Bangladesh’s growth to slow, unlikely to face recession

Bangladesh is unlikely to fall into any recession but its economic growth may slow down in 2023 because of high inflation, dollar crisis and problems in the banking sector, said economists yesterday. 

And these challenges, particularly the dollar crisis and problems in the banking sector, are not going to dissipate soon. Rather, those are going to be a drag on the economy, they said.

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They shared their views over IMF Managing Director Kristalina Georgievas stating recently that a third of the world's economies would hit recession in 2023 as the main engines of global growth – the US, Europe and China – were all experience weakening activity.

"Even countries that are not in recession, it would feel like recession for hundreds of millions of people," she said in an interview on the CBS Sunday morning news program "Face the Nation".

The warnings come at a time when Bangladesh faces various challenges -- elevated inflation, dollar crisis, energy shortage and problems in the banking sector – which it has not encountered in recent decades.

Earlier this week, Bangladesh Bank and the Export Promotion Bureau released remittances, balance of payments and export earnings data, which are expected to ease pressure on the country's foreign exchange reserves.

Ahsan H Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh, said the country's situation was not that bad in context to the global scenario.

"But our economic growth will go down to 5.5 per cent to 6 per cent this fiscal year because of the slowing down of economic activities," he said, citing a consistent decline in the manufacturing index for the last three months.

International Monetary Fund (IMF) in October last year cut Bangladesh's growth forecast to 6 per cent for fiscal year 2022-2023 from its previous projection of 6.7 per cent, citing high energy, food prices and interest rates, inflation and the Russia-Ukraine war.

Mansur said Bangladesh's exports have grown in December while remittance inflow did not decelerate.

However, the foreign exchange market is unlikely to become stable soon until the problems of short-term debt overhang and settlement of letters of credit (LCs) are resolved, he said.

"The dollar crisis is likely to continue for more days," he said.

"Secondly, the situation of the banking sector is getting worse. It is not clear where the end of this problem is. Instability in these two sectors is likely to continue," he said.

However, the good thing is that commodity prices are falling internationally, said Mansur.

"We will get some relief. Domestic production of rice and vegetables has been good so far. Overall, inflation is expected to be in the downturn," he said.

"Overall, it would not be wise to think that our crisis will be over immediately," he added.

Mirza Azizul Islam, a former finance and planning adviser to a caretaker government, said he does not see any possibility of a recession in Bangladesh.

"Recession means two consecutive quarters of negative growth. We will not face this sort of situation," he said.

Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, said the IMF's warning was not good news for Bangladesh as it was connected to the global economy through various ways, particularly exports.

Recession in major economies may also affect foreign aid and foreign direct investment here, he said.

However, as a big portion of the Bangladesh economy is dependent on the domestic market, emphasis should be given on ensuring an adequate supply of gas and electricity to keep production unaffected in factories, he said.

At the same time, the country needs to focus on the Asian and regional markets to diversify destinations of products as chances of a recession in the Asian market are low, he said.

So, production in the export market-oriented factories should be kept uninterrupted, he said.