Bangladesh’s GDP per capita is low but the average annual expenditure for a person on home-consumed food is high compared to other developing countries, according to Centre for Policy Dialogue (CPD) Research Director Khondaker Golam Moazzem.
Costs of essential goods have soared as food prices rose disproportionately to income levels due to the ongoing economic headwinds, he said on Sunday.
“Restoring macroeconomic stability should be the main focus of the policymakers. They must also offer concrete measures for providing respite to the inflation-afflicted common people with limited income,” he said while presenting the keynote at a media briefing in Dhaka, organised to share CPD's observations on the state of the country’s economy in FY2023-24.
This was the third interim review of Bangladesh’s macroeconomic performance for FY24 as part of the think-tank’s flagship programme "Independent Review of Bangladesh’s Development (IRBD)."
According to the keynote, the country’s average annual expenditure on food eaten at home per person in 2022 was $924 while GDP per capita was $7,805. Persistent high inflation that is hovering around the 10 per cent mark, which is exceeding Sri Lanka’s, has had a disproportionate impact on every sector.
Moazzem said they think the government has failed to keep the commodity prices stable by being unable to monitor the market and because of a weak Bangladesh Competition Commission and the middlemen crisis.
CPD recommended that the situation could be handled by strengthening the Competition Commission, revising the Competition Act and reducing tariffs on essential items.
GDP growth
The government initially set a GDP growth target of 7.5 per cent for FY24. However, the latest MPS revised it down to 6.5 per cent. Different multilateral agencies projected Bangladesh’s GDP growth in FY24 to be 5.6-6.1 per cent. However, the Bangladesh Bureau of Statistics predicted it to be 5.82 per cent in FY24, a slight increase from FY2022-23.
Moazzem said, “Bangladesh's economy faced persistent domestic issues such as policy weakness, poor governance and failure to implement necessary reforms. These ingrained structural weaknesses have exacerbated the pressures evidenced by subdued revenue mobilisation.
“It is not unusual that there has been tension in the development due to various reforms. However, setting goals is not effective in many cases. If low growth does not bring macroeconomic stability, it will be a double-edged sword.”
External sector
Over the past couple of years, the taka depreciated by about 35 per cent (from Tk 86 to Tk 117 per US dollar), which gave a substantial competitive edge to exports from Bangladesh and also significantly incentivised remitters.
“But our export performance is not good, which indicates that only a policy of exchange rate depreciation will not raise competitiveness in exports. So other things such as foreign direct investments, one-stop service in government agencies and LDC graduation should be considered,” Moazzem said.
The current account was positive $5.8 billion at the end of March this year even though the financial account was still negative $9.2 billion. The overall balance was negative $4.75 billion.
“This is because remittances are coming less through legitimate channels. Over the last three years, almost 2.8 million people have gone abroad where 1.7 million went to Saudi Arabia alone but most of the money is coming through hundi,” he said.
Power and energy
According to the new Integrated Energy and Power Master Plan (IEPMP), the projection of the primary energy consumption in 2041 will be 98.59 mega tonnes of oil equivalent (mtoe). However, CPD projects that it will stand at 72.6 mtoe.
“There is a 26 mtoe difference between the projections of the government and ours because the government considered 2019 data, which is the year before Covid-19 happened. It should be revised,” Moazzem said.
Public finance
Meanwhile, there is no updated data on the government's income expenditure account. As of May 24 this year, the finance ministry data is available only until January 24. To achieve the annual target, a whopping 63.2 per cent growth will be required during the remaining days of FY24, which is a highly unlikely prospect, according to CPD.
According to IMED data, the ADP implementation rate reached 45.4 per cent during July-April of FY24 – the lowest in the last 10 years.
“The trend of poor ADP implementation in the education and health sectors has continued in FY24. Some ministries are unable to utilise their full budget but have increased demands. In this case, we think they have a deficiency of capacity,” said Moazzem.
As per finance ministry data, the budget deficit increased only marginally by Tk 730 crore in FY24. Deficit financing was primarily reliant on foreign borrowing and scheduled banks.
“The government is taking short-term loans to pay the interest on large loans. There is a considerable risk of increased government borrowing crowding out private investment, given the current tight liquidity situation in the market,” he said.
