Growth to remain sluggish for a while

Bangladesh's economy is likely to witness another year of low growth and high inflation, thanks to the revolutionary change in the political arena half a year ago. The student-led mass uprising, which forced the autocratic regime of Sheikh Hasina to fall on August 5 last year, led to a critical transition in the country's power structure. This mass movement also significantly disrupted economic activities, leading to a bearish quarterly growth of 1.81 per cent against 3.91 per cent in the last quarter of FY24. However, economic activities rebounded modestly in the second quarter of the current fiscal year, as reflected in several proxy indicators.

Nevertheless, there is little scope to be optimistic that the economic growth in the second half of the current fiscal year would see a mighty comeback. The latest half-yearly Monetary Policy Statement (MPS), released by Bangladesh Bank in the third week of last month, made it clear. "The growth outlook for the second half of FY25 for Bangladesh does not appear optimistic due to the existing challenges," said the central bank in the MPS announced for the January-June period of 2025. "It will be hard to regain growth momentum in the near term since the government is focusing on improving fiscal discipline, and the central bank is working to control inflation," it added.

The central bank projected that economic growth might remain sluggish at around the 4.0-5.0 per cent range in the current fiscal year. In other words, the growth in FY25 will be similar to FY24, when output expanded by 4.22 per cent in the final count. The growth rate was 5.78 per cent in FY23.

Looking back, the country's annual economic growth came down to the lowest level in FY20 due to the Covid-19 pandemic-driven contraction of economic activities. GDP registered a modest 3.45 per cent in FY20, which was lowest in the last decade. In the later years, GDP bounced back, registering 6.94 per cent and 7.10 per cent in FY21 and FY22, respectively. The robust pace of growth could not be sustained in the later years. The previous regime blamed external factors, such as the negative fallout of the Russia-Ukraine war, to be precise.

Though the external factors played a role, economic mismanagement and extensive corruption of the Hasina regime, coupled with the manipulation of growth statistics, made things worse. During the last decade, several economists and experts raised some questions about the growth figures, but the autocratic regime did not pay any heed. Instead, it became gradually difficult to question the authenticity of growth, and anyone who expressed apprehension was at risk of backlash. Constructive debate on growth, as well as different economic indicators, was not welcomed. The fallen regime and its loyalists rather used to tag any such debate or discussion as a move to undermine the country's persistent development. The regime became unaccountable and set a trend of not responding to questions raised by experts and media. So, getting access to information from national statistical agency or the central bank was complex. It also continued its manipulative effort to manufacture economic growth to show that the country is moving ahead at a rapid rate. Nevertheless, growth started to fall, and the downward trend continued for three consecutive years, showing the systematic weakness of the economy.

Against the backdrop, it is clear that the size of Bangladesh's economy has not grown as high as recorded in the last decade. The expansion or the growth rate of the economy, as estimated by the Bangladesh Bureau of Statistics (BBS), requires careful examination and should not be taken at face value. For instance, in FY21, GDP at the current market price was recorded at US$416 billion, which increased to $450 billion in FY24. Economists and experts who have tried to estimate the GDP alternatively observed that the official figure is around $50 billion more than the real GDP. The previous regime used the inflated GDP figure to create an artificially colourful picture of development and push the country's graduation from the Least Developed Country (LDC) status without adequate preparation.

It is crucial to re-estimate or re-calculate the GDP figures to determine the actual size of Bangladesh's formal economy. This task, though daunting, is necessary for the national statistical agency. Nevertheless, BBS needs to do so for at least two or three years and provide a more authentic picture of GDP, as some corrective steps have already been taken. The modest growth in FY24 reflects that.

In the current year, the central bank's projection of GDP growth rate between 4 to 5 per cent range seems realistic. After a significant disruption in economic activities, followed by a slow pace of recovery, there is no scope of registering a high growth of 6 per cent or more. That's why the MPS said: "Despite the modest slowdown in economic activity, the projected growth should be viewed as remarkable, given the numerous challenges facing the economy."

The major challenges include curbing inflation, stabilising the exchange rate, rebuilding the foreign exchange reserves, and most importantly, restoring public confidence in the banking system. Due to a series of irregularities patronised by the ousted regime, the country's banking sector became vulnerable, which is reflected in the high amount of default loans. Depletion of foreign exchange reserves was driven by higher payments of imports and debt servicing against lower earnings in exports and a modest inflow of foreign investment. Again, despite some manipulation to keep the inflation rate low, it was impossible to suppress the real situation at one stage. Double-digit inflation continues to erode real income, and the central bank has been struggling to bring it down for the last six months.

In the latest MPS, the central bank rightly stressed containment of inflation without worrying much about growth. Keeping the higher policy rates unchanged is a step in that direction.

Sacrificing growth may not be desirable, though it is necessary for the time being to tame the excessive pressure of inflation.

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