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The start of 2023 brought good news for Bangladesh’s economy – the approval of a $3.3 billion loan agreement by the International Monetary Fund. But, as the year rolled on, people with limited means grappled with skyrocketing prices. Despite the global lender’s help, the economy has failed to overcome many of its hurdles.
Political instability surrounding the upcoming general election shrouded the positive steps it did make, as fears of sanctions and visa restrictions by the West held back businesses amid widespread reforms prescribed by the IMF.
The dollar crisis continued, along with slumps in exports, inward remittances and investment.
Dollar reserves have been in freefall, putting pressure on energy, fuel supply, and power despite a drop in prices in the global market.
The launch of some megaprojects, however, has raised hopes of a more dynamic year to come.
Analysts believe the fall in fuel oil prices will help control inflation while the benefits of the IMF’s reforms will start trickling down in 2024. But they urge more substantial policy changes for a better outcome from these reforms.
Economist Zaid Bakht, the chairman of Agrani Bank, thinks the efforts to stabilise the economy will gain pace once the new government takes charge after the election.
He also thinks a market-based monetary policy will also play a role in overcoming the dollar crisis.
Mahbubul Alam, president of the Federation of Bangladesh Chambers of Commerce and Industries, said: “The government will stabilise immediately after the election. We believe a stable dollar rate will help increase remittances and exports.”
“If expatriates can be encouraged to do so, their income will come in through the banks. Foreign investments will start pouring in and all our crises will be over.”
HOW WAS 2023?
The Russia-Ukraine war’s effects have begun to fade, but falling dollar reserves and runaway inflation headlined Bangladesh’s economy throughout 2023.
Necessities like flour, egg, potatoes and onions continued to rise in price, putting more pressure on households.
Import prices rose as the taka devalued against the dollar, fuel prices jumped as subsidies were cut, export growth slowed, and money laundering under the guise of exports haunted the economy.
The implementation of the Annual Development Plan’s budget was exceedingly slow while revenue collection failed to meet expectations.
Irregularities in the banking sector marked a record rise in bad debts while the central bank made borrowing costlier for banks to control inflation.
The basic work to implement the IMF’s loan programme began in mid-2023, but the efforts slowed down by the end of the year as the political arena heated up for the election.
RESERVES
Foreign currency reserves have remained a headache for Bangladesh as import spending surpassed export earnings and remittances combined.
Reserves that had hit an all-time high of $48 billion in August 2021, slumped to $20 billion by the end of 2023 by the standard measurement system implemented by the IMF.
After a market-based rate was introduced, Bangladesh started 2023 with the dollar priced at Tk 103. The rate rose to as high as Tk 123 over the course of the year. It has eased slightly since, but the supply crunch remains.
A TURN AROUND?
There were signs that the key indices were improving, with exports still growing at 1 per cent year-on-year despite major falls in October and November.
Remittances mostly trended downward, but a 21 per cent jump in November pulled them to a growth rate of 0.23 per cent.
Tight restrictions to save dollars caused a 20 per cent fall in imports, which also led to limited revenue collection with 14.36 per cent growth.
Inflation almost reached double digits, hitting a 12-year high at 9.93 per cent in October after starting the fiscal year at 6 per cent in July.
In the banking sector, bad debts mounted at a record rate and stood at Tk 1.56 trillion.
WHY IS THE MACROECONOMY UNDER PRESSURE?
The IMF said the country’s economy has continued to face economic challenges. External headwinds, coupled with initially inadequate domestic policy response, have made macroeconomic management challenging.
The Asian Development Bank revised down the forecast for Bangladesh’s growth for FY2024 because of moderate growth in exports and manufacturing amid an economic slowdown in major export markets, power and energy shortages, and continued high inflation.
Upside risks to the forecast include receding uncertainties over next January’s elections, it added.
WHAT ECONOMISTS, BUSINESSES SAY
Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, pointed to uncontrolled inflation, implementing fixed dollar rates, and economic fragility as the key issues in Bangladesh’s economy now.
He said inflation may go down in the next few months if the country can keep the economy from deteriorating further as fuel prices ease in line with the global market and the effects of global conflicts wane.
Although the central banks of major economies are hinting at not raising lending rates further, their decisions will have little impact on food inflation, believes Zahid.
He suggested tight controls on the market to keep food prices down.
Zahid also thinks changing the current policy may slow the economy.
Zaid Bakht also thinks market-based rates will cause inflation to fall after an initial hike. Such rates will also help increase exports and remittances.
Samir Sattar, former president of the Dhaka Chamber of Commerce and Industry, hopes that the market-based rates will allow businesses to open necessary letters of credit for imports in the new year.
He suggested bolstering diplomatic efforts, along with diversifying products, to increase exports and remittances.
He demanded that the government lower fuel prices once costs fall in the global market.