Economy: New year, old challenges

Even just two or three years ago it would be said that the country's macroeconomic indicators are robust. Foreign reserves in Bangladesh Bank had nearly reached USD 50 billion (USD 5000 crore). Overseas remittance and the export sector were booming. The local taka has been kept strong against the US dollar.

Revenue collection was run-of-the-mill. Overall, macroeconomic indicators were doing fairly well. Then with the outbreak of the Covid pandemic followed by the Russia-Ukraine war, the indicators began to drop one after the other. Now almost all the indictors are at risk.

The indicators of the macro-economy towards the new government will have to pay more attention are, inflation, export earnings and overseas remittance, the banking sector, foreign exchange reserves, foreign debt, revenue income, etc.

Speaking to Prothom Alo on these matters, the World Bank's former chief economist Zahid Hossain said, "We are starting the year 2024 with some inherited problems. That is why the target of the new year should be to restore macroeconomic stability."

According to Zahid Hossain, broadly speaking there are three problems with the macro economy at present. These are high inflation, imbalance in foreign transactions and vulnerability of the financial sector.

Exports saw negative growth in the months of November and October, but positive growth in the remaining four. The export sector had performed the best in the macro economy for the last one decade, but that now wavers. The year began with this sector is a state of vacillation. Increased exports mean more dollars entering the country, which leads to a consolidation of the foreign exchange reserves.

For six months the export sector has wavered between positive and negative trends. Amid these ups and downs, December saw a 9.03 per cent growth in exports. Exports of USD 5.36 billion (USD 536 crore) were made in this time.

The year 2023 began with a foreign exchange reserve of around USD 34 billion (USD 3,400 crore). This sum was, however, according to Bangladesh Bank's conventional calculations.  The International Monetary Fund (IMF)'s reserve calculating method wasn't in place at the time. Over the past year the reserves have steadily dropped. In December, according to the IMF's BPM6 method, the reserves stood at USD 21.44 billion (USD 2,144 crore).

A sense of unrest prevails over the entire banking sector over the dollar exchange rate. The new year began with the dollar crisis. At the start of the year 2023, exchange rate was Tk 130 per dollar. At the end of the year the official rate increases up till Tk 110. At the import level, the dollar rate at the banks was Tk 122 to 123. As a result, importers are having to buy dollars at higher rates and import their goods.

Default loans have become a permanent problem for the banking sector. Default loans spiralled out of control throughout the last year. The new year begins with these unreined default loans. In 2022 the default loans with the banks stood at Tk 1206.56 billion (Tk 1,20,656 crore). In September 2023 this stood at Tk 1553.97 billion (Tk 1,55,397 crore). That means default loans went up by around Tk 350 billion (Tk 35,000 crore) in nine months.

Many banks are also facing a liquidity crisis. These banks include Islami Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank. This pitiful state of the banking sector is having an impact on the overall economy.

Policymakers have a lot to worry about over the high inflation rate in the new year. Inflation is simply not falling below 9 per cent. The price of consumer goods hasn't fallen significantly either. From March till November last year, inflation remained above 9 per cent. And for four months, food inflation remains above 10 per cent.

Bangladesh Bureau of Statistics (BBS) has not published the December inflation rate as yet. While the inflation calculations are complete, BBS is waiting for a nod from the planning minister. Planning minister MA Mannan has been in his home constituency of Sunamganj for some time because of the elections.

The World Bank's recent report on food security has said that the steady increase in food prices has been a cause of concern for 71 per cent of the families in the country.

According to the latest population census, there are a total of 41 million (4 crore 10 lakh) families or households in the country. According to the World Bank's calculations, the increase in food prices are a cause of anxiety for over 29 million (2 crore 90 lakh) families in the country.

One of the main sources of foreign exchange reserves is overseas remittance coming through official channels. But due to differences in the dollar rate, the concerned institutions have not been very successful in ensuring that the dollars come in through the official channels.

Last year the dollar crisis was extreme. This resulted in various experiments with the dollar rate, buying remittance at higher rates, offering additional incentives to increase remittance flow and other such initiatives. Even so, remittance through official channels has not increased as hoped.

According to Bangladesh Bank, in the year 2023, the total amount of remittance was USD 21.9 billion (USD 2,190 crore). The increase in remittance was about 3 per cent. Earlier, in 2021, remittance had been USD 22.07 billion (USD 2,207 crore), in 2020 it had been USD 21.73 billion (USD 2,173 crore) and in 2019 it was USD 18.33 billion (USD 1,833 crore).

The National Board of Revenue (NBR) from the start of the 2023-24 fiscal has been unable to meet its revenue collection target. It has had to face a serious deficit in revenue collection. In July-November, the first five months of the financial year, there was a revenue deficit of Tk 164.59 billion (Tk 16,459 crore). Revenue collection in this time amounted to Tk1323.34 billion (Tk 1,32,334 crore), while the target had been Tk1487.94 billion (Tk 1,48,794 crore).

According to the IMF conditions, revenue collection must be increased this financial year to 0.5 per cent of the GDP. A risk management unit was supposed to have been set up in the vat and customs wing before the next budget. NBR has created the unit, but it is not functioning in full swing as yet.

Pressure gradually mounts for the repayment of foreign debt. In the first five months of the current fiscal, foreign loan repayment increased by 51 per cent. According to sources in the Economic Relations Division (ERD), USD 1.33 billion (USD 133 crore) of foreign loan had to be repaid, with interest, in July-November. This has been USD 880 million (USD 88 crore) in the corresponding period of 2022-23 fiscal.

In July-November, foreign assistance of USD 2.11 billion (USD 211 crore) came to the country, which was USD 330 million (USD 33 crore) less than the previous year.

Over the past two years the pressure of repaying foreign debt has mounted. This pressure will continue in the new year. According to ERD calculations, in the current fiscal the volume if foreign debt repayment will exceed USD 3 billion (USD 300 crore) for the first time. This is 32 per cent higher than the previous year. The foreign debt repayment is escalating basically because of the loans provided by China and Russia.