Home ›› 29 Sep 2022 ›› Front
The rise in domestic energy prices may undermine Bangladesh’s expected growth in FY23 and increase poverty, by diverting budgetary resources away from productivity-enhancing investment and social protection, according to the central bank.
“The cost-push shocks to the Bangladesh economy could intensify due to compounding adverse effects of elevated global commodity and energy prices, recent upward adjustment of petroleum and fertilizer prices in the domestic market, and a significant depreciation of Taka against USD,” said the Bangladesh Bank in its quarterly (April-June 22) report released on Wednesday.
“Rise in domestic energy prices may undermine the growth, increase poverty, and divert budgetary resources away from productivity-enhancing investment and social protection,” said the report.
Last week, the Asian Development Bank lowered its forecast for Bangladesh’s GDP growth to 6.6 per cent for fiscal 2022-23 from its April projection of 7.1 per cent. The figure is much lower than the government’s target of 7.5 per cent in the fiscal year.
“The Bangladesh Bank’s report paints the real picture,” Policy Research Institute (PRI) Executive Director Ahsan H Mansur told The Business Post.
“The whole world is facing growing inflationary pressures. Bangladesh is no exception. Aman production was disrupted, threatening food shortages,” he said.
The BB report said austerity measures of the government in the face of strained foreign currency reserves and elevated inflation may reduce overall expenditure including ADP expenditure in FY23.
However, the lower revenue-GDP ratio (8.6 per cent in FY22) is expected to be increased slightly as the country is expected to experience higher GDP growth in FY23 compared to that in FY22.
On inflation, the report said compounding adverse effects of elevated global commodity and energy prices, recent upward adjustment of petroleum and fertilizer prices in the domestic market, and a significant depreciation of the local currency against the American greenback could intensify the cost-push shocks to the economy.
“The tight market conditions for essential items including fuel price in the global front will likely have lasting knock-on effects on the domestic market,” said the report.
Food security
Moreover, the sharp rise in input prices-fuel and fertilizers–could lead to a reduction in food production which in turn will weigh on food quality and availability, it said.
Although much will depend on unfavorable weather conditions during the Aman cultivation period, a downward nudge of the world food and non-energy prices in June 2022 will likely influence the domestic food market in the coming months, it added.
Notwithstanding, according to the new prediction by the US Department of Agriculture, Bangladesh may harvest less Aus rice in the forthcoming crop. The report also predicted probable stress over the grain market of Bangladesh due to the rise in local prices for rice, wheat, and corn stemming from the ongoing Russia-Ukraine war, and India’s restriction on wheat exports, the report mentioned.
External Sector
Elevated global commodity and energy prices created significant challenges to the external sector during FY22 by pushing import payments up, which outstripped the rise in export earnings.
But the government initiatives to attract remittance inflows along with faster growth in Gulf Cooperation Council (GCC) countries may help recovery in remittance inflows which in turn might be supportive to improve the current account deficit in the near future, hopes the central bank.
Restoring macroeconomic resilience might attract foreign direct investment (FDI) inflows, which, in turn, will boost financial inflows.
Higher financial inflows which increased continuously in the last several quarters with some exceptions may increase further in the coming periods and will help somewhat to reduce the deficit of the overall balance of payment (BOP).
However, a further escalation of the Russia - Ukraine war could pose a downside risk by intensifying the global supply shocks which might, in turn, hamper the trade situation.
Industrial Production
Industrial production growth can help boost GDP growth. But the quantum index to medium and large-scale manufacturing industries declined to 489.7 in Q4 of this year compared to the same period of the previous year.
However, the central bank expects that moderately increasing private sector credit growth will help boost industrial production growth.
“Upon healthy growth of credit to the private sector (13.66 per cent) and higher growth of credit to different productive sub-sectors such as industry (11.93 per cent), construction (10.02 percent) throughoutinQ4FY22 will help to increase industrial production.”
Bank liquidity position
Liquidity in the banking system maintained mostly a downward trend throughout the fiscal year, mainly because of a partially sterilized intervention in the foreign exchange market coupled with a rising growth of private sector credit and a declining deposit growth. Consequently, interest rates in the interbank money market edged up to some extent.
Among the indicators related to the performance of the banking sector, a rise in non-performing loans and provisioning shortfall on the one hand and advancement in profitability and maintaining adequate liquidity on the other reflected a mixed performance of the industry at the end of FY22, according to the report.
