The global events of the past three to four years have affected Bangladesh’s growth prospects
Mon Oct 28 2024 08:30 Last update: Mon Oct 28 2024 08:57 am
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Some economic growth projections have been made for Bangladesh given the current economic realities. In its latest projections, the World Bank has projected that Bangladesh’s economic growth would be 4.1 percent for the fiscal year 2024-2025. Earlier, the Asian Development Bank (ADB) growth projection for Bangladesh for the same fiscal year was 5.1 percent. These indicate three things: first, the numbers reflect the country’s current economic reality; second, even though there are differences in numbers, both organizations have revised downwards their previous growth expectations; and third, economic growth forecasts have been made only by international organizations, but not by national entities.
Bangladesh’s economy has shown some weaknesses in the last fiscal year and this is reflected in the projections of the above-mentioned organizations. For example, the ADB’s forecast for economic growth for the current fiscal year has been lowered from 6.6 percent to 5.1 percent. Similarly, the World Bank has lowered its projection for the Bangladesh economy from 5.7 percent to 4.1 percent. The sluggishness of Bangladesh’s economic growth has three dimensions: the legacy of the global events of the past three to four years, the events in Bangladesh’s economy in the recent past, and the current events in the country. In this context, it is pertinent to note that non-economic factors have a major impact on economic growth, even though it is mainly economic forces that drive this growth, and future growth opportunities should be discussed together with current growth patterns.
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There is no denying that like other economies of the world, global events over the past three to four years have affected Bangladesh’s growth prospects. Covid has crippled the global economy as well as Bangladesh. It affected the domestic economy, where people’s lives and livelihoods were at stake. Diverting public resources to tackle the pandemic reduced resources for both the productive and social sectors, and Covid affected Bangladeshi exports to the outside world. For example, Bangladesh’s RMG industry was hit hard by Covid. All these factors influenced the growth trend of the country. Then came the war in Ukraine, which disrupted the global supply chain. As a result, food and energy prices rose significantly. Because Bangladesh is a food and energy importing country, global commodity price increases have contributed to domestic inflationary pressures, negatively impacting the country’s growth prospects.
Moreover, the economic growth scenario during the tenure of the last government must be analyzed in terms of two issues. Firstly, the reliability and robustness of the growth data. There used to be so many official growth figures floating around, with so many revisions and projections that it became very difficult to rely on a single figure for any budget year. Added to this was the multitude of growth data published by various official entities. Second, the economic mismanagement of the previous government also caused the country’s economic growth to be quite volatile. Discretionary decisions at the state level; crises in the banking sector in terms of loan defaults, bad loans and money laundering; and the lack of transparency and accountability in economic decisions and implementation has led to widespread corruption, economic uncertainties and various instabilities in the economy. Obviously, economic growth cannot thrive or sustain under such conditions.
The current political structure has inherited an economy with enormous challenges. The current state of the economy needs to be restored as there is volatility and instability. Fortunately, some downward trends have improved. For example, monetary flows have increased dramatically, foreign exchange reserves have improved, money laundering has largely stopped and exchange rates have stabilized. In the banking sector, measures have been taken to help failing banks, reconstruct the management structure of the banks and restore people’s faith and confidence in the banking system.
Yet, in today’s economy, there are both economic and non-economic reasons that have slowed down economic growth in Bangladesh. On the economic front, persistently high inflation has had a negative impact on the growth rate. The inflation rate is still around 10 percent. This percentage is high compared to our neighbors. Over the past two years, Sri Lanka has managed to reduce the inflation rate from 70 percent to less than one percent. Even if global inflation shows a downward trend, inflation in Bangladesh has been stuck at high levels for quite some time. High inflation erodes economic growth.
There has been a slowdown in economic activities for various reasons and economic activities are not yet optimal. For example, production in the RMG industry has yet to reach normal levels. Industrial production in other sectors must recover from the disruptions it has experienced. Since there are economic uncertainties, both domestic and foreign investments are not coming in as desired. The banking sector is still not in good shape. The law and order situation has various vulnerabilities. As a result, there appear to be fewer growth opportunities. The recent floods have, on the one hand, destroyed people’s lives and livelihoods as well as household wealth, and on the other hand, they have negatively affected the production base of the affected areas. While the exact impact of the floods on growth prospects is not yet clear, widespread flooding across a vast area of Bangladesh is expected to impact the future growth of the economy.
A slowdown in economic growth will shrink the economy and impact the country’s social sector. The overall economic impact would depend on which sectors experience the maximum impact. Over time, the manufacturing sector has led to jobless growth without creating new jobs. Under such circumstances, a sluggish industrial sector may not result in major job losses, while a slowdown in service sectors could have significant impacts on people’s jobs and incomes. High inflation and declining growth would negatively affect social sectors such as healthcare and education. The poor and the marginalized would be hit the most.
These are the current realities of Bangladesh’s economy. But despite all the uncertainties, volatilities and instabilities, the economy is expected to overcome all growth barriers in the coming days. With continued improvements in economic management at all borders, Bangladesh’s economy is expected to follow an improved growth trajectory, with popular confidence on solid footing, higher investment by both local and foreign investors, and further improvements in legal and law and order situations in the country. Reforms in the banking sector, stable policies in the foreign trade sector and ensuring stability in the manufacturing sector would contribute to this process. If the supply of agricultural products, including seeds and fertilizers, is assured, the agricultural sector can maintain its previous growth rates of four percent. If Bangladesh’s economy achieves a growth rate of around five percent, it would be considered favorable under the current conditions.
Selim Jahan is the former Director of the UNDP Human Development Report Office at UNDP in New York.
The opinions expressed in this article are those of the author.
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