Will the economy be able to achieve the revised growth forecast?

Global events in the last three to four years have impacted Bangladesh’s growth prospects.

Mon, 28 Oct 2024 08:30 Last updated: Mon, 28 Oct 2024 08:57

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Several economic growth projections have been made for Bangladesh based on its current economic realities. In its latest projections, the World Bank projects Bangladesh’s economic growth to be 4.1 percent in fiscal year 2024-25. Earlier, the Asian Development Bank (ADB) had projected Bangladesh’s growth at 5.1 percent for the same fiscal year. This indicates three things: first, the numbers reflect the country’s current economic realities; second, despite the differences in numbers, both organizations lowered their previous growth forecasts; and third, economic growth forecasts were made only by international organizations and not by national organizations.

Bangladesh’s economy showed some weaknesses in the last fiscal year and this was reflected in the forecasts of the above-mentioned organizations. For example, ADB’s economic growth forecast for the current fiscal year has been lowered from 6.6 percent to 5.1 percent. Similarly, the World Bank lowered its forecast for Bangladesh’s economy from 5.7 percent to 4.1 percent. The slowness of Bangladesh’s economic growth has three dimensions: the legacy of global events of the last three to four years, developments in the Bangladeshi economy in the recent past, and current developments in the country. In this context, it is pertinent to note that non-economic factors have a strong influence on economic growth, although it is mainly driven by economic forces and future growth potentials should be discussed along with current growth patterns.

There is no denying the fact that, like other economies of the world, global events in the last three to four years have impacted Bangladesh’s growth prospects. Covid has paralyzed the global economy as well as Bangladesh. This impacted the national economy where people’s lives and livelihoods were at stake. The diversion of government resources to fight the pandemic has reduced resources in both the productive and social sectors, and Covid has impacted Bangladesh’s exports to the outside world. For example, the RMG industry in Bangladesh has been hit hard due to Covid. All these factors influenced the country’s growth trend. Then came the war in Ukraine, which disrupted the global supply chain. As a result, food and energy prices have risen significantly. As Bangladesh is a food and energy importing country, the global rise in commodity prices has contributed to domestic inflationary pressures, negatively impacting the country’s growth prospects.

Moreover, the economic growth scenario under the last government should be analyzed from the perspective of two issues. First, the reliability and validity of economic growth data: There used to be so many official economic growth figures, with so many revisions and projections, that it became quite difficult to trust a single figure for any financial year. To this should be added the wealth of growth data published by various official organizations. Secondly, poor economic management by the previous government also made the country’s economic growth highly unstable. Discretionary decisions at the state level; crises in the banking sector in the form of loan defaults, bad loans and money laundering; and the lack of transparency and accountability in economic decisions and their implementation has led to widespread corruption, economic uncertainty and various economic instabilities. Naturally, economic growth could neither flourish nor be sustained under such circumstances.

The current political structure has inherited an economy with enormous problems. The current state of the economy needs to be corrected as there is volatility and instability. Fortunately, some of the downward trends have improved. For example, remittance flows have increased sharply, foreign exchange reserves have increased, money laundering has largely been stopped, and exchange rates have stabilized. In the banking sector, measures were taken to provide assistance to failed banks, to restore the governance structure of banks, and to restore people’s faith and trust in the banking system.

However, in the current economy, there are both economic and non-economic reasons that have slowed down the economic growth in Bangladesh. On the economic front, continued high inflation has negatively impacted growth rates. The inflation rate still remains around 10 percent. This figure is higher than that of our neighbors. Over the past two years, Sri Lanka has managed to reduce its inflation rate from 70 percent to less than one percent. Even if the global inflation rate is trending downwards, the inflation rate in Bangladesh has remained at a high level for quite some time now. High inflation undermines economic growth.

Due to various reasons, there is a slowdown in economic activity and economic activity has not yet reached its optimal level. For example, production in the RMG industry has not yet reached normal levels. Industrial production in other sectors should recover from the disruptions experienced. Since there is economic uncertainty, both domestic and foreign investments are not flowing as desired. The banking sector is still not in the best shape. The law and order situation faces various vulnerabilities. As a result, there appears to be fewer opportunities for growth. The recent floods have, on the one hand, destroyed the lives and livelihoods of people and the well-being of households, and on the other hand, they have negatively impacted the productive base of the affected areas. While the exact impact of floods on growth prospects is not yet clear, widespread flooding across a large area of ​​Bangladesh is expected to impact future economic growth.

A slowdown in economic growth will shrink the economy and affect the country’s social sector. The overall economic impact will depend on the sectors that experience the greatest impact. Over time, the manufacturing sector has led to rising unemployment without creating new jobs. In such circumstances, a sluggish industrial sector may not lead to large job losses, while a slowdown in the services sector may have a significant impact on people’s jobs and incomes. With high inflation and slowing growth, social sectors such as health and education will suffer. The poor and marginalized will suffer the most.

These are the current realities of the Bangladeshi economy. But even with all the uncertainty, volatility and instability, the economy is expected to overcome all obstacles to growth in the coming days. With continued improvement in economic governance at all borders, Bangladesh’s economy is expected to be on an accelerated growth trajectory, with people’s trust and confidence on a strong footing, higher investment from both local and foreign investors, and further improvement in the law and order situation in the country . This process will be facilitated by reforms in the banking sector, stable policies in the foreign trade sector and ensuring stability in the manufacturing sector. If the supply of agricultural inputs, including seeds and fertilizers, is ensured, the agricultural sector can maintain its previous growth rate of four percent. Ultimately, if Bangladesh’s economy achieves a growth rate of around five percent, it will be considered favorable in the current circumstances.

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Selim Jahan is the former Director of the UNDP Human Development Reporting Unit in New York.

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The views expressed in this article are those of the author.

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