The performance of the Bangladesh economy in the first ten months of FY2023-24 indicates that despite some positive policy measures by the Bangladesh Bank, ongoing challenges will persist in the remaining months. Policy outcomes take time to materialise, and their effectiveness relies on complementary policies in other areas. Against the backdrop of formidable economic challenges, the new Finance Minister will present the National Budget for FY2024-25. While restoring macroeconomic stability remains crucial, policymakers must also provide concrete relief measures for low- and limited-income people affected by inflation. Thus, the macroeconomic framework for FY2024-25 should prioritise inflation control and exchange rate stabilisation over Gross domestic product (GDP) growth.
The above-mentioned observations emerged at a media briefing titled ‘State of the Bangladesh Economy in FY2023-24 Third Reading’ on Sunday 2 June 2024, organised by the Centre for Policy Dialogue (CPD) under its flagship programme Independent Review of Bangladesh Development (IRBD).
In his keynote presentation, Dr Khondaker Golam Moazzem, Research Director, CPD, emphasised that safeguarding the interests of vulnerable groups should take precedence, with attention given to fiscal space enhancement, expenditure prioritisation, and foreign financing. To ensure positive policy outcomes and improved macroeconomic performance, complementarity between fiscal and monetary policies is essential. In addition to short-term measures, structural issues like governance improvement and institutional strengthening through reforms need attention. Given the unpopular and challenging nature of reforms, strong political commitment is necessary for their implementation.
‘High inflation rates hovering around the 10 per cent mark have significantly increased the cost of living and decreased consumer purchasing power’, highlighted Dr Moazzem. He added that CPD’s earlier reports revealed consistently higher prices for three common types of rice in Dhaka compared to Thai and Vietnamese rice. The price of processed flour (Maida) in Dhaka began rising before the Ukraine conflict, suggesting potential domestic factors driving the increase, warranting investigation by the Bangladesh Competition Commission. As of April 2024, soybean oil was priced at BDT 105 per litre in the world market, lower than the prevailing Bangladesh market price. Similarly, as of April 2024, beef was priced at BDT 663 per kg in the world market, also lower than the prevailing Bangladesh market price.
Dr Moazzem underscored, ‘Despite our modest incomes, a considerable portion is swallowed up by food expenses. And ultimately, it is the low and middle-income earners who bear the heaviest burden in this scenario’.
The Research Director recommended that the Bangladesh Competition Commission should adopt a strong stance against cartels and a zero-tolerance policy towards collusive practices. Competition Act 2012 should be revised to address monopolies and include specific anti-trust clauses and concrete penalties for violators.
While commenting on GDP and employment, the Research Director underscored ‘The declining trend in the employment elasticity of GDP indicates a slowdown in the economy’s capacity to generate jobs’. He said that informality continues to dominate Bangladesh’s secondary and tertiary sectors, with 90.5 per cent of industrial employment and 67.8 per cent of service sector employment falling under this category, according to Labour Force Survey (LFS) 2022 data. Consequently, concerns persist regarding the availability of decent employment. Unfortunately, the current format of quarterly LFS reports lacks data on informality, wages, and income. Rectifying this omission is essential for obtaining a more accurate depiction of the labour market.
Dr Moazzem mentioned the challenge of commenting on the public finance situation, pointing out that it has been difficult due to the unavailability of timely data. Although alternative and more timely sources such as the National Board Of Revenue (NBR), Implementation Monitoring and Evaluation Division (IMED), and Bangladesh Bank can be utilised, their data is fragmented and often lacks accuracy and congruency. According to Ministry of Finance (MoF) data, total revenue collection surged by 13.3 per cent during Jul-Jan of FY2023-24, a significant improvement from the same period in FY2022-23, which saw a decline of 2.0 per cent. However, achieving the annual target would necessitate a staggering 63.2 per cent growth during the remainder of FY2023-24, an outcome that seems highly improbable.
According to MoF data, the budget deficit saw only a marginal increase of BDT 730 crore during the July-January period of FY2023-24. However, changes were noted in deficit financing composition. In this period, foreign borrowing became the primary source, contrasting with the previous fiscal year. Also, high dependency on scheduled banks for deficit financing was observed within domestic sources. Given the current tight liquidity situation in the market, there is a significant risk of increased government borrowing crowding out private investment.
The IRBD team identified five key principles to guide public finance management in the upcoming fiscal year FY2024-25. These include enhancing fiscal space, prioritising expenditure, giving precedence to foreign financing, ensuring good governance practices, and safeguarding the interests of vulnerable and disadvantaged groups.
Policymakers must reinforce current measures in fiscal-monetary areas and enhance reforms in economic management and public service delivery institutions to stabilise the external sector. Success in achieving exchange rate stability, a healthy balance of payments, and robust forex reserves is crucial for Bangladesh’s dual graduation.
To ensure long-term food security, steps must be taken to utilise fallow and cultivable waste land. Cropping intensity should be increased by transitioning single-crop lands to double and triple-crop usage. Additionally, efforts should focus on boosting domestic production, particularly of spices, wheat, and meat. Given the high demand for wheat, prioritising domestic wheat production is crucial. Despite existing incentives and subsidies, production costs remain high. Thus, the government should provide further incentives to farmers to reduce crop production costs.
Serious limitations in estimating energy and power demand by 2041 have been uncovered. Overestimating demand could lead to unnecessary investments in fossil-fuel-based infrastructure, hindering the country’s energy transition efforts. By re-estimating projected demand, it is possible to allocate 40 per cent of the total power generation capacity by 2041 to renewable energy sources like solar and wind. Attention should be focused on promoting industry-scale renewable energy generation and implementing net-metering energy generation systems.
An open-floor Q&A session with journalists from both print and electronic media followed the discussion. The study team addressed the questions and emphasised the significance of proper implementation of government policies.