Bangladesh’s economy faces multiple challenges, said the International Monetary Fund in its latest report. Bangladesh’s economy is suffering from liquidity shortage and high inflationary pressure as its currency lost value by 38.23 percent from BTk85 per US dollar in March 2022 to BTk117.5 per dollar in June 2024.
“Stubbornly high international commodity prices and continued global financial tightening have amplified macroeconomic vulnerabilities. Although the current account remains compressed, a sudden reversal of the financial account has kept foreign exchange (FX) reserves and the Taka under pressure. In response to these pressures, the authorities have recently undertaken bold exchange rate reforms,” IMF said in its communique on Monday.
Bangladesh’s real Gross Domestic Product (GDP) growth slowed to 4.8 percent in the first half of the financial year 2024, while headline inflation reached a decade high of 9.7 percent year-on-year in April 2024, it observed.
“Looking ahead, real GDP growth is projected at 5.4 percent in FY24, owing to the ongoing import compression and policy tightening, and will pick up to 6.6 percent in FY25 as imports rebound and FX pressures ease,” IMF said.
“Inflation is projected to remain elevated at approximately 9.4 percent in FY24 but is anticipated to decline to around 7.2 percent in FY25, on the back of the continued tighter policy mix and projected lower global food and commodity prices. Following the exchange rate realignment, gross international reserves (GIR) are projected to gradually increase. Nonetheless, uncertainties around the outlook remain high and risks are tilted to the downside.”
In a recent economic update, the World Bank said, “Persistent inflation eroded consumer purchasing power, while investment was dampened by tight liquidity conditions, rising interest rates, import restrictions, and increased input costs stemming from upward revisions in administered energy prices.”
Bangladesh’s Current Account Deficit narrowed in FY23 and moved into surplus in the first seven months of FY24, driven by import suppression measures, World Bank noted. “But the Balance of Payments deficit widened to US$ 8.2 billion in FY23 and US$ 4.7 billion in the first seven months of FY24, as the financial account deficit widened further. Continued intervention in the forex market by Bangladesh Bank, resulted in gross foreign exchange reserves declining by US$4.0 billion so far in FY24, reaching US$ 20.8 billion in February 2024.”
The IMF has granted immediate access to about US$928 million under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF), following an economic review. The IMF Executive Board also concluded the second review of Bangladesh’s arrangement under the Resilience and Sustainability Facility (RSF), making available about US$220 million to support Bangladesh’s ambitious climate change agenda.
The ECF/EFF arrangement has helped to prevent disruptive adjustments to restore macroeconomic stability and to protect the vulnerable, while laying the foundations for strong, inclusive, and environmentally sustainable growth. The concurrent RSF arrangement has supplemented the resources made available under the ECF/EFF to expand the fiscal space to finance the authorities’ climate investment priorities, help catalyze additional financing, and build resilience against climate risks.
Antoinette M. Sayeh, Deputy Managing Director, and Acting Chair of the IMF, said, “Bangladesh’s economy is navigating multiple macroeconomic challenges. Even in the difficult environment, programme performance has been broadly on track and the authorities remain committed to undertaking the necessary policy actions and reforms. The IMF-supported programme is helping to safeguard macroeconomic stability and protect the vulnerable, while helping to accelerate economic reforms to deliver strong, inclusive, and green growth.
“Near-term policies should focus on rebuilding external resilience and bringing down inflation. The authorities’ recent actions to realign the exchange rate and implement the new exchange rate arrangement are welcome. Periodic reviews of the crawling peg would be important to ensure its effectiveness. Continued monetary and fiscal policy tightening would help to rein in inflation. Should external and inflationary pressures intensify, a further tightening in policies is warranted.
“Efforts to raise tax revenues and rationalise expenditure, including by reducing subsidies are crucial to generate the much-needed fiscal space to enhance social, development and climate initiatives. Sustained efforts to strengthen public financial and investment management, along with enhanced state-owned enterprise oversight are essential to improve spending efficiency and mitigate fiscal risks.
“Sustained structural reforms are required to achieve Bangladesh’s goal of reaching upper middle-income country status by 2031. Diversifying exports, attracting more foreign direct investment, and strengthening governance are key.”
Also published on Medium.
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