A discussion of the problems highlighted in Dr. Fahmida Khatun’s analysis of the Bangladesh economy in 2024:
High Inflation:
Dr. Khatun points out that high inflation has been a persistent problem, significantly impacting the cost of living and reducing consumer purchasing power. The monthly average inflation rate, as of June 2023, was 9.02 percent, with notable increases in both food and non-food inflation rates. This rise in inflation has been fueled by various factors including supply disruptions, global events affecting fuel and commodity prices, and possibly structural issues within the domestic economy.
Fragile Banking Sector:
The banking sector in Bangladesh is facing significant challenges, particularly concerning non-performing loans (NPLs). The amount of NPLs has been steadily increasing, reaching a substantial figure by the fourth quarter of FY23. The misappropriation of funds through various irregularities within the banking sector has also contributed to the sector’s instability, with significant financial implications for the economy.
Revenue Collection and Fiscal Space:
There is a shortfall in revenue collection compared to the targeted ratio of revenue to GDP. This not only affects the government’s ability to meet its financial obligations but also limits its capacity to support low-income families affected by high inflation. Dr. Khatun emphasizes the importance of increasing revenue collection through improved efficiency in institutions such as the National Board of Revenue.
Exchange Rate and Forex Reserves:
The exchange rate volatility and declining forex reserves pose challenges for Bangladesh’s external sector. The Bangladesh Bank has undertaken measures to improve the balance of payments and stabilize forex reserves, including restrictions on imports of luxury consumer items. The article stresses the importance of sound exchange rate management and the need to address the declining trend in remittances.
Structural Reforms and Economic Governance:
Dr. Khatun emphasizes the critical need for structural reforms and the establishment of economic good governance. This includes addressing weaknesses in public institutions, combating corruption, and promoting inclusive growth to reduce inequality.
In summary, Dr. Fahmida Khatun’s analysis paints a comprehensive picture of the economic challenges facing Bangladesh in 2024. From high inflation and a fragile banking sector to issues related to revenue collection, exchange rates and structural reforms, the article underscores the urgent need for decisive actions and strong political commitment to navigate through these challenges and foster sustainable economic growth.
In 2024, policymakers face a complex set of challenges that demand immediate attention.
Firstly, controlling inflation is crucial to maintaining economic stability and ensuring the purchasing power of consumers. High inflation rates can erode savings, reduce consumer confidence and hinder economic growth. Policymakers need to implement measures such as monetary policy adjustments, supply chain management and targeted fiscal policies to effectively manage inflationary pressures.
Secondly, increasing revenue collection is essential for funding government expenditure and investment in critical sectors such as infrastructure, healthcare, and education. This requires improving tax compliance, broadening the tax base, combating tax evasion and exploring alternative sources of revenue generation. By enhancing revenue collection, policymakers can strengthen fiscal sustainability and support long-term economic development.
Thirdly, stabilizing the exchange rate is vital for promoting trade competitiveness, attracting foreign investment, and maintaining macroeconomic stability. A volatile exchange rate can disrupt business planning, deter foreign investors and exacerbate inflationary pressures. Policymakers may implement measures such as foreign exchange market interventions, monetary policy adjustments and structural reforms to manage exchange rate fluctuations and foster a conducive business environment.
Lastly, improving forex reserves is essential for safeguarding against external shocks, maintaining confidence in the domestic currency and supporting import-dependent sectors. Adequate forex reserves provide a buffer against balance of payments crises and ensure the availability of foreign currency for essential imports. Policymakers can enhance forex reserves through prudent monetary management, attracting foreign direct investment and implementing policies to promote export growth.
In summary, addressing these immediate issues such as controlling inflation, increasing revenue collection, stabilizing the exchange rate and improving forex reserves requires proactive and targeted policy interventions. By effectively managing these challenges, policymakers can strengthen economic resilience, foster sustainable growth and enhance the overall well-being of the population in 2024 and beyond.
Reference: What to expect from Bangladesh economy in 2024 – Fahmida Khatun | CPD