Where is the economy going?

That’s the question I’ve seen from the investment community in the US, India and Singapore over the past month. They asked where the exchange rate could fall and where the local currency lending rate could go. If they invest in Bangladesh, can they get their return on investment timely and easily?

Bangladesh’s economy continues to suffer due to high inflation and low foreign exchange reserves. Imports, ranging from capital machinery to raw materials and industrial goods, declined for the second year in a row, attributed to the ongoing dollar crisis.

GDP growth and job creation both show signs of decline and private investment stagnates and inequality and poverty rise.

The recent turmoil can be blamed on long-overlooked internal faults. There are many faults including irregularities in the banking sector, informal channels of remittances, untimely repatriation of export earnings, poor management and institutional capacity, low revenue collection, rising public debt, and the obstinate stance of regulators. Exchange and interest rates for long term.

The economy’s ability to absorb shocks has weakened significantly in recent times. Almost two years of high inflation have reduced the purchasing power of the poor and their living standards.

The World Bank’s poverty outlook for Bangladesh shows that nearly half a million Bangladeshis will fall into extreme poverty between FY2022-23 and FY2023-24. This segment of the population is expected to live on less than $2.15 a day.

According to the World Food Programme, nearly 40 million people are identified as food insecure. From May 2023 this trend can be seen to gradually increase.

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The tightening of imports has had knock-on effects on manufacturing through its spillover effects on investment and job creation.

Bangladesh Bank data shows a continuous decline in overall imports for two consecutive years. Imports fell by nearly 16 percent in FY23. It saw a further decline of 15.36 per cent year-on-year in July-February of the current financial year.

A more serious concern is the decline in opening of letters of credit for imports of capital machinery, which fell by 19 percent in July-February. Imports of industrial raw materials and intermediate goods declined by 4.09 percent and 17 percent respectively.

The stagnation of private investment, which has been the primary driver of Bangladesh’s impressive economic growth for more than a decade, has been a significant concern, apart from the pandemic year.

Without a substantial increase in local and foreign private investment, Bangladesh will struggle to sustain economic growth and create much-needed jobs for the roughly 2.5 million young people who enter the workforce each year.

Also, we have not succeeded in creating a dynamic private sector. Instead of being used for productive purposes, bank loans are sanitized and allegedly robbing the country.

Foreign direct investment remains significantly lower at 0.7 percent of GDP, largely due to an unfriendly business environment. On the other hand, persistently rising inflation reduces people’s purchasing power and saving capacity.

New investments are trivial. Existing ones are reinvesting. A primary issue with FDI is that investors face challenges while repatriating profits. Also, complex taxation increases barriers.

In the face of these challenges, we emphasize the need for policy interventions to stimulate economic growth and create jobs, stimulate private sector investment, foster savings and boost investor confidence through better marker management. Without such measures, it will be difficult for Bangladesh to achieve the status of a middle and high income country.

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The columnist is an economic analyst

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