Originally posted in The Financial Express on 1 January 2025
New Year dawns amid cautious optimism
Post-uprising Bangladesh makes fresh start with expectations coupled with hangover of tumults
Bangladesh joins the world to ring in the New Year 2025 with expectations for a socioeconomic resurgence as 2024 departs with indelible historical footnotes on political upheavals and changeover left behind.
For Bangladesh, the bygone year will remain a landmark chapter of history for the July-August events leading the ouster of a long-serving ruler in a student-mass uprising. It also may remain a one-off event that the country rolled in a vacuum sans a government for three days since the August-5th fall of the Hasina regime and her escape to India.
Apart from the political tumults — at home and many pockets of the world, including Syria — the year 2024 was an annus horribilis in that people in Bangladesh endured pain of high inflation while the banking sector suffered some loss of confidence for alleged massive forgeries by oligarchs.
However, analysts believe, the most pressing issue remains restoration of normalcy in public life and security, achievable only through political stability in the year just heralded in the Gregorian calendar (2025).
Public administration has yet to return to its full functionality, adversely impacting the delivery of essential public services.
On the economic front, inflation may remain a sore point-as prices of agricultural produce now decreased substantially but local manufactures and imports remained costly with jacked-up rates.
Economists and businesses highlighted these challenges as the New Year began Wednesday after overnight celebrations of the Thirty-first Night, save Palestine where cruel aggression by the Israeli forces of Netanyahu dehumanized humans.
“The new year inherits many economic troubles, including higher inflation,” says Dr Zahid Hussain, an independent economist.
“I hope we can stick to the corrections already made in interest-rate policy and address the ones still pending,” he adds.
Dr Hussain, a former lead economist at the World Bank, notes that Bangladesh has struggled to make clear progress in exchange-rate management.
“Recent moves such as capping the rate on remittance dollars, feel like old wine in old bottles,” he remarks.
The economist also appears critical of the government’s policy approach towards price stabilisation.
“Market management needs a revamp. The administration should abandon its outdated methods,” he suggests, as conventional government interventions with fiscal waivers and monetary contraction couldn’t make desired a mark.
Banking-sector reforms: Reform expectations remain high in the banking sector. In this context, Dr Hussain praises the Bangladesh Bank for maintaining depositor confidence but stresses that the new leadership must deliver on promised reforms to address chronic issues in 2025.
Another economist, Dr Abdur Razzaque, chairman of RAPID, echoes these sentiments, singling out macroeconomic management as a significant challenge for the incoming year.
Controlling inflation, boosting foreign reserves, and addressing the struggles of the banking sector are top priorities in his view.
He also highlights people’s increasing demand for credible progress under the interim government, led by Prof Muhammad Yunus.
The Ramadan period, he alerts, would serve as a critical test for the administration’s ability to stabilize prices and protect vulnerable populations.
“Middle-class consumers, alongside the poorest segments, expect measures to prevent steep price hikes during Ramadan,” he told The Financial Express.
Geopolitical and global trade challenges: Geopolitical tensions and global trade uncertainties add another layer of complexity Bangladesh has to navigate as yet.
Dr Razzaque warns of potential disruptions from ongoing tariff wars involving China, the US, and the EU, as well as the upcoming return of President Trump, which could exacerbate trade conflicts.
“These developments could significantly impact Bangladesh’s exports and complicate macroeconomic management,” he says.
Budget and fiscal management also remains a daunting task ahead. The preparation of the next budget poses a formidable challenge, especially amid questions surrounding past economic data.
The White Paper Committee’s findings on inconsistencies in economic activities add pressure to delivery of a credible budget with clear policy directions.
“The public expects responsible, innovative, and accountable approaches to fiscal management under the Interim Government,” Dr Razzaque emphasizes.
Dr M. Masrur Reaz, founder-chairman and CEO of Policy Exchange Bangladesh, sees a silver lining on the horizons of 2025 despite the risks posed by high inflationary pressure on the economy.
He notes that inflation may ease in the second half of the year.
Dr Reaz also expresses optimism about export growth, stating that demand for Bangladeshi-made goods is increasing in its key export destinations.
Reflecting on 2024: The concerns of 2025 are rooted in the turbulence of 2024, a year marked by historic events. The biggest one is the July-August uprising that forced Sheikh Hasina to abdicate and flee the country.
The sorry state of the banking sector, stock market, and rampant corruption in various sectors went on dominating public discourse.
Skyrocketing prices of essentials drove inflation throughout the year, severely impacting citizens’ life and livelihood.
Following the end of Hasina era, the Yunus-led stand-in government initiated several reform measures, particularly in financial-sector oversight, banking-sector taskforces, administrative restructuring, and election-commission recast.
The publication of the White Paper further aimed to establish transparency and accountability in the run of state affairs.
The 2025 outlook: As 2025 sets in, Bangladesh faces a critical juncture. Easing of adversities on the macroeconomic front-such as rising remittances, stable foreign-exchange reserves, and foreign-funding inflows-offers some hope for a potential economic recovery in 2025.
Political uncertainties may also lessen in the latter half of the year, depending on clarity surrounding the next parliamentary elections.
Success will depend on how effectively the interim government addresses these challenges and implements reforms to restore public trust and economic stability.
The year 2025 would be crucial for democratic transition and economic turnaround, and framing a clear roadmap is necessary to ensure coordinated efforts for fighting challenges.
Inflationary pressure may continue in the first half of the new year while restoration of predictability on national election may help in attracting investment.
There is better governance, transparency and strong position against corruption that would encourage foreign investment, analysts say.
The major economic headwinds were raised by country’s two other noted economists–Prof Mustafizur Rahman and Prof Selim Raihan.
Professor Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), says 2024 can be seen in two parts–before and after August–but economic challenges such as high inflation, pressure on foreign-exchange reserves and exchange rates, investment slowdown, employment continued as usual.
However, the mass uprising in August last raised lots of aspirations, both short-term and long-term, in 2024.
“I think, short-term challenges have not been addressed properly though having some improvements in foreign-exchange reserves and a sort of predictability on national elections,” he told the FE.
“The government needs to strengthen the macroeconomic management to control inflation and stimulate investment and creation of employment opportunities in 2025.”
An environment conducive to the economy is imperative centering round the upcoming national elections, he added.
“The uncertainly seems to be fading away. So we can grab the opportunity to attract foreign direct investment as some predictability has been restored,” he notes.
Accumulated challenges are there and it may not be so easy to combat, but there are “mixed signals”.
On law-and-order situation, he laid emphasis on maintaining conducive environment as it has been assumed that there will be several contentious issues ahead of elections.
“The government must continue anti-corruption drive and keep enforcement agencies like the Anti-Corruption Commission vibrant,” he suggests.
At least starting implementation of the recommendations of reform commissions, taking preparation on LDC graduation, taking care of agriculture production may pay off.
The economist foretells 2025 will be a year of political transition and economic challenges mitigation.
Dr Selim Raihan, professor at the Department of Economics at the University of Dhaka and Executive Director of South Asian Network on Economic Modeling (SANEM), airs his dissatisfaction over the government’s effort to contain inflation.
“I don’t find any success of the interim government in containing inflation in the last five months,” he says.
Steps to contain overall inflationary pressure, mounted in the last few years, was absent, though there is minor price fall in some items, he adds.
“The central bank has been increasing policy rates but our inflation is not caused by only these monetary issues. There are other structural issues.”
During the last two and a half years, the high inflationary pressure has eroded real income, so demand contraction reached optimum level.
“BB’s measure is one-sided policy. Coordinated fiscal, monetary and market policy is required to take effective measures,” he says.
“In an extraordinary situation, when inflation could not be controlled in any way, I did not find no such step is there while our other neighbouring countries have succeeded in controlling inflation.”
He suggests creating a high-powered platform led by the Ministry of Commerce. Also, major stakeholders like Bangladesh Bank, the National Board of Revenue, the Ministries of Food, and Agriculture must be a part of the step to work in a coordinated way.
Dr Raihan says when Bangladesh Bank raises policy rates, the NBR should act with complimentary steps by reducing import taxes on particular products.
Competition commission can be involved to check anti-competitive practices, he says, in relation to group control of markets by few big businesses.
The platform should also engage with the businesses to look into import barriers.
“Inflation is the centre-point on economic challenges,” he mentions.
He feels the need of a clear roadmap for the NBR to overhaul it and private sector must be aware of this to plan domestic and foreign investment.
There are some initiatives to reform banking sector but not in a comprehensive manner.
“A clear and visible step is needed. Otherwise, the allegations that we have raised against the past regime that there is not strong economic leadership for solving the economic challenges may apply to this regime, too,” he concludes.