What’s in store for Bangladesh in 2023?
Both the International Monetary Fund and the World Bank have painted a gloomy scenario for the global economy for 2023 as uncertainty persists amid the protracting Russia-Ukraine war, the volatility in the international energy market and higher inflation. The world is expected to head for a recession.
Two weeks ago, World Bank Chief Economist Indermit Gill said they expect the global economy to grow by less than 3 per cent, and 2023 will be even worse.
The world faces record debt levels, declining investment rates, high inflation and widespread hunger.
"As a result of all of these things, there is actually growing political instability. Things have become a lot worse in these 11 months," he said.
"Overall, this year's shocks will re-open economic wounds that were only partially healed post-pandemic. In short, the worst is yet to come and, for many people, 2023 will feel like a recession," wrote Pierre-Olivier Gourinchas, the director of research of the IMF, in October.
Under such a grim prognosis, Bangladeshis will ring in 2023.
Although the country is expected to surpass the global average growth rate comfortably, headaches for the country are deepening. This is because the economy is beginning 2023 on the back foot for the depletion of the foreign currency reserves, the higher US dollar rate, the runaway inflation, gas shortage, lower remittance, and moderate exports.
"The situation is very uncertain," said MM Akash, a professor of the department of economics at the University of Dhaka.
Some of the problems are known for ages. They include the governance in the banking system and the lower tax-to-GDP ratio. But little has been done to resolve them.
But the banking sector has already seen the first glimpse of the cost of inaction when depositors began to pull out funds fearing that banks might become insolvent after loan-related irregularities involving some Shariah-based lenders surfaced recently.
While the taka depreciation and softening of some commodity prices could improve terms of trade in the medium-term, global ratings agency Moody's expects the energy crisis to exacerbate balance of payments and liquidity risks in the near-term.
"2023 would be a difficult year if large economies face recession and China finds it very difficult to overcome the current struggle," said Zahid Hussain, a former lead economist at the World Bank's Dhaka office.
The three largest economies -- the United States, China, and the euro area -- will continue to stall, said the IMF.
"If Europe encounters a deep recession for a longer period, it would be bad news for Bangladesh," said Hussain. The continent accounts for more than 60 per cent of the country's export earnings.
Hussain suggests Bangladesh move out of the wrong steps as quickly as possible.
"Bangladesh Bank has said that it would make the exchange rate uniform and go for a floating rate when the situation returns to normalcy. It is like taking medicines after the disease is cured. The situation would not return to normalcy if you don't remove the bottlenecks."
He, however, acknowledged that removing multiple exchange rates and the lending rate cap are not the panacea. "But they stand in the way of increasing the supply of US dollars."
The economist estimated that Bangladesh is at least losing half a billion US dollar in remittance per month to informal channels because of the system.
Bangladesh is trying to secure a $4.5 billion in loan from the IMF over a three-year period.
"If the country makes just a one reform, $6 billion would flow into the country every year," he said.
More than 10 lakh migrant workers are estimated to have left the country for jobs abroad. And these workers went to the countries where economies are booming for the price hikes in commodities and inflation is hovering around 3 to 5 per cent.
"The capacity to send remittance has not declined. So, we need a market-based uniform rate of the buying and selling of the US dollar. And this can be done overnight," said the former World Bank economist.
Nazneen Ahmed, country economist at the United Nations Development Programme, thinks 2023 would not be an easy year for Bangladesh.
"It would again test the country's resilience to various shocks. Higher inflation is still persisting and would remain a concern in 2023."
She said it would be difficult to check higher inflation amid the post-pandemic recovery, the election year and the pressure to create jobs. So, she called for drawing up strategies to minimise the impacts of higher consumer prices on the low-income groups and the poor.
There is a concern that there might be food shortage globally.
But Ahmed says she does not think that Bangladesh would face any major food crisis. "We had a good harvest in 2022. And Bangladesh grows its main food on its own."
Ahmed suggested the government maintain its restrictions on unproductive and non-essential expenditure and travels in order to save the US dollar and fast-track the implementation of the ongoing mega projects.
Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, said the country would have to improve its balance of payments position by raising export and remittance receipts. Similarly, the exchange rate management will have to be made market-oriented.
"The coordination between the fiscal policy and the monetary policy has to be ramped up to counter imported-inflation. Social safety net programmes have to be strengthened. Domestic resources mobilisation should get priority."
The former professor at the University of Dhaka called for accelerating digitalisation at the National Board of Revenue and showing zero-tolerance to capital flight.
"Good governance has to be ensured at all levels."
The new year comes at a time when commodity prices are showing a downward trend whereas oil prices are moving upwards.
"So, we will have to formulate policies in a dynamic manner. This is a volatile situation, so sticking to a one policy might not work. Policy-making has to be evolving depending on requirements."
Facilitating the opening of letters of credit, needed to accelerate the economic growth, would be particularly difficult amid a drastic fall in reserves. If reserves continue to decline and the price of the dollar keeps increasing, businesses, except for exporters, will fall into trouble. Businesses have already become wary because of the worsening political climate.
"Experience shows that the economy does not perform well in an election year," said Muinul Islam, a former president of the Bangladesh Economic Association.
Investments might slow in 2023 as investors will be cautious in injecting fresh funds apprehending political instability, according to Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
In 2023, the government would have to restore discipline in the banking sector. Otherwise, it would not be able to get rid of the ongoing liquidity crunch and play its due role in the economy. Banks are the biggest financiers in Bangladesh.
Standard Chartered Bank Group Chairman José Viñals is, however, optimistic.
He said some of the headwinds the world saw in 2022 would moderate in 2023 and the challenges that Bangladesh is now having are of external origin, mostly.
He thinks inflation has peaked in the US and the European Union, the largest export markets for Bangladesh. China is also opening up after abandoning its zero-Covid policy. There has been improvement in India, Asean and other economies.
"All of these are going to have a beneficial impact on Bangladesh," Viñals told The Daily Star during an interview in Dhaka last month.
"The implementation of the IMF programme, once it is confirmed in January, and the reduction of external headwinds will make 2023 a better year for Bangladesh and put the country on the higher growth trajectory going forward."