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Inaugural issue 3 : Look back at 2023

From an economic perspective, how was 2023?

M A  Khaleque

M A Khaleque

Sun, 31 Dec 23

We have passed another year in the cycle of time. AD 2023 was a particularly memorable year for many reasons. The Russia-Ukraine War (Ukraine War) started just as the post-Corona world economy was in the recovery process. Due to the unequal war between these two countries, the world economy is facing disaster in many ways. The war in Ukraine caused abnormally high inflation worldwide. The crisis caused by the decline in production did not play much of a role in this inflation. Rather, economists blame the supply-side disruption for this high inflation. Because global food production was very normal in the years leading up to the Ukraine war. Ukraine and Russia together produce 30 percent of the world's total food grains. Food production in these two countries was normal in the year the war started.

Ukraine produces 6.8 million tons of grain food, but they cannot export that food to foreign countries. Farmers could not extract a large portion of the food produced from the fields. Ukrainian food ships anchored in the port day after day. Later, the Russia-Ukraine Food Export Agreement was signed in the presence of the United Nations with the mediation of Turkey. But by that time, food shortages in Africa and some other regions became extreme. At the same time, Russia reduced oil production and stopped oil exports in certain areas. Oil and Petroleum Exporting Countries (OPEC) countries also cut fuel oil production and went on the path of price increase. As a result, the price of fuel oil increased greatly in the international market.

Before the Ukraine war, crude oil was selling for US$70 to US$75 per barrel in the international market. The price of that fuel rose to 139 US dollars. The impact of this abnormal increase in the price of fuel increases the cost of transportation all over the world, fueling high inflation. Inflation is a major problem even in strong and stable economies like the United States. At one point, US inflation rose to 9.1 percent, the country's highest rate in 40 years. In some countries of the world, inflation rises to 75 percent. Countries like Turkey, Sri Lanka, and Argentina have a terrible rate of inflation. In the present world system, no country can remain isolated from other countries.

If something happens in one country, its inevitable impact will spread to other countries as well. Since Bangladesh is an import-dependent country, any increase in the price of a product in the international market has an impact on the economy very quickly. Bangladesh's domestic economy is also affected by high inflation. However, Bangladesh Bank continues to try to control inflation in various ways. As a result of these measures, inflation in Bangladesh is still below double digits. Inflation has been on ups and downs for the past few months. The overall inflation rate was 9.93 percent last October. Separately, the food inflation rate was 12.50 percent. This was the highest inflation in the last 11 years and 9 months.

Overall inflation eased slightly in November. The government believes that the measures taken by the Bangladesh Bank to control inflation are expected to reduce inflation to a reasonable level from the first quarter of 2024. At present, like many countries in the world, inflation has become a challenge in the economy of Bangladesh. The government has taken high inflation as a challenge. Acknowledging the problem instead of avoiding it is trying to solve it. The manifesto announced by the Bangladesh Awami League for the 12th national election has prioritized the issue of controlling high inflation. High inflation has been promised to be brought down immediately.

Global high inflation prevails throughout 2023. Most countries have adopted effective measures to control their inflation. For example, the central bank of the United States, the Federal Reserve Bank of America, has increased its policy rate at least 7 times in the past year. The rate of interest paid by scheduled banks while borrowing from the central bank is called the policy rate. 77 countries around the world have increased their policy rates, following the example of the United States. Economists believe that if a country's central bank increases its policy rate, scheduled banks must pay higher interest rates while taking loans. Because of this, scheduled banks charge higher rates for lending to entrepreneurs or general customers. This makes taking loans from banks more expensive than before. As a result, the tendency to take bank loans at the level of entrepreneurs and general borrowers decreases.

The flow of money in the market becomes very tight. As a result, sellers cannot sell products at higher prices. Bangladesh Bank has also increased the policy rate several times. Earlier the policy rate was 5 percent. Now it has increased to 6 and a half percent. Bangladesh Bank kept the interest rate on bank loans (the interest charged by banks for lending at the grassroots level) at 9 percent until recently, despite raising the policy rate. As a result, the banks are forced to invest at a lower interest rate by taking loans at comparatively higher interest rates. Some entrepreneurs or borrowers have diverted money from banks to different sectors in the name of taking loans from banks in various processes. This money somehow got into the market.

Despite various crises at the international level and various problems at the local level, it is expected that Bangladesh's GDP growth will continue in the current financial year. The Asian Development Bank (ADB) has said in a recent projection that Bangladesh can achieve GDP growth of 6.2 percent in the current fiscal year. At the current state of the international economy, achieving growth above 6 percent is very promising. It is to be noted that various international organizations have projected that the world economy will achieve 3 percent growth this year. If Bangladesh achieves 6.2 percent growth there, then it is very encouraging. Now, it is more important than achieving high growth for a country like ours to meet the food and other essential needs of the poor people. The government is giving importance to that matter. Arrangements are being made to provide rice, lentils, edible oil etc. at relatively low cost to poor people. In the city, the Trading Corporation of Bangladesh (TCB) is selling food products by trucks at different places every day. Common people are benefiting from it.

There are problems, yet Bangladesh is moving forward rapidly. To know the economic success of the outgoing year, we must look to the past. Because it is not right to come to any conclusion just by analyzing the situation of one year. Eminent economist, former governor of Bangladesh Bank. Talking to Atiur Rahman, he said, Bangladesh's achievements in the economic and social fields in recent times, despite various limitations, are amazing. For a long time, the economy after the liberation war was indeed disturbed and endangered. Because the anti-liberation war forces dominated the politics.

At that time, the deep philanthropic, agriculture-friendly, medium and small business-friendly economy that was launched in Bangladesh under the leadership of Father of the Nation Bangabandhu was interrupted in the post-1975 period. An economy that started with a per capita income of just US$93 rose to around US$260 in just three and a half years under Bangabandhu. After the brutal assassination of Bangabandhu, during the physical absence of Bangabandhu, the country went backwards again. The economy began to reverse course. The average national income per capita fell to US$138 the very next year (1976). In the following year, it further decreased to USD 128. It took us 13 long years to reach that previous stage. At that time Bangladesh was progressing very slowly. That progress was not very visible.

After 1990, when the democratic process started, the economy of Bangladesh started to wake up again. But it cannot be called fully awake. In 1996, after Shakti came to power in the liberation war, the inclusive economic development program started in the spirit of the liberation war. As part of that development, Bangladesh has made remarkable progress in the last 15 years. At that time the average national income per capita was about 700 US dollars. Now the average per capita national income has reached about 2 thousand 800 US dollars. At present, the average national income per capita of the people of Bangladesh is almost twice that of Pakistan. But the per capita average national income of Pakistan in 1972 was higher than ours. In terms of average national income per capita, we surpassed Pakistan in 2015. Even for the last four years, the average national income of the people of Bangladesh is higher than that of India. This amazing achievement is possible mainly due to two reasons. Firstly, agriculture, exports and manpower export sectors have given us strength. Second, we have managed to control the population. Bangabandhu was the first to initiate the work of population control.

In the last 50 years, our country has not only advanced in per capita average national income but at the same time, the size and scope of the country's economy has increased tremendously. In the fiscal year 1972-1973, the total size of the economy of Bangladesh was 6.23 billion US dollars. From there the size of the economy has grown to 465 billion US dollars today. It is certainly encouraging. 2023 is the year of crisis transition. A marked attempt to overcome the problems that arise in various fields is visible through various works. Due to the increase in the prices of various products in the international market and its impact on the local market and the foreign exchange earning sectors were plagued with various problems, the foreign exchange reserves began to inflate gradually. At one point in 2021, Bangladesh's foreign exchange reserves increased to 48 billion US dollars.

But later the growth of that reserve started to slow down. This crisis is mainly due to high expenditure in the import sector, non-growth of export earnings as per expectations and reduction of remittances received in the banking channel. Foreign exchange reserves have started to rise again due to various measures taken by the Bangladesh Bank. On November 30, Bangladesh Bank's foreign exchange reserves were 2,502 million US dollars. According to the conditions of the IMF, the reserves in the BPM-6 system were 1 thousand 940 billion US dollars. According to the account of Bangladesh Bank on December 7, the reserve was 2 thousand 46 million US dollars. The reserve in the BPM-6 system was 1 thousand 913 million US dollars. Reserves on December 14 were 2,462 billion US dollars and 1,916 billion US dollars respectively. Reserves on December 21 were 2,604 million US dollars and 2,680 million US dollars respectively. On December 28, that is, three days before the end of the year, the reserves were 2,640 million US dollars and 2,144 million US dollars respectively. In other words, the reserve is increasing somewhat slowly. Economists expect reserves to pick up sharply once economic activity picks up after the national elections.

A particular reason for the decline in reserves is the decline in remittances sent by expatriate Bangladeshis through banking channels. Economists think that the traders of the curb market are paying at least 10 to 12 rupees more than the exchange rate of foreign currency available in the banking channel. Expecting to get more money in local currency, many expatriate Bangladeshis are sending foreign currency to the country through an illegal channel called ‘Hundi’. Mainly because of this, the amount of foreign currency reserves decreased. To solve this problem, Bangladesh Bank has doubled the amount of cash incentives given on remittances of expatriate Bangladeshis. Earlier, two and a half percent cash incentives were given on expatriate income. Now it has increased to 5 percent. Expatriate Bangladeshis are now getting a 5 percent cash incentive on remittances sent. Expatriate remittance rates have been steadily increasing after increasing financial incentives.

It is expected that the expatriate income coming into the banking channel will increase significantly in the next few days. Meanwhile, a report from the World Bank has given a positive impression about the remittances of Bangladesh. It has been said that in 2023, Bangladesh will be able to retain the seventh position in terms of remittance collection. In 2022, Bangladesh ranked seventh in terms of receiving remittances in the world. That position will remain unchanged in 2023. In other words, the position of Bangladesh will be seventh in terms of remittance collection. In 2023, Bangladesh will earn a total of 23 billion US dollars. In 2023, India will earn the status of top remittance recipient with USD 125 billion in remittances. Mexico is expected to receive $76 billion in remittances. China will earn USD 50 billion in remittances. Expatriate income is making a very important contribution to Bangladesh's economy, especially in earning foreign exchange. Because no raw material in this sector must be imported from abroad. As a result, almost all the money earned is adding value to the national economy. At the same time, about one and a half million people are employed. But the biggest limitation of the manpower export sector is that most of the manpower we export is unskilled and untrained workers. As a result, they went abroad and fell into various problems. If trained and skilled manpower can be exported, the income of this sector can be increased manifold. Effective measures should be taken to bring expatriate income to the country through legal channels.

Despite various problems in the international market, Bangladesh has achieved considerable success in the export of goods. In the first 5 months (July-September) of the current financial year, Bangladesh has exported 1 thousand 884 million US dollars in manufactured garments. The export earnings of this sector during the same period last year were 1833 million US dollars. That is, the growth in the export sector of ready-made garments has been 2.75 percent. A review of the export figures for the first 5 months of the current fiscal year and the first 5 months of the previous fiscal year shows that the exports of Bangladesh were worth 459 million US dollars in the first 5 months of the current fiscal year. During the same period last year, the exports were worth 3.98 billion US dollars. That is, the growth has been 15.26 percent. Exports in August were 4.78 billion US dollars and 4.61 billion US dollars respectively. That is, the growth has been 3.80 percent. Exports were worth 4.31 billion US dollars in September. In the same month of the previous financial year, exports were worth USD 3.9 billion.

That is, the growth has been 10.47 percent. In October of the current financial year, products worth 376 million US dollars were exported. In the same month of the previous financial year, exports were worth USD 436 million. That is, negative growth has been achieved by 13.64 percent. Exports were worth 4.78 billion US dollars in November last month. During the same period of the previous financial year, exports were worth USD 509 million. That is, negative growth has been achieved by 6.05 percent. It is to be noted that exports were disrupted due to instability in the country's political arena in October and November due to national elections. Bangladesh Bank has taken various measures to prevent the increase of foreign exchange reserves. During the July-November period of the current financial year, the rate of loan opening has decreased by 14 percent compared to the same period of the previous year. Out of this, 27.47 percent in consumer goods, 16.98 percent in capital equipment, 16.75 percent in fuel, 7.52 percent in intermediate goods, 11.62 percent in raw material import and the opening rate of credit in other sectors have decreased.

There was a complication in the banking sector at the beginning of the year. A group deliberately spread rumours that the country's banking sector was going bankrupt. Because of the rumours created, the depositors panicked and withdrew 50 thousand crore rupees from the banking sector in just two months. As a result, some banks fall into a liquidity crisis. Last May, the amount of money outside the bank was 2 lakh 55 thousand 829 crores. In June, the amount of money outside the bank increased to 2 lakh 91 thousand 913 crores. In July, the amount of money outside the bank was 2 lakh 66 thousand 354 crores. In August it was 2 lakh 58 thousand 356 crores. In September, it was 2 lakh 35 thousand 555 crores. In October, the amount of money outside the bank was 2 lakh 45 thousand 943 crores. That is, people's confidence in the banking system has started to increase again. The banking system is expected to be stronger and more stable in the future.

Because of the demand for an increase in the wages of the garment workers, the government has increased the wages of the workers by Tk 4,500. In 2018, the minimum wage of garment industry workers was 8 thousand Taka. Now it has been increased to 12 thousand 500 Taka. Still, Bangladesh's garment factory workers have the lowest wages in South Asia. The monthly wage of a garment worker in China is 300 US dollars, in Indonesia it is 242.94 US dollars, in Vietnam it is 170.35 US dollars, in India and Cambodia it is 171.18 US dollars and 200 US dollars respectively. There, the monthly wage of garment workers in Bangladesh is 113 US dollars. Due to the relatively low wage rate of the workers, Bangladesh is getting a special advantage in exporting ready-made garments to the international market. One of the statistics can be looked at as to how the export of ready-made garments has increased.

In 1994, Bangladesh exported a total of 1.89 billion USD worth of ready-made garments. Exports of ready-made garments were worth USD 893 million, USD 1485 million and USD 2350 million in 2006, 2010 and 2013 respectively. In 2018 and 2023, Bangladesh exported readymade garments worth USD 3,293 million and USD 4,571 million respectively. A few days ago, Bangladesh surpassed China to become the top exporter of ready-made garments in the European Union market. The country currently has 4,114 factories producing ready-made garments. The number of workers working in it is 3 million 3 thousand 517 people. The infrastructural development activities going on in the country have added a new dimension in 2023. Metrorail has started. Karnaphuli Bangabandhu Tunnel has been inaugurated. Padma Bridge has already been commissioned.

All in all, 2023 will be a memorable year for Bangladesh, no doubt. It is everyone's wish that this continuity in development progress will continue in the future.

Author: Retired General Manager, Bangladesh Development Bank Limited and Writer on Economics.

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