Economy offers reasons for optimism, even as chronic problems persist
Published : Saturday, 31 December, 2022 at 10:20 AM Count : 306
Economists are hopeful that Bangladesh's economy will regain the growth momentum while reducing inflation and stabilising the exchange rate in the New Year.
Despite higher inflation and fluctuating currency exchange rate, record defaulted loans, they are optimistic about the overall growth of the domestic economy, which is predicted by the IMF and World Bank to be over 6 percent still in FY23.
Major challenges including capital flight ahead of the national election, persistent loan default culture, and lack of good governance in the banking sector will however remain.
Former adviser on finance and planning to a caretaker government Dr ABM Mirza Azizul Islam told UNB that Bangladesh's economy remains in a good position compared to many other Asian countries - including Indonesia and Singapore.
The trade deficit is widening due to the sharp rise in import demand, which should be tackled by discouraging unnecessary imports and increasing domestic agriculture production. Huge import payments have eaten away at the foreign exchange reserve, he said.
Mirza Aziz said the pace of reducing the poverty rate (proportion of population under the poverty line) has slowed down. Inflation over 8 percent is pinching people's pockets, as it creates an imbalance in the earnings and expenditure of marginal people.
He also suggested cutting additional facilities for loan defaulters as it is not good for the economy and the loan default culture could be reduced if the defaulters face legal action.
Former governor of Bangladesh Bank Dr Atiur Rahman said the economy in the New Year will face both opportunities and challenges, depending mostly on developments in the global economy.
"If the war in Ukraine comes to an end the global supply chains will improve and the shipping and fuel costs will come down. This will have some positive impact in terms of reducing the level of imported inflation with a huge impact on our overall inflation as well," he said.
"However, we also need to do more on our domestic fronts to reduce this inflation," Dr Atiur added. Inflation is certainly the biggest problem for middle and low-income people.
On the other hand, if the Fed (US Federal Reserve, America's central bank) stops tightening its monetary policy, it would have some positive impact on the Taka-Dollar exchange rate. On the whole, the geopolitical tensions will continue to determine the pace of Bangladesh's economic growth and the level of inflation.
"Yet, we must continue to support agriculture, remittances, and export sectors to contribute positively from within towards better gains of our economic growth. The monetary policy should continue to move towards market-determined conditions to help stabilise inflation from the demand side," the former governor of Bangladesh Bank said.
On the whole, the challenges will remain, but the economy of Bangladesh may stabilise with a robust foundation if the global situation turns favourable and austerity measures remain in place.
There has to be even greater coordination and cooperation between fiscal policy and monetary policy to respond to these challenges in the New Year.
Former IMF economist Dr Ahsan Mansur told UNB that the prices of commodities will be coming down in the New Year and the inflation rate would stabilise. But the exchange rate will remain volatile if the government is unable to control capital flight in disguise of import, he warned.
The banking sector will go through a troublesome situation in the New Year as Bangladesh Bank has shown it cannot regulate the financial sector rigorously, Dr Mansur also said. He suggests the central bank implement policy independently to bring back discipline in the sector.