In the fourth quarter of FY23, Bangladesh’s macroeconomic conditions continued to show sluggish growth, causing concern for businesses. To address this situation in FY24, the government should implement continuous measures while considering the global economic context.
Throughout FY23, challenges persisted, including disruptions in the supply chain, rising oil and food prices, inflation, weak remittance inflows, a deficit in tax revenue collection, reduced public spending, Taka depreciation, dwindling foreign exchange reserves, low foreign direct investment (FDI), and a rising unemployment rate. These challenges remained largely unchanged in the Q4 of FY23.
However, amidst these difficulties, the country’s exports and imports performed relatively well. Foreign currency reserves remained somewhat satisfactory but on a declining trajectory, according to findings by the Metropolitan Chamber of Commerce and Industry (MCCI), in their report “Economic Situation in Bangladesh April-June 2023 (Q4 of FY23).”
The report noted that Bangladesh’s robust economic recovery from the Covid-19 pandemic was disrupted by the Russia-Ukraine war. Nevertheless, there were some signs of improvement in the reviewed quarter (Q4 of FY23). To address these challenges, the government swiftly implemented measures but must take further actions to stabilize foreign exchange reserves, manage inflation, boost revenue earnings, ensure consistent electricity and gas supply for economic activities, and expand social safety net programs.
Regarding FDI, the report highlighted that Bangladesh attracts relatively low foreign investment compared to similarly developed countries. While the country’s low labour costs are appealing to foreign investors, various impediments such as underdeveloped infrastructure, energy shortages, inconsistent policies, lack of industrial land, corruption, and uneven application of regulations deter fresh investments.
Addressing these obstacles is crucial to attracting more FDI and ensuring the country’s economic recovery from the pandemic.
Notably, major bilateral development partners, including China, India, and Russia, did not commit to providing foreign aid during the review period. The report attributed this to the global economic crisis and the government’s austerity measures in public spending for development projects, discouraging public agencies from initiating new initiatives. Ongoing foreign-funded projects also faced delays due to these austerity measures.
The report also highlighted that rising prices of key construction materials, such as mild steel rods, cement, stone, and bricks, have impacted the construction and real estate sectors. Many companies in these sectors are struggling with price volatility, which is primarily driven by increases in raw material prices in the international market, triggered by the Russia-Ukraine war and other local and global factors.
Additionally, the dollar crisis in the country has contributed to higher import costs, exacerbating the situation.
Manufacturing and construction industry
Regarding the manufacturing and construction industries, the report noted that data for the industry sector in the Q4 of FY23 is not yet available. However, the sector faced challenges due to the Covid-19 pandemic and the Russia-Ukraine war, resulting in a lower growth rate of 8.18% in FY23, down from 9.86% in FY22.
The industry sector’s contribution to GDP increased slightly by 0.64 percentage points, reaching 37.56% in FY23 compared to 36.92% in FY22.
In the manufacturing sub-sector, growth was slower, with a rate of 9.23% in FY23 compared to 11.41% in the previous fiscal year. Among manufacturing categories:
The large industry sub-sector also experienced a reduced growth rate of 8.46% in FY23, down from 15.68% in FY22.
Conversely, small, medium and micro industries performed relatively better, growing at 9.73% in FY23 compared to 4.84% in FY22.
The cottage industry grew by 10.69% in FY23, slightly down from 11.12% in FY22.
The manufacturing sub-sector’s contribution to GDP increased to 24.95% in FY23, up from 24.29% in the previous fiscal year. Specifically, the share of the large industry sub-sector in GDP rose to 13.01% in FY23, compared to 12.75% in FY22.
Small, medium, and micro industries also increased their share, reaching 7.57% from 7.33%.
The cottage industry’s contribution to GDP increased to 4.38% in FY23 from 4.21% in FY22.
In contrast, the country’s construction sector, according to provisional data from the BBS, grew at a slower rate of 6.41% in FY23 compared to 8.71% in FY22.
Real estate activities, which are closely linked to the construction sector, recorded a growth rate of 3.87% in FY23, slightly up from 3.70% in FY22.
Price and inflation
According to the latest data from the Bangladesh Bureau of Statistics (BBS), the country saw a slight decrease in overall inflation, dropping to 9.74% in June 2023 from 9.94% in May 2023, despite a 0.49 percentage point increase in food prices.
This marginal decline in June’s inflation is attributed to a reduction in the prices of non-food items. In comparison, the inflation rate in June 2022 was significantly lower at 7.56%.
In the fiscal year that just concluded (FY23), the average inflation rate over 12 months stood at 9.02%, whereas in the previous fiscal year (FY22), it was 6.15%.
The services sector encompasses various sectors like wholesale and retail trade, hospitality, transportation, finance, real estate, public administration, education, healthcare, and more.
However, due to the impact of the Covid-19 pandemic and the Russia-Ukraine war, the services sector experienced slower growth, registering at 5.84% in FY23, down from 6.26% in FY22.
Additionally, the sector’s contribution to GDP decreased slightly by 0.24 percentage points, going from 51.48% in FY22 to 51.24% in FY23.
As per the latest data from the Export Promotion Bureau (EPB), export earnings for the services sector declined by 10.93% to $6.35 billion in July-April of FY23, compared to $7.13 billion during the same period in the previous fiscal year.
Furthermore, the earnings in July-April of FY23 fell short of the strategic target of $7.54 billion by 15.84%.
Monetary and credit development
Broad money (M2) recorded a growth of 10.48% at the end of June 2023 compared to 9.43% growth achieved at the end of June 2022.
June’s growth was below the central bank’s revised target of 11.50% set in the Monetary Policy Statement, January–June 2023 (MPS, H2FY23).
Domestic credit, on the other hand, grew by 15.25% at the end of June 2023, while a higher growth rate of 16.10% was recorded at the end of June 2022.
Among components of domestic credit, private sector credit registered a lower growth of 10.57% during the period between June 2022 and June 2023, compared with a higher growth of 13.66% during the period between June 2021 and June 2022. Private sector credit growth was also below the central bank’s revised target of 14.10% in June 2023 (MPS, H2FY23).
The total liquid assets of scheduled banks stood lower at Tk421,233 crore at the end of June 2023, compared with Tk441,681 crore at the end of June 2022. The minimum liquidity requirement of the scheduled banks was Tk254,963 crore at the end of June 2023. The scheduled banks thus held an excess liquidity of Tk166,270 crore as of the end of June 2023.
Public finance
According to provisional data of the National Board of Revenue (NBR), the tax revenue collection grew by 9.89% to Tk3,31,455 crore in FY23 compared to Tk3,01,634 crore in FY22 despite posting a shortfall of Tk38,545 crore or 10.42% against the target (Tk3,700,00 crore).
The government’s austerity measures and restriction on the import of products squeezed the overall expenditures resulting in the revenue collection shortfall.
Compared to their respective targets for July-June of FY23, all three wings of the NBR lagged behind their respective targets.
Public expenditure
The implementation rate of the Annual Development Programme (ADP) in FY23 stood at 84.16%, 8.58 percentage points lower than the previous years’ 92.74%.
According to the Implementation Monitoring and Evaluation Division (IMED), the government ministries and agencies had failed to improve their capacity even after repeated reminders to them for expediting the development works and even after recovery from the Covid-19 impact when the project works were affected severely.
The IMED monthly progress report showed that the implementation rate of the ADP in June of FY23 alone was much lower at 22.44% compared to 27.90% in June of FY22.
Primarily, the government framed a Tk2,56,000 crore ADP. Later, it was revised downward to
Tk2,36,561 crore during the 3rd quarter of FY23 due to the inability of the government agencies to implement their target project works.
Foreign aid
According to the Economic Relations Division (ERD) provisional data, the disbursement of foreign aid fell by $1.47 billion or 21.52% to $5.36 billion in July-March of FY23 from $6.83 billion in July-March of FY22 when the country faced a foreign exchange crunch.
Out of $5.36 billion,$5.02 billion came as concessional loans while $0.34 billion came as grants.
The development partners, including the Asian Development Bank (ADB), the World Bank (WB), the Japan International Cooperation Agency (JICA), China, Russia, and the Islamic Development Bank (IDB) disbursed concessional loan every year for the development of Bangladesh.
During the period under review, JICA alone provided $1.30 billion, the highest amount of assistance. Besides, the WB disbursed $854.30 million, the ADB disbursed $801.93 million, Russia $747.20 million, China $637.97 million, the Asian Infrastructure Investment Bank (AIIB) $336.39 million, and India disbursed $208.66 million.
On the other hand, development partners’ commitments of foreign aid decreased by $2.35 billion or 43.28% to $3.08 billion in July-March of FY23 from $5.43 billion in July-March of FY22.
Out of $3.08 billion aid commitment, the development partners confirmed $2.80 billion worth of loans and $0.28 billion as grants.
Foreign Direct Investment (FDI)
The net foreign direct investment (FDI) in FY23 decreased by 11.82% to $1,611 million from $1,827 million in FY22, according to the BB’s balance of payments data.
On the other hand, the gross inflow of FDI during July-June of FY23 also decreased year-on-year by 2.82% to $4,503 million from $4,636 million.
Balance of Payments (BoP)
Higher external spending against lower earnings caused Bangladesh’s balance of payments (BoP) situation to deteriorate into a large deficit worth $8.22 billion in FY23 from a deficit of $6.66 billion in FY22, thus further denting its forex reserves.
The BoP woes have largely been driven by a sharp deficit in the financial account and current account in FY23.
According to the Bangladesh Bank’s (BB) latest data, the country’s current account balance recorded a lower deficit of $3.33 billion during July-June of FY23 compared to a $18.64 billion deficit during the corresponding period of the previous fiscal year, mostly due to a narrowing of trade deficit.
The trade deficit with the rest of the world narrowed by 48.41% to $17.16 billion in FY23 from $33.25 billion in FY22 due mainly to import spending dropping by 15.76% against export receipts increased by 6.28% in FY23.
Bangladesh had a financial account surplus of more than $15.46 billion in FY22 but it was in a large deficit amounting to $2.14 billion in FY23 in a reversal of the macroeconomic health.
The capital account, another key component of the BoP, was in surplus, at $473 million in FY23, up by 161.33% from $181 million in FY22.
Source : Dhaka Tribune