GDP, over the past decade for multiple reasons, including bureaucratic red tape, corruption and infrastructural bottlenecks.

At the end of December last year, total outstanding loans with the private sector stood at Tk 1,685,077 crore.

The central bank data showed that December's growth was 2.52 percentage points lower than the target of 9.80 percent for the July-December period of 2024.

Private sector credit growth has slowed due to several local and global factors, such as persistent inflation, a weak law and order situation, and the lack of uninterrupted power and gas supplies.

Another reason for the slowdown in credit growth is the repeated hikes to the policy rate, which have caused lending rates to increase.

On October 22 last year, the Bangladesh Bank raised the key policy rate by 50 basis points to 10 percent, making borrowing costlier for the 11th time since May 2022, when it stood at just 5 percent.

The measure is aimed at taming inflation, with spiralling prices causing a headache for the interim government after it came to office on August 5.

Fahmida said the central bank's tight monetary policy, which has made bank loans costlier, is not the only factor affecting investment sentiment.

"The cost of doing business has gone up due to factors, such as price hikes for electricity and gas."

At present, an interim government is in power, and investors are not willing to invest at this stage of political uncertainty.

"So, demand for private credit has fallen," she said.

Fahmida said sluggish private investment is worrying, given the fact that Bangladesh needs to create employment opportunities for its growing labour force and address unemployment.

The jobless rate rose to 4.49 percent in the July-September quarter of 2024 from 4.07 percent the year prior, as per data of the Bangladesh Bureau of Statistics.