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IMF slashes Bangladesh’s GDP growth forecast to 6%

It had projected a 6.5% economic growth for FY24 back in April
Staff Correspondent
10 Oct 2023 19:36:48 | Update: 11 Oct 2023 12:38:50
IMF slashes Bangladesh’s GDP growth forecast to 6%

The International Monetary Fund (IMF) has lowered Bangladesh’s gross domestic product (GDP) growth forecast by 0.5 percentage point for FY24, taking into consideration a number of factors such as elevated inflation and external payment pressure.

Bangladesh’s economy will grow by 6 per cent in FY24, and the country will again see a 7 per cent growth by 2028, projects the global lender in its World Economic Outlook for October, published Tuesday.

In April this year, the IMF had projected a 6.5 per cent economic growth for the ongoing FY.

The global lender however adds that there is a hope in taming inflation as the country’s skyrocketing inflation will be reduced to 7.9 per cent in FY24, compared to 9.7 per cent recorded in FY23.

Amid import pressure, reduced foreign exchange inflow triggered by the country’s downward trend in remittance, slow growth in exports, and financial deficits, Bangladesh will have to repay loans.

The IMF projected that the country’s balance of payment (BoP) will reach -0.8 per cent of its GDP. The country’s BoP currently stands at -0.7 per cent of GDP, according to Bangladesh Bank data.

Along with the stability of the external sector being dependent on eliminating exchange rate distortions and raising exchange rates, the IMF report also identified the moment of uncertainty prior to the election as a significant danger to the economy.

It should be noted that recently, the World Bank had also cut Bangladesh’s gross domestic product (GDP) growth forecast for FY24 by 0.4 per cent to 5.6 per cent, due to a combination of factors including higher inflation, import restrictions and financial sector vulnerabilities constraining private investment.

The latest forecast is down from 6 per cent growth in FY23, and the World Bank had predicted this in its “South Asia Development Update October 2023” report released last week.

However, the Asian Development Bank (ADB) has predicted a 6.5 per cent GDP growth in Bangladesh in FY24, while the government has set a target of 7.5 per cent GDP growth in the ongoing FY.

Bangladesh made a strong recovery from the Covid pandemic, supported by an extensive stimulus package, and accommodative monetary policy. But the post-pandemic recovery was disrupted in FY23, according to the World Bank in its twice-year-update.

Supported by economic growth, Bangladesh improved living conditions and reduced extreme poverty to 5.0 per cent in 2022 from 9 per cent in 2016, which is comparable to Latin America and the Caribbean countries, and fares better than the South Asian average.

The new poverty numbers are based on the international poverty line of $2.15 a day (using 2017 Purchasing Power Parity) and the Bangladesh Bureau of Statistics (BBS)'s Household Income Expenditure Survey 2022 and re-estimation for 2016, the report added.

On the issue, World Bank Country Director for Bangladesh and Bhutan Abdoulaye Seck said, "Bangladesh's progress in reducing poverty is multidimensional.

“It has improved poor people's wellbeing, including in reduced infant mortality and stunting, and improved access to electricity, sanitary toilets, and education. The rural areas witnessed faster poverty reduction than the cities and towns.”

Speaking to The Business Post, Centre for Policy Dialogue (CPD) Distinguished Fellow Prof Mustafizur Rahman said, “When the government announced the budget [for FY24], the country’s macroeconomic situation was slightly better compared to recent times.

“This is why the government set a 7.2 per cent GDP growth target. But indicators such as the remittance inflow, forex reserves, and inflation were not good in the first three months of FY24. So the international agencies are lowering their growth projection.”

He further said, “The ongoing year is very challenging for us. Skyrocketing inflation will lower the people’s purchasing power. This in turn will cause the entrepreneurs and exporters to face challenges, and employment opportunities will dwindle.”The “Asian Development Outlook (ADO) September 2023” report mentions that the prediction for somewhat quicker growth takes into account an increase in domestic demand, and improved export growth as a result of the euro area's economic recovery.

From 9 per cent in FY23, inflation is predicted to decrease to 6.6 per cent in the current fiscal. As remittance growth improves, it is anticipated that the current account deficit would modestly decrease.