The GDP (gross domestic product) growth fell to 25-year low expect for the fiscal year of the Covid-19 pandemic. Investment dropped 10-year low as well. Inflation has been fluctuating around 10 per cent for three straight years, and that never happened for such a period since 1986.
People living expenses rise because of higher inflation, while wage hikes have been low over the past 39 months, resulting in a low real income of people. Employment falls due to stagnant investment in all sectors, as well as the number of people living in poverty is on the rise. Agriculture growth dropped 10-year low, risking food security. The financial sector becomes fragile with several importation banks experiencing a delicate condition. Default loans are also on the rise.
In addition to economic mismanagement over the past three years, a deteriorating investment scenario of the past year has deepened the economic crisis. The private sector now lacks of confidence because of political uncertainty, deteriorating law and order situation and various incidents including mob (rowdy crowd).
Yet, there are positive signs in the economy. The interim government inherited a fragile economy. Foreign currency reserves were shirking; Bangladeshi currency against US dollar was depreciating, while high inflation persisted.
Several macroeconomics indicators performed better to a large extent. Forex reserve fall has been prevented. Value of taka has been somewhat stable. Balance of payment somewhat returned. Money laundering in guise of trade misinvoicing seemingly decreased, thus, hundi fell, as well as remittance rose. Export earnings continued to grow despite fear looms large due to additional tariff imposed by the USA.
Economic indicators became somewhat stable, but people are yet to enjoy it because inflation falls very slowly. Stagnation in investment has been the most pressing matter. In the meantime, the government decrease investment, while private sector investment dropped because of political uncertainty, energy crisis and law and order situation. Economists think no accomplishment will sustain until private investments increase. As a result, the future of the economy of the country solely relies on investment.
In amid this circumstance, the budget of the 2025-26 fiscal will be placed on Monday. If the national election is to hold in December as per the demands of political parties including BNP, this government will have six months for its implementation, whereas if election is to be held in next June as per the the Chief Adviser, then the interim government will have an entire year to implement the budget, and in that case, removing all barriers to investments by controlling inflation will be the biggest challenge for the government during this period.
Concerns over indicators
According to data released by Bangladesh Bureau of Statistic (BBS), GDP growth will be 3.97 per cent in the current 2024-25 fiscal because agriculture growth fell to 1.79 per cent in this fiscal from 3.30 per cent in the previous fiscal. Industry growth rose slightly, but service sector growth fell as well.
GDP growth fell abnormally to 3.04 per cent in the 2019-20 per cent during the Covid-19 pandemic. Other than this year fiscal, GDP growth fell to a low of 3.08 per cent in the 2001-2002 fiscal.
Gross investment and gross domestic saving are two key indicators of the economy, and both of them saw a downtrend. The ratio of gross investment to GDP decreased to 29.8 per cent in this fiscal. Previously, this ratio fell to such a low of 28.58 per cent in the 2013-14 fiscal. While gross domestic saving is declining.
A decline in gross domestic saving is alarming and has multifaceted effects on the economy. It means people and companies of the country are spending most of their earnings and saving less, thus, consumer consumption increases. People have been compelled to increase spending because of rise in inflation; income of many people also decreased due to lack of jobs; people also make less deposits in banks due to uncertainty in financial sector.
A decline in private sector lending is also a matter of concern. Private sector credit growth stands at 7.57 per cent. There is no precedent in Bangladesh of private sector credit growth remaining below 8 per cent for five consecutive months. That means private sector is borrowing less, and investing less. On the other hand, foreign investments are plummeting alarmingly.
Labour market in trouble
A World Bank report released in April highlighted the heart-breaking scenario of labour market saying many people are forced to quit the labour market due to weak law and order situation, worsening business environment and lack of jobs, resulting in a decline in labour force participation rate. Women participation rate saw the highest fall. According to World Bank, the ratio of working people to employment rate fell by about 2 percentage point. Employment fell in all sectors with service sector seeing highest 2.6 per cent, followed by agriculture (2.3 per cent) and industry sector (0.8 per cent). That means employment is on the rise.
More than 60,000 workers lost jobs in the country in the past nine months. World Banks said 4 per cent of workers lost jobs in Bangladesh in the second quarters of 2024; wage of low and high skilled workers fell by 2 per cent and 5 per cent respectively during this period, Income disparity also increased. Three out of five families face financial pressure and they spend saving to live in. Families with remittance earnings are in relatively better condition. According to World Bank, additional 3 million people may fell below the poverty line because of high inflation and low growth.
How economy will accelerate
Bangladesh Bank raised policy interest rate to control inflation. The central bank also switched to a market-based exchange regime, thus, dollar rose from Tk 118 to Tk 122 in the past nine months. Dollar supply is somewhat prevented. Government investment also reduced, affecting the growth. Economy becomes sloth, but forex reserve somewhat increased. Overall, macroeconomics stability increased to a large extent.
Inflation fell slightly, but could not reach a level to give a relief to people. However, all neighbouring countries achieved much in this case. Pakistan brought down inflation from about 31 per cent in 2023 to 9.6 per cent in August last year to below 2 per cent now. Sri Lanka reduced inflation to below 0 per cent from 67 per cent 2022.
To increase private investment, as well as to reduce inflation has become the main challenge to economy. Only then, the stability that has become visible now will benefit common people. Economist said the big question for the future of the economy is now that how this stability can become effective.
Bangladesh Bank governer Ahsan H Mansur previously said policy interest rate will be reduced only when inflation comes under control. So, the future of economy somewhat relies on the control of inflation although investment does not solely depend on interest rate. Energy crisis must be resolved as well. The haemorrhage in banking sector somewhat alleviated but a big crisis still persists. So, credit availability will not be easier. Politely instability and uncertainty is another major problem. Law and order situation does not improve much. No more mobs (rowdy crowd) will be allowed – such issues largely remained limited to speeches and statements. Amid such circumstances, it will be a big challenge for economy to increase investment by solving these problems. Economists believe there is no alternative to increasing the income of people, especially, because of continuous decline in growth.
Economist Debapriya Bhattacharya, Chairman of White Paper Committee was asked about the budget and the overall economic situation. Speaking to Prothom Alo, he said that overall, the country’s economy has moved toward a kind of stability over the past eight to nine months. However, this success has mainly come from the external sector. For example, foreign debt has been repaid, exports and remittances have increased, the value of the taka has stabilised, and reserves have grown.
However, major problems still remain in the financial structure. Debapriya Bhattacharya said, “If the government continues borrowing from domestic sources to implement the budget, and if money is secretly printed, then the problem will only worsen. The government may try to show some restraint in budget expenditures. But the real question is in which areas will the finance adviser exercise that restraint? If, on one hand, dearness allowances are given to government officials, but on the other hand, subsidies for farmers are reduced, that’s where the problem lies.”
He continued, “Overall, the first challenge in the budget is to make the restraint in expenditure more sustainable and balanced. But an even bigger challenge is to transform this stability into economic growth.”
Debapriya Bhattacharya concluded that the question now is whether the economic stability that has been consolidated to a significant extent can lead to a sufficient increase in private investment. The main goal now should be to boost private sector investment.