Prothom Alo
Except for the exports, no economic indicators are now in a comfortable state. The inflation hit a nine-year high while the inward remittance growth plummeted to a 30-year low. The trade deficit still remains at a 50-year high despite remarkable increase in exports lately.
At the same time, the country registered an unprecedented current account deficit due to the sluggish inflow of foreign currency. The authorities had to devalue the local currency against the greenback for more than 10 per cent in the current year.
It is evident that the economy, as a whole, is under stress, uncertainty and risk.
Power generation encountered a major setback recently due to the increased price of liquefied natural gas (LNG) in the global market, which forced the government to go for savings. At the same time, subsidies to the energy sector are increasing the government expenses to a good extent.
Bangladesh is in a tight corner even in case of revenue collection. It is almost at the bottom of the list of countries with lowest revenue collection compared to the Gross Domestic Product (GDP). The situation has been too tough to deal with own resources
Inflation is the biggest global problem now. The United States, despite being the largest economy of the world, recorded an inflation of 9.1 per cent recently, which is the highest in the last 40 years.
Theoretically, there are two issues to blame for inflation – rise in demand and production costs. The demand began to rise sharply in January when the pandemic situation improved and the global economic activities regained normal flow.
But the supply crisis and limited production then started pulling up the inflation worldwide. The doldrums took a turn for the worse when Russia invaded Ukraine on 24 February and a fuel crisis emerged, pushing up the production costs.
Meanwhile, Russia was subjected to an economic ban, which curtailed the supply of food grains, including wheat. All these translated into a concurrent demand pull and cost push inflation, which is barely seen in history.
The inflation began to soar slowly in January, but it gained pace in the last three months. According to economists, an inflation rate ranging from 2 to 2.5 per cent is comfortable for the economy, but it is dangerous if the percentage point remains between 7 and 10. It becomes an issue of great danger when the figure crosses the threshold of 10 per cent.
So, Bangladesh has already entered the danger zone. Inflation always increases the cost of living. The low-income people struggle to survive.
Bangladesh recorded the highest ever growth — 36.1 per cent — in remittance inflow in the 2020-21 fiscal year, defying the adversities inflicted by the Covid-19 pandemic.
But the overseas income dropped drastically soon as the country witnessed a negative growth of 15.12 per cent in the 2021-22 fiscal year. It was the highest negative growth in the last 30 years.
However, the income returned to the pre-pandemic level recently. The government now provides a cash incentive of 2.5 per cent for sending money home from abroad.
Bangladesh spent a total of $75.4 billion to import commodities in the first 11 months of the just-concluded fiscal, against the export earnings of $44.5 billion for the same period. The trade deficit hit an all-time high of $30.86 billion.
The current account also witnessed the highest ever deficit due to rising import costs and negative growth in foreign income, in addition to the low foreign investment.
The country now has a current account deficit of $17.23 billion. The deficit in the balance of general transactions stood at Tk 371 crore, which was a surplus of Tk 750 crore in the previous fiscal.
Bangladesh Bank is struggling to retain taka against the US dollar amid lowering foreign income. Earlier, it retained the value of the local currency for a long period, overlooking recommendations of devaluation.
But the situation is now in stark contrast and the central bank has to pay for the longtime retention of taka. The dollar price, which was Tk 85.80 on 1 January, has now jumped to Tk 94.45. It means that taka lost 10.08 per cent value during the period.
The tax revenue to GDP ratio is now 10.09 per cent in Bangladesh while the ratio is 24.02 per cent in Nepal and 14.03 per cent in Laos, according to the mid-term macroeconomic policy statement for the current and next fiscals prepared by the ministry of finance.
The two nations, alongside Bangladesh, are scheduled to graduate from the group of least developed countries (LDC) in 2026.
Only Sri Lanka, with a ratio of 8.9 per cent, now lags behind Bangladesh in terms of the tax-to-GDP ratio.
Bangladesh failed to meet the revenue collection target in FY22. National Board of Revenue (NBR) sources said there is a deficit of Tk 30 billion in revenue collection. The visiting delegation of the International Monetary Fund (IMF) also voiced concern over the revenue situation.
The low revenue has put the country in a sticky condition. The government is struggling to pay subsidies to the energy sector with limited income while it, on the flip side, cannot help hiking fuel prices due to the fear of further inflation. Besides, it has to slash the allocation for state-funded projects.
The government is actually waiting for the energy demand to decrease. Winter, increased rains, and price fall in the global market – are only hopes in such a situation.
Imminent waves of recession
The managing director of the International Monetary Fund (IMF), Kristalina Georgieva, has warned that the global economy is at risk of continued recession and said the future is bleak.
She thinks the current year will be difficult and the difficulty will intensify further in the next year.
Almost all countries are raising interest rates to reduce inflationary pressure. The European Central Bank (ECB) raised the policy interest rate for the first time in 11 years and other major economies, including Canada, New Zealand, Singapore, and South Korea, followed the thread.
The US central bank — Federal Reserve System (Fed) – is expected to raise interest rates by 1 per cent soon. All are trying to hold back the supply of currency to the market. It will also reduce investments.
The overall demand will slump if the global economy officially enters recession. It will reduce the price of fuel, food and all other products. The low-income countries will get temporary relief from import costs and inflation, but their income will also drop sharply.
Exports of Bangladesh will be hit hard as the United States and European countries are the prime markets of Bangladeshi products. The inward remittance will also decline at the same time and thus another crisis will emerge.
Therefore, experts believe that the economic uncertainties and associated risks will not go away easily.
