Bangladesh bank credit in the first 10 months of the last fiscal year fell about 51 percent from a year earlier, figures showed on Sunday, reflecting political uncertainty under the army-backed interim government.
Last month, the central bank governor, Salehuddin Ahmed, urged the heads of commercial banks to boost the flow of credit to help the economy achieve a 2007/08 growth target of 7.0 percent.
Ibrahim Khaled, an economist and former deputy governor of the central bank, said the fall in credit presented a risk for the economy, which leans on manufacturing and services for growth.
"If the declining trend continues the overall manufacturing sector will be hampered meaning less job opportunity, the risk of high inflation and eventually the fruits of the economy will not trickle down," he said.
A senior central bank official said that bank credit dropped to 192.93 billion taka ($2.8 billion) between July 2006 and April 2007, compared with 290.57 billion taka a year earlier.
The central bank official said credit extended to state-run enterprises dropped to just 14.12 billion taka in the latest period from a year-earlier 43.39 billion taka.
Farm credit dropped to about 24 billion taka from a year-earlier 85 billion taka, the central bank figures showed. Private-sector credit dropped to 153.47 billion taka from 157.24 billion taka.
"Political uncertainty, lack of confidence among the entrepreneurs and tight monetary policy of the central bank also had a negative effect on the credit growth in the private sector," Khaled said.
Khaled said the figures suggested that companies were reluctant to pursue investment projects because of political uncertainty.
An army-backed interim government has been running the country since January 11 following deadly street violence in the run up to January 22 elections.
It intervened to sideline fueding political parties, postponed the elections and then launched an anti-corruption drive that netted 170 key political figures.
It has said elections will be held before the end of next year.
The economy is expected to have grown 6.5 percent in the 2006/07 fiscal year, which ended on June 30, officials said. Manufacturing and services are driving economic expansion as agricultural growth eases, the International Monetary Fund said last month in an annual report on the country.
Weak government revenue collection, poor infrastructure, low skills levels and corruption hamper sustained growth and further poverty reduction, the report said.