The economy of Bangladesh is currently navigating through a host of challenges originating both from the domestic and the global fronts. Economic recovery from the Covid-19 pandemic was disrupted due to the Russia-Ukraine war. High global commodity prices, supply chain disruptions, and synchronous global monetary policy tightening created considerable pressure from the external fronts. Besides these exogeneous factors, longstanding structural weaknesses, suboptimal policies, lax policy implementation, and inability to implement the required reforms in the domestic arena have added to the pressure facing the Bangladesh economy.
The pressure points became expressly visible through, inter alia, slow pace of revenue mobilisation, high prices of essentials, tightened liquidity situation of scheduled banks, high volume of non-performing loans, deteriorating external sector balance, and fast depleting foreign exchange reserve.
While the required steps have been identified, and at the forefront of policy discourse, many have been put on hold citing the upcoming national elections as the key reason.
It must also be noted that the revision of the minimum wage of readymade garment workers took place amid the disquieting trends within the macroeconomy. This was followed by considerable worker unrest, and violence towards workers. The global community took a strong position against this and has been maintaining a keen interest ever since.
In this backdrop, the Centre for Policy Dialogue (CPD)’s State of the Bangladesh Economy in FY2024 (First Reading) report identified five areas which merit heightened attention in the current policy discourse, particularly from the viewpoint of macroeconomic management. These are: public finance, inflation, banking sector, external sector and debt sustainability, and labour rights issues. Using the latest available data from official and credible international sources, the report tracks the key trends, and identifies the major risks and challenges associated with the aforementioned five areas.
As the country prepares to welcome 2024, economic issues ought to continue to engage the attention of Bangladesh’s policymakers. As is known, the economy is going through unprecedented challenges, and these are not going to recede to the back front even after the national elections which is scheduled to be held on 7 January 2024.
In view of the on-going economic challenges emanating from various fronts, the key task confronting the policymakers is to restore macroeconomic stability by taking into cognisance the current economic realities and identifying concrete measures to address these. In doing so, the government must address the immediate issues such as control of high inflation, increase revenue collection, stabilise exchange rate volatility and improve foreign exchange reserves. This implies that the policymakers have to come out of the obsession with Gross Domestic Product (GDP) growth and look at the underlying factors that led to an impressively functioning economy falling into this macroeconomic conundrum. In the recent past, the policymakers of Bangladesh emphasised GDP growth to highlight economic achievement. However, increased inequality and current vulnerabilities informing macroeconomic management has put into question the overindulgence with GDP and GDP growth.
Even though the economy was facing strong headwinds towards the end of FY2023, the government had projected a GDP growth of 7.5 per cent for FY2024. However, subsequent developments had overtaken lofty ambitions. Various international organisations have downgraded Bangladesh’s GDP growth in FY2024, as they have done for many other countries. The IMF has projected the GDP growth in Bangladesh to be 6.0 per cent, while the World Bank estimates project a GDP growth of 5.6 per cent for Bangladesh in FY2024. The government should revisit its GDP growth target in view of the emergent scenario. It will be advisable to bring this down. Achieving even a lower target will depend on the performance of key sectors such as agriculture, industry, exports and services. Without a realistic projection backed by authentic data, policymakers cannot assess the economic situation and craft appropriate policies.
The government will also have to focus on structural issues since better economic performance will critically hinge on the efficiency of some of the important institutions including the National Board of Revenue (NBR), and the Bangladesh Bank. Reform of the institutions responsible for improving economic performance and accountability remains an unfinished agenda. Enforcement of laws and regulations against bank loan defaulters or those who are involved in illicit financial flows is almost absent. High inflation is eating away the purchasing power of low-income people, and market manipulation and syndication are exacerbating the situation. These are undermining the impressive progress in terms of socioeconomic indicators as regards which Bangladesh has been genuinely taking credit. Similarly, lack of accountability has led to overpriced and wasteful public expenditure. Establishing good governance through reform measures will not be an easy task as the vested interest groups are strong and public institutions have been captured by the oligarchs. Whilst IMF may come up with many ‘conditionalities’ or ‘recommendations’, however one coins these, ownership over the reforms and a strong political drive to implement these are what will make the difference. Indeed, Bangladesh’s economists and professionals have been arguing for energetic actions on both fronts for quite some time. Now that the economy is facing such multipronged challenges, and the country truly stands at a crossroads, one only hopes that policymakers will understand and appreciate that business-as-usual will not do. Only a selfless and strong political leadership can venture in taking the difficult path of reforms and actions to rescue the economy and deal with the risks and uncertainties that loom in the horizon.
In the various sections of the Independent Review of Bangladesh Development (IRBD), CPD has tried to identify the key challenges in a select set of areas and offers a set of concrete actions to address these with a view to restoring the macroeconomic stability which should be the core objective of the policymakers at this particular juncture.
Dr Fahmida Khatun, Executive Director, Centre of Policy Dialogue (CPD); Professor Mustafizur Rahman, Distinguished Fellow, CPD; Dr Khondaker Golam Moazzem, Research Director, CPD; Mr Towfiqul Islam Khan, Senior Research Fellow, CPD; Mr Muntaseer Kamal, Research Fellow, CPD; and Mr Syed Yusuf Saadat, Research Fellow, CPD. towfiq@cpd.org.bd ; muntaseer@cpd.org.bd.