Home ›› 01 Jan 2022 ›› Front
Bangladesh’s economy, one of the fastest-growing in the world, is expected to return to a higher growth trajectory this year, driven by rising export earnings and consumers’ expenses.
But inflation, maintaining a healthy forex reserve and wooing private investment will pose significant challenges and the economy’s growth will hinge on the successful management of these issues.
Last year, the economy transitioned to recovery to grow amid the ongoing Covid-19 pandemic as the situation improved. The government’s accommodative policies helped turn the stagnant investment situation around.
For the fiscal year 2022, the International Monetary Fund projected a 6.6 per cent growth.
“The economy is opening up and if the Omicron [variant] does not inflict further damage, the economic growth would be much better in 2022. The GDP will grow as all economic indicators are positive and I hope it will remain stable,” Ahsan H Mansur, executive director of Policy Research Institute (PRI), told The Business Post.
On the other hand, the investment will be better as the suspended investment will be expedited and demands of consumer goods will increase, he said.
The readymade garment sector will see more considerable investments and there will be foreign direct investment (FDI) as the capacity will be increased, said the economist.
He said government megaprojects would boost the investment but it was not guaranteed.
Rising exports, consumers expending to prop GDP
“With the present economic indicators, the recovery in 2022 will be stronger,” Zahid Hussain, former lead economist of World Bank, Dhaka told The Business Post.
GDP growth should be higher this fiscal than the previous one but the government target of 7.2 per cent could not be achieved. Exports and consumer expenses would drive the growth, he said.
In FY20-21, Bangladesh recorded 5.43 per cent growth, while the government set a target to attain
7.2 per cent growth for the current FY.
Soaring inflation a big threat
Taming inflation and boosting private investment, crucial to generating employment, will be critical challenges.
“We step into the new year with lots of challenges faced in 2021 and 2020. Recovery was seen in the first five months of the current FY. But the great challenge is inflation pushed by global price, transportation cost and exchange rate effects,” Mustafizur Rahman, distinguished fellow at Centre for Policy Dialogue, told The Business Post.
According to the Bangladesh Bureau of Statistics, the November inflation stood at 5.98 per cent, which was 5.52 per cent in the same period of the previous year.
On top of that, maintaining a healthy reserve will be the second challenge as import cost increases and it will continue in the months to come, said Rahman.
The third challenge is private investment. Though it showed a positive trend, it is still far away from the target set in the Monetary Policy, the economist said.
“We need a massive investment to attain 7 per cent to 8 per cent growth. But it is not reflected in the present trend,” he added.
According to Bangladesh Bank, private credit growth stood at 10.11 per cent as of November last year.
“It would not be logical to expect a rise in private investment as reforms needed to boost investment are not taking place,” said Zahid Hussain.
Rising inflation will be triggered by the energy price hike and transportation costs. He said that the fuel price hike would affect other sectors, and the upward inflation trend would continue up to next June.
Anything further affecting the inflation rate would aggravate the situation.
To recover from the pandemic and boost investment, the economist suggested a risk management policy and finishing some of the Special Economic Zones to give confidence to investors.
Covid-19 may impact recovery but the new variant is not as much of a threat as perceived. But the government has to have a risk management policy in case the situation deteriorates, AB Mirza Azizul Islam, a former caretaker government advisor, told The Business Post.
“Growth will be there but it will need proper distribution. If the real wage does not increase, the poverty situation will not improve,” he added.
In the seventh five-year plan, the government set a target to attract $33 billion in FDI but attained only $11 billion. There is a gap but it is possible to bridge it if the government can complete a few SEZs, said Mustafizur Rahman.
On the other hand, the completion of One Stop Services is a must and investment focus should not be for a year; instead, it should be with long and midterm strategy, he said.
Debt service liabilities another challenge
Another big challenge will be debt service liabilities, as many borrowers who took loans from stimulus packages would be unable to repay since there had been an uneven recovery.
As recovery is not happening in all sectors, economists said loan repayment would not be similar. They said managing the debt service liabilities could be challenging for the banking sector. They suggested the government design new mechanisms to cope with the challenge.
The fuel price hike has already negatively impacted the economy and further price rise in the global market could exacerbate the situation, said Azizul Islam.
“The government should think about restoring fuel prices and take decisions on further moves so that it does not push up inflation,” he added.
