Metropolitan Chamber of Commerce and Industry (MCCI) has urged the government to take quick and decisive measures to stabilise foreign exchange reserves, control inflation, boost revenue earnings, ensure electricity and gas supply for industries and expand the social safety net.
The MCCI came up the recommendations in its fourth quarter (April–June 2023) review on the economic situation in Bangladesh on Tuesday.
According to the review, Bangladesh's robust economic recovery from the Covid-19 pandemic has been interrupted by Russia-Ukraine war, resultant supply-chain disruptions, global oil and food price spikes, slowdown in external demand, weak remittance inflow, shortfall in revenue collection and slow public expenditure, rise in inflation, widening of current account deficit, depreciation of Taka and decline in foreign exchange reserves. Unemployment and low investment are other challenges.
“To overcome the challenges, the government has to take quick and decisive measures to address the economic fallout.” The chamber also stated that nevertheless, the economy has been showing some signs of improvement in the fourth quarter under the review.
The MCCI pointed out that exports and imports are two important drivers of the economy and amid the present situation, both the areas have done comparatively well.
Foreign currency reserves are still somewhat in a satisfactory position but into a weaker trajectory. The exchange rate has long been remained stable but depreciated notably in recent months, it said.
Inflation scenery
According to the Bangladesh Bureau of Statistics (BBS) latest data, general inflation dropped to 9.74 per cent in June 2023 from 9.94 per cent in the previous month (May 2023) despite a 0.49 percentage points rise in food prices.
Experts, however, attributed the slight drop in June’s general inflation to a decline in the prices of non-food items. In June 2022, the inflation rate was much lower at 7.56 per cent.
Besides, the 12-month average inflation rate in the just-concluded fiscal year (FY23) stood at 9.02 per cent while the previous fiscal year (FY22) recorded an inflation rate of 6.15 per cent.
Foreign exchange reserves
Bangladesh Bank's gross foreign exchange reserves fell below US$35 billion, largely for imports far outstripping exports and falling currency exchange rate against the US dollar. Gross foreign exchange reserves came down to US$31.20 billion at the end of June 2023. A year ago, reserves were US$41.83 billion at the end of June 2022.
The Gross International Reserve (GIR) of Bangladesh, according to the guideline of the International Monetary Fund (IMF), stood at US$24.17 billion on 3 July 2023 while the Bangladesh Bank’s conventional value of the foreign exchange reserves were US$31.17 billion on that day. However, the GIR is expected to further go down with an import payment of US$1.09 billion to the Asian Clearing Union due on 4 July 2023.
Foreign Direct Investment (FDI)
The net FDI in the just-concluded fiscal year (FY23) decreased by 11.82 per cent to US$1,611 million from US$1,827 million in the previous FY22, according to the BB’s balance of payments data.
On the other hand, the gross inflow of FDI during July-June of FY23 also decreased year-on-year by 2.82 per cent to US$4,503 million from US$4,636 million. FDI inflow in Bangladesh is low compared to that in many other countries at similar level of development.
Bangladesh’s low labour costs are generally believed to be attractive to foreign investors, yet they hesitate to make fresh investments in the country because of the country’s underdeveloped infrastructure, and such other impediments as the shortage of energy and weak transmission infrastructure, lack of consistency in policy and regulatory frameworks, scarcity of industrial land, corruption, and non-transparent and uneven application of rules and regulations.
The government needs to address these impediments to attract more FDI to the country in order to ensure the country's economic recovery from the coronavirus pandemic.
