Rocky road ahead for economy

According to the Bangladesh Bureau of Statistics (BBS), the country's quarterly GDP growth has halved to 3.78 percent in the second quarter of FY2023-24, the slowest pace in three quarters. This, along with a number of other factors, should make it abundantly clear that the economy is not heading in the right direction. As growth slows, inflation has edged close to double digits, rising to 9.81 percent in March. With prices rising and wages failing to maintain parity with it, consumers are feeling increased pressure as their buying capacity continues to erode over time. This is leading to decreasing domestic demand, which is also affecting businesses and investment.

The World Bank and the Asian Development Bank had earlier projected that Bangladesh's GDP growth will be comparatively lower than in previous years. However, it is not just growth that is weakening. According to the BBS, the expansion of industrial production worsened to 3.24 percent in the October-December period of 2023 from 10 percent in the same period a year before. The services sector, which accounts for half of the GDP, increased 3.06 percent in the second quarter of FY2023-24 against a growth of 6.62 percent in the same period of the last fiscal year. And growth in manufacturing actually saw a 0.45 percent decline in the second quarter of the current fiscal year.

Economists have identified three main factors for the overall decline in growth: macroeconomic mismanagement, import restrictions, and a distressed financial sector. Due to previous policy mistakes leading to the foreign currency reserves crisis, it can be argued that the government had no choice but to implement import restrictions. However, the government can have no excuse for its macroeconomic mismanagement and the distressed financial sector, given that its own policies have fed these. For years, we have stressed in this column the urgent need for financial sector reforms. But far from it, the government has continually allowed defaulted loans to grow, weakening the financial sector, by protecting vested quarters responsible for the looting of the sector.

Unabated corruption, extortion and other abuses by powerful interest groups have caused unimaginable harm to the economy. And it is an undeniable historical fact that when corruption thrives, the economy ultimately suffers—as ours is currently doing. Therefore, unless the government acknowledges this reality and conjures up the political will to change things around, it is safe to say that the economy is heading into darker clouds.