[🇧🇩] Monitoring Bangladesh's Economy

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Bangladesh has capacity to become upper middle income country by 2031: ICCB

Leading chamber body’s latest news bulletin highlights challenges, opportunities for Bangladesh economy in 2024

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Bangladesh has capacity to become upper middle income country by 2031: ICCB
Leading chamber body's latest news bulletin highlights challenges, opportunities for Bangladesh economy in 2024

With targeted actions and appropriate policy followed by timely implementation to overcome the key challenges, Bangladesh has the capacity to become an upper middle income country by 2031, said a leading chamber body.

Bangladesh has achieved today's position by overcoming many obstacles and setbacks, according to the editorial of the current News Bulletin (January-March 2024) of International Chamber of Commerce-Bangladesh (ICCB) released on Monday.

Bangladesh has demonstrated remarkable progress in the last five decades, ICCB said.

The country's journey from one of the poorest at independence to a lower-middle-income nation within four decades is a testament to its resilience, policy decisions, and commitment to reducing poverty and fostering shared prosperity, said the World Bank in its recent publication, "World Bank in Bangladesh in 2024".

Macroeconomic stability with low levels of inflation and high levels of GDP growth have been key to Bangladesh's underlying strengths and major drivers of socio-economic achievements.

Bangladesh reached lower-middle income status in 2015 and is on track to graduate in 2026 as a middle income country and is aspiring to be an upper-middle income country by 2031.

However, Bangladesh after LDC graduation in November 2026, will experience significant preference erosion, ICCB said.

Although the EU and UK have offered to extend preferential duty-free market access for an additional three years, the export scenario to other markets will change immediately after graduation.

Bangladesh has a greater opportunity of increasing export to ASEAN, having a population of 661 million with a GDP of $3.08 trillion and trade exceeding $2.7 trillion.

According to 2020 data, Bangladesh imports goods worth nearly US$ 7 billion from ASEAN countries against its export of only $1 billion.

So, Bangladesh should give priority to Free Trade Agreement with ASEAN in order to increase its exports, ICCB said.

With several major infrastructure projects reaching completion, including Padma Multipurpose Bridge, Dhaka Elevated Expressway, Bangabandhu Tunnel, linking Dhaka to the tourist haven of Cox's Bazar, 3rd terminal at Hazrat Shahjalal International Airport, 2024 is anticipated to be a year to reap the benefits.

However, in 2024 the economy is also facing challenges on multiple fronts such as rising inflation, balance of payment deficit along with budget shortfall, declining foreign exchange reserve, contraction in remittances, a depreciating currency, rising income inequality, the demand-supply imbalance in the energy sector, and ailing banking sector crippled by loan defaults. Bangladesh could not bring down inflation whereas it has come under control in most countries, according to the ICCB.

Despite impressive growth rates, Bangladesh faces challenges in its export basket's diversification; more than 80 percent of Bangladesh's total export earnings come from garment exports.

Bangladesh has significant opportunities in leather and footwear, food processing, pharmaceuticals, light engineering, assembling plants, and API production. Both domestic investment and FDI will need to be geared towards these sectors.

Despite developing economic zones, adopting one-stop services and various other steps, Bangladesh is far behind Maldives and Sri Lanka in attracting FDI.

Bangladesh is the second-largest economy in the South Asian region.

Vietnam, comparable to Bangladesh, ranked fourth in Asia-Pacific after China, India, and Indonesia in attracting FDI.

The majority of total FDI inflows of US$ 274 billion at the end of 2022 into Vietnam were in the manufacturing sector, which accounts for 61 percent of the total registered FDI.

Bangladesh received an annual average of $2.92 billion in FDI as against Vietnam's US$ 36.61 billion.

FDI is one of the key elements for increasing export earning and much needed foreign exchange reserve, Bangladesh should review its strategy for attracting FDI.

Bangladesh is facing an energy crisis due largely to reliance on imported fuels which is estimated at about US$ 2.5 billion a year for power generation and also a lack of renewables and cleantech alternatives, ICCB said.

In fact, instead of moving towards exploring renewable energy sources, Bangladesh turned to the use of more fossil fuels such as coal, oil and LNG.

With a depreciating currency, a reliance on imported fuels for power generation has led to significant rise in power generation costs.

Climate change is a critical issue in Bangladesh as it is one of the most vulnerable countries to the effects of climate change, according to Germanwatch's 2021 Global Climate Risk Index. Bangladesh ranked seventh on the list of countries most affected by climate calamities during the period of 2000-2019.​

 

[Saif]

Economy grows by 3.78% in Oct-Dec, slowest in three quarters

The Bangladesh Bureau of Statistics says in quarterly GDP estimate

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Economy grows by 3.78% in Oct-Dec, slowest in three quarters

The Bangladesh Bureau of Statistics says in quarterly GDP estimate

Bangladesh's economic growth just halved to 3.78 percent in the October-December period of 2023-24 fiscal year, which is the slowest at least in three quarters, as manufacturing output growth declined sharply owing to reduced domestic consumption and slow export.

Services sector growth also reduced to a half during the quarter, offsetting the marginal spike in agricultural production, Bangladesh Bureau of Statistics (BBS) said in its quarterly estimate of gross domestic product (GDP) published today.

The economic growth was 7.08 percent in the October-December period of 2022.

The BBS published its estimate at a time when international agencies are forecasting the below average growth of Bangladesh's economy.

Last week, the World Bank (WB) said the GDP growth is projected to remain relatively subdued at 5.6 percent in the current fiscal year, compared to the average annual growth rate of 6.6 percent over the decade preceding the Covid-19 pandemic.

Relatively slower growth is projected to persist in the next fiscal year of 2024-25, at 5.7 percent, driven by a modest recovery in private consumption supported by a moderation in inflation, said the WB in its April issue of Bangladesh Development Update.

The national statistical agency said industrial production expanded 3.24 percent in the October-December period of 2023 from 10 percent in the same period a year ago.

The output growth in the industrial sector, which makes up 37.57 percent of the economy, was the lowest in the five quarters, said the BBS, which began to calculate quarterly GDP in line with a condition of $4.7 billion loan provided by the International Monetary Fund to Bangladesh.

This is the second issue of quarterly estimate of GDP, a measure of the values of goods and services produced in an economy in a certain period.

The BBS said farm production grew 4.65 percent in the October-December period from 4.22 percent a year ago.

The services sector, which accounts for half of the GDP, increased 3.06 percent in the second quarter of FY24, half of what it registered a year ago.​

 

[Saif]

Bangladesh’s amazing growth: A potential catalyst for increased investment

The resilience of Bangladeshi hearts and minds have led us to the next step.

www.thedailystar.net

Bangladesh's amazing growth: A potential catalyst for increased investment

Illustration: Biplob Kumar Chakroborty

There cannot be any doubt that Bangladesh's development has exceeded all expectations of critics, foes, and even friends—especially more so in the last decade under the judicious leadership of the current government. The resilience of Bangladeshi hearts and minds have led us to the next step: the country is set to graduate from the United Nations' LDC list to the developing country status by 2026. This is a proof of acceptance of the country's leaps in development by the international community.

Investment in infrastructure

In 2009, during the global low-interest regime, the Bangladesh government undertook massive infrastructure projects that were implemented with not only local funds, but bilateral and multilateral loans, resulting in extraordinarily low cost of funds. Some of the examples of the country's infrastructural achievements in recent years include: the Padma Bridge, which stretches over six kilometres and is the longest bridge spanning the Ganges; the Dhaka metro rail; highways; Digital Bangladesh that provides access to internet for all; investment in the energy sector ensuring electricity for all; and deep sea ports, which all lay the foundation for future economic growth. These projects enable the whole of Bangladesh to be productive, including regions that were previously less connected. Expansion of the country's international and domestic airports have also created a degree of nationwide and international connectivity, which has visibly contributed to the enablement of every Bangladeshi and international investor.

Bangladesh's national grid now has a capacity of over 25,000MW, which provides enough electricity margin to accept new foreign direct investments (FDIs) or domestic manufacturing and industrial development. Towards further energy security, Bangladesh has two Floating Storage and Regasification Units (FSRUs) and is working to add another two to its fleet, providing much needed energy of regasified imported LNG to natural gas. These could provide 2,000 mmcfd of natural gas to industries, fertiliser production, electricity generation and households.

Bangladesh has also established domestic and international connectivity digitally. Now, access to information is available at one's fingertips, with a nationwide network of telecommunications and internet connectivity. The vision of Digital Bangladesh promulgated in 2008 brought about significant improvements in mitigating the "digital divide," impacting economic, educational and social inequality. Info-Sarker, an e-governance initiative, has made numerous government services available online and improved ease of doing business. The rapid development of necessary infrastructure for economic growth has provided a platform for the country to boost its potential even further.

Nestled between South and Southeast Asia, Bangladesh enjoys a strategic geographic advantage and acts as a bridge for trade and investment between these regions, as well as the Seven Sisters of India, i.e., the northeastern states. As a result, its position provides it with significant opportunities to engage in regional connectivity and trade, especially with India, China, and Asean countries.

Transition readiness

Currently, the ready-made garment (RMG) industry is dominant and accounts for over 80 percent of the country's exports. Through the expertise garnered from the growth of the RMG industry, Bangladesh is well-positioned to make the transition to a more diversified manufacturing base. This shift is evident in the rapid growth of leather, jute products, healthcare, pharmaceuticals, ceramics, and internet service industries.

The foundation for a "green transition" has also been laid with IT-enabled activities; investments in Bangladesh's technology sector have increased significantly, creating a large pool of entrepreneurial service providers.

Bangladesh has made major efforts to reach the UN's Sustainable Development Goals (SDGs), and last year, the country successfully achieved two goals—SDG 12-Responsible Consumption and Production, and SDG 13-Climate Action.

Reaping national, regional demographic dividends

Bangladesh can take advantage of the emerging market with its large and readily available labour force, with over 70 million workers participating in its economic growth. Furthermore, an average of almost three million new workers have been entering the labour force each year, since 2017. Around one-fourth of Bangladesh's population is aged 15 to 29 years, resulting in a young and vibrant workforce that has the potential to propel the economy even further.

Bangladesh's economic development has positively impacted key social indicators. Notably, the literacy rate has increased to 74.7 percent in 2022 from 51.6 percent in 2004, which enables the country to reap the benefits from its favourable demographics. Gender parity in education has improved, and child mortality rates have demonstrably decreased. These advancements have contributed to a more productive and skilled workforce.

An increasing flow of inward remittances from more than 10 million hard-working non-resident Bangladeshis, especially from the Middle East, have financed the country's trade deficits of around six to seven percent of the GDP. As a positive result, Bangladesh has never experienced a balance of payment (BOP) crisis—a testament to its remarkable economic resilience and growth over the past few decades across the country's ever-evolving economic landscape. Furthermore, a large number of women are employed by the RMG sector strengthening gender equality and pay parity within the country.

With this, a fast-growing middle class has emerged within the country. The expansion of Bangladesh's middle class is driving domestic consumption and contributing immensely to the growth of the retail, real estate and services sectors. As a result, this emerging middle class is attracting FDI in consumer goods, financial services, technology, e-commerce, healthcare and other sectors.

Regional markets, especially in Bhutan, Nepal, and India's northeastern states, have benefited tremendously with Bangladesh's diversification; a potential consumer base is emerging from the rise of a new middle class within these markets.

The journey ahead

Bangladesh's development journey serves as a model for other developing nations. The stability and progressive policies of the current government have undoubtedly played a crucial role in facilitating this remarkable economic growth and social progress. Bangladesh's debt-to-GDP ratio, given the remarkable infrastructure growth, remains at 39 percent, which is low in comparison to other developing countries.

The Bangladeshi public and businesses are reaping the benefits of this infrastructural development—physical and social. It is being utilised, bringing in unprecedented levels of revenue. This will enable Bangladesh's GDP to grow at a rate of six to eight percent, from a base of $460 billion.​

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Muhammed Aziz Khan is chairman of Summit Group.​

 

[Saif]

ADB forecasts 6.1% GDP growth for Bangladesh in FY24, higher than World Bank’s

The ADB’s projection comes days after the Bangladesh Bureau of Statistics said economic growth in the October-December quarter of fiscal 2023-24 halved to 3.78 percent, the slowest pace in three quarters, as manufacturing output growth declined sharply owing to reduced domestic consumption.

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ADB forecasts 6.1% GDP growth for Bangladesh in FY24, higher than World Bank's

Photo: Saurav Hossain Siam

Bangladesh's economy is projected to grow 6.1 percent in fiscal 2023-24, riding on exports, according to the Asian Development Bank.

The growth of gross domestic product (GDP) may go up 6.6 percent in the next fiscal year, the Manila-based lender said in the Asian Development Outlook today.

Despite weaker global demand, exports of Bangladesh's traditional low-end garments will continue to grow as exporters use local yarn and fabrics due to the dollar crisis, it said.

The projection for 2024 is higher than a 5.8 percent GDP expansion in the year to June 2023.

The ADB also projects that average inflation will moderate to 8.4 percent in the current fiscal year and enable private consumption to grow.

In South Asia, Bangladesh is forecast to log the second-highest GDP growth after India's 7 percent in the current year.

The ADB's projection comes days after the Bangladesh Bureau of Statistics said economic growth in the October-December quarter of fiscal 2023-24 halved to 3.78 percent, the slowest pace in three quarters, as manufacturing output growth declined sharply owing to reduced domestic consumption.

Services sector growth also declined by half during the quarter, offsetting the marginal spike in agricultural production.

Early this month, the World Bank said Bangladesh, the second largest economy in the South Asia region, will register subdued growth for reduced private consumption affected by high inflation.

The GDP will expand 5.6 percent in fiscal 2023-24, which is below the average annual growth rate of 6.6 percent over the decade preceding the Covid-19 pandemic.

Relatively slower growth is projected to persist in the next fiscal year of 2024-25, at 5.7 percent, driven by a modest recovery in private consumption supported by a moderation in inflation, the World Bank said.​

 

[Saif]

Challenges and opportunities for Bangladesh economy in 2024

Bangladesh has demonstrated remarkable development progress in the last five decades. The country’s journey from one of the poorest countries at independence to a lower-middle-income nation within four decades is a testament to its resilience, policy decisions, and commitment to reducing pove

thefinancialexpress.com.bd

Challenges and opportunities for Bangladesh economy in 2024
FE ONLINE DESK
Published :
Apr 08, 2024 14:07
Updated :
Apr 08, 2024 14:07

Bangladesh has demonstrated remarkable development progress in the last five decades. The country's journey from one of the poorest countries at independence to a lower-middle-income nation within four decades is a testament to its resilience, policy decisions, and commitment to reducing poverty and fostering shared prosperity, said the World Bank in its recent publication 'World Bank in Bangladesh in 2024', according to the editorial of the current News Bulletin (January-March 2024) of the International Chamber of Commerce-Bangladesh (ICCB) released on MMacroeconomic stability with low levels of inflation and high levels of GDP growth have been key to Bangladesh's underlying strengths and major drivers of socio-economic achievements. Bangladesh reached lower-middle income status in 2015 and is on track to graduate in 2026 as a middle-income country, aspiring to be an upper-middle-income country by 2031.

However, Bangladesh, after LDC graduation in November 2026, will experience significant preference erosion. Although the EU and UK have offered to extend preferential duty-free market access for an additional three years, the export scenario to other markets will change immediately after graduation. Bangladesh has a greater opportunity to increase exports to ASEAN, having a population of 661 million with a GDP of $3.08 trillion and trade exceeding $2.7 trillion. According to 2020 data, Bangladesh imports goods worth nearly US$7.0 billion from ASEAN countries, as against its exports of only $1.0 billion. So, Bangladesh should give priority to having a free trade agreement with ASEAN in order to increase its exports.

With several major infrastructure projects reaching completion of the Padma multi-purpose bridge, Dhaka Elevated Expressway, and the Bangabandhu Tunnel linking Dhaka to the tourist haven of Cox's Bazar, 3rd terminal at Hazrat Shahjalal International Airport, 2024 is anticipated to be a year to reap the benefits.

However, in 2024, the economy is also facing challenges on multiple fronts such as rising inflation, the balance of payment deficits along with budget shortfalls, a declining foreign exchange reserve, a contraction in remittances, a depreciating currency, rising income inequality, the demand-supply imbalance in the energy sector, and an ailing banking sector crippled by loan defaults. Bangladesh could not bring down inflation, whereas it has come under control in most countries.

Despite impressive growth rates, Bangladesh faces challenges in its export basket's diversification, more than 80 per cent of Bangladesh's total export earnings come from garment exports. Bangladesh has significant opportunities in leather, and footwear, food processing, pharmaceuticals, light engineering, assembling plants, and API production. Both domestic investment and FDI will need to be geared towards these sectors.

Despite developing economic zones, adopting one-stop services, and various other steps, Bangladesh is far behind Maldives and Sri Lanka in attracting FDI. Bangladesh is the second-largest economy in the South Asian region. Vietnam, comparable to Bangladesh, ranked fourth in Asia-Pacific after China, India, and Indonesia in attracting FDI. The majority of total FDI inflows of US$ 274 billion at the end of 2022 into Vietnam were in the manufacturing sector, which accounts for 61 per cent of the total registered FDI. Bangladesh received an annual average of $2.92 billion in FDI as against Vietnam's US$ 36.61 billion. FDI is one of the key elements for increasing export earnings and the much-needed foreign exchange reserve, Bangladesh should review its strategy for attracting FDI.

Bangladesh is facing an energy crisis due largely to its reliance on imported fuels, which is estimated at US$ 2.5 billion a year for power generation, and also a lack of renewables and cleantech alternatives. In fact, instead of moving towards exploring renewable energy sources, Bangladesh turned to the use of more fossil fuels such as coal, oil and LNG. With a depreciating currency, a reliance on imported fuels for power generation has led to a significant rise in power generation costs.

Climate change is a critical issue in Bangladesh, as it is one of the most vulnerable countries to the effects of climate change, according to Germanwatch's 2021 Global Climate Risk Index, Bangladesh ranked seventh in the list of countries most affected by climate calamities during the period 2000-2019.

Bangladesh has achieved today's position by overcoming many obstacles and setbacks. With targeted actions and appropriate policy followed by timely implementation to overcome the key challenges, Bangladesh has the capacity to become an upper-middle-income country by 2031.​

 

[Saif]

Foreign exchange reserves go above $20 billion again

The foreign exchange reserves of Bangladesh have gone above $20 billion again, according to central bank data. The export earnings and flow of inward remittances marking Eid-ul-Fitr contributed to the increase in foreign exchange reserves, local news portals said. According to the Bangladesh Bank

thefinancialexpress.com.bd

Foreign exchange reserves go above $20 billion again
FE ONLINE DESK
Published :
Apr 13, 2024 12:35
Updated :
Apr 13, 2024 12:35

The foreign exchange reserves of Bangladesh have gone above $20 billion again, according to central bank data.

The export earnings and flow of inward remittances marking Eid-ul-Fitr contributed to the increase in foreign exchange reserves, local news portals said.

According to the Bangladesh Bank's calculation based on the International Monetary Fund's Balance of Payments and International Investment Position Manual (BPM6), the foreign exchange reserves reached $20.11 as of April 8. The figure was $19.45 billion on March 27.

Meanwhile, the gross reserves were $25.39 billion as of April 8 and $24.81 as of March 27.

However, the gross amount of country's foreign exchange reserves was $31.20 billion during this period last year.

Last month, The Financial Express said in a report that the gross volume of forex reserves in Bangladesh Bank's calculation rose to $26.17 billion as on March 5, from $25.16 billion recorded on February 19, with the central bank having booked around US$1.0 billion from commercial banks in just seven days of deals under the currency-swap window.

In accordance with IMF's BPM6 arithmetic, the gross reserves rose to $20.98 billion until March 5 from the February-19 count of $19.97 billion.​

 

[Saif]

Making a smooth, sustainable graduation for LDCs

We are meeting at the 13th Ministerial Conference (MC13) at a time when the world is facing multidimensional challenges in the form of post-pandemic shocks, economic volatility, food insecurity, rising inequality, increasing unemployment, and climate disaster, all accentuated by ongoing internation

thefinancialexpress.com.bd

Making a smooth, sustainable graduation for LDCs
AHASANUL ISLAM TITU
Published :
Feb 27, 2024 11:37
Updated :
Feb 27, 2024 11:37

A view of the opening session of the WTO MC13 in Abu Dhabi on Monday- WTO Photo

We are meeting at the 13th Ministerial Conference (MC13) at a time when the world is facing multidimensional challenges in the form of post-pandemic shocks, economic volatility, food insecurity, rising inequality, increasing unemployment, and climate disaster, all accentuated by ongoing international crises. In such a situation, strong multilateral cooperation among countries is highly needed. Bangladesh has always been a strong supporter of multilateralism and expects the same from the member states of the World Trade Organization (WTO).
It is often said that trade is the most effective engine for economic growth and development. We fully subscribe to this view. However, our experience suggests that Least Developed Countries (LDCs), small economies, and other developing countries face significant difficulties in their endeavours to integrate with the process of globalisation from a position of strength and benefit from the potential of international trade.

Regrettably, we are witnessing a resurgence of nationalism and protectionism worldwide, impeding collective endeavours to advance our common interests. Distrust among countries paralyzes progress in multilateral cooperation. The multilateral trade system has been no exception. We are yet to conclude the negotiations of the Doha Agenda, the development dimensions of which could have been an effective tool to further integrate developing countries and LDCs into the world trading system. This would have ensured that trade can only be free if it is fair.

We are ready to discuss WTO reforms. Such reforms, however, must strengthen this body to bring welfare to all of our member states. We emphasise that the reform exercise should be inclusive, and transparent, and reaffirm the founding principles of the WTO. More affirmative actions are required for the developing countries, particularly for the LDCs, including those on the track of graduation.

Ahasanul Islam Titu, State Minister of Commerce, Government of Bangladesh

The WTO dispute settlement system is currently incapacitated, leading to an erosion of trust in multilateral trade. Apart from its negotiating and norm-setting weaknesses, its ability to respond to pressing trade-related challenges of our time is under question. While we are open to improvements in some aspects of operations in the dispute settlement system, we want a two-tier, fully functional dispute settlement system and an immediate restoration of the Appellate Body.

On the fisheries subsidies regarding overcapacity and overfishing (OCOF) negotiation, Bangladesh strongly urges targeting the largest subsidisers that have historical responsibility and contributed significantly to OCOF as well as distance water fishing. It is also important to bring Common but Differentiated Responsibility (CBDR) and polluters pay principle for the marine fisheries damage, caused by those subsidising members. LDCs graduated LDCs for at least some years after graduation, and small-scale and artisanal fisheries must be outside the discipline as they were never part of the problem.

It is rather disappointing that the TRIPS Council has failed to reach a consensus to extend the MC12 TRIPS Waiver to therapeutics and diagnostics. We hope WTO members will not fail to take the necessary calls to better prepare for future pandemics.

We need clarity on the definition and scope of e-commerce. Bangladesh is in favour of an e-commerce moratorium on a temporary basis. Before further extension of the moratorium for a longer time, the economic loss of importing members should be taken into consideration. Decisions on agriculture, particularly for food security purposes and a permanent solution to public stockholding, remain a major target for all of us.

In this connection, we call upon Members to implement the MC12 Declaration on the Emergency Response to Food Insecurity and, given the critical necessity of food security in LDCs, to refrain from imposing export restrictions on food imports by LDCs for domestic consumption. LDCs need an environment of predictability and continued support for a smooth and sustainable transition.

We appreciate the General Council decision in October last year regarding unilateral tariff or Duty-Free Quota-Free (DFQF) programmes in Annex-1 of the LDC graduation proposal. However, Annex-2 is still pending.

We sincerely hope that members will make a decision in favour of a transitional arrangement regarding LDC-specific provisions for the LDCs after graduation. Special and differential treatment was at the heart of the Marrakesh package of the mid-1990s.

The G-90 proposal on elaboration and operationalisation of S&DTs is a long pending issue. It is important to build convergence and make progress on this important topic mandated by ministers in Doha in 2001.

We are well aware of the climate crisis and LDCs are the victims of the climate vulnerabilities. While Members' trade-related measures to protect the environment are well understood, at the same time, it is expected that Members' measures do not serve as disguised barriers to trade, especially the trade of LDCs. All countries, including LDCs, do their level best to create employment opportunities through trade, with a focus on vulnerable segments of society, in particular women and the climate vulnerable.

As a graduating LDC, we would like to particularly remind all of us that the Doha Programme of Action adopted at the LDC-5 Summit in March 2023 make a pledge to help the graduating LDCs towards smooth and sustainable graduation and support their smooth transition plans.

We believe that MC13 of the WTO could play an important role in realising the commitment of the global community.

Ahasanul Islam Titu is the State Minister of Commerce, Government of Bangladesh. The piece is his written statement presented at the WTO MC13 (February 26–29) in Abu Dhabi.​

 

[Saif]

Economy in for a double whammy

With inflation edging towards double digits and quarterly GDP growth nearly halving year on year, pressure on consumers is mounting and experts are pointing at even darker clouds.

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Economy in for a double whammy
Quarterly GDP growth almost halves to 3.78 percent year on year; inflation keeps creeping up Inflation in Bangladesh

Star file photo

With inflation edging towards double digits and quarterly GDP growth nearly halving year on year, pressure on consumers is mounting and experts are pointing at even darker clouds.

Economists said escalating tension in the Middle East could affect Bangladesh's economic outlook and called upon the government to carefully manage the economy to ease the pressure on people.

Bangladesh's economic growth stood at 3.78 percent in the second quarter of fiscal 2023-24, the slowest pace in three quarters, according to the latest data from the Bangladesh Bureau of Statistics (BBS).

The sharp decline in growth in manufacturing and service sectors is to blame.

In the second quarter of fiscal 2022-23, the GDP grew by 7.08 percent and in 2021-22, by 9.3 percent.

In March, inflation, a measure of the increase in the prices of a basket of goods and services over a period, rose 9.81 percent after easing in the previous month. In February, inflation was 9.67 percent. High prices are consistently eroding consumers' buying capacity.

Zahid Hussain, a former lead economist at the World Bank's Dhaka office, said in Bangladesh's context, inflation is increasing while economic growth is declining.

"As a result, the people's income opportunity and purchasing capacity are declining," he added.

BBS, the national statistical agency, said industrial production expanded 3.24 percent in the October-December period of 2023 from 10 percent in the same period a year ago.

In the same quarter of fiscal 2021-22, the industrial sector grew by 14.50 percent. Even in the first quarter of the current fiscal year, the sector grew by 9.63 percent.

Growth in manufacturing saw a 0.45 percent decline in the second quarter of the current fiscal year.

On the other hand, the services sector, which accounts for half of the GDP, increased 3.06 percent in the second quarter of fiscal 2023-24 against a growth of 6.62 percent in the same period of the last fiscal year.

However, farm production grew 4.65 percent in the October-December period from 4.22 percent a year ago.

Economist Zahid said the decline in manufacturing sector growth could be because imports are becoming more difficult due to the central bank's restrictions. It is difficult to keep up the pace of production if machinery cannot be imported, he said.

The country's manufacturing sector is both export-oriented and domestic-oriented, he said, adding that manufacturing aimed at the domestic market saw a decline because of a lack of demand caused by the reduction of people's purchasing power.

Zahid identified three factors behind the overall decline in economic growth: macroeconomic mismanagement, import restrictions, and a distressed financial sector.

He said macroeconomic mismanagement became evident as inflation could not be controlled, which resulted in people's reduced purchasing capacity.

Also, imports had to be restricted because of the crisis in the foreign currency reserves, he said, adding that such a crisis could not be overcome as the foreign exchange market management was not proper.

Besides, good borrowers do not get loans from the financial institutions. Instead, bad borrowers are entertained as per their requirements, he further said.

Prof Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, echoed Zahid and said high inflation, low investment, and import restrictions have adversely affected the country's economy, especially the manufacturing and service sectors.

"Domestic factors are more responsible than outside factors behind the slow economic growth," he said.

He also said the country's exports and inward remittances were turning around slightly, however, fresh escalation in tension in the Middle East might add to Bangladesh's economic stress.

Already fuel prices in the international market have started to increase. If fuel prices increase, then shipping costs and other commodity prices will also increase, he added.

How much Bangladesh's economy will be affected depends on how long the tension persists, he said.

In this context, the Bangladesh government has to beef up its measures to control inflation and encourage investment, he added.​