Multifaceted pressures on country's economy

The inflation rate in government surveys is nearing 10 percent. Middle and lower-income groups are struggling to cope with rising expenses. The devaluation of money is rampant, with the exchange rate of the dollar being misused. Over the past three years, the value of the dollar has increased by 30 taka. Alongside a decline in revenue in several key sectors, there's an active stream of income from expatriates, affecting the country's foreign currency reserves. This, in turn, is exacerbating the pressure to repay foreign loans. In the fiscal year 2023-24, interest payments on loans have exceeded $100 million in just nine months, more than double the amount compared to the same period last year.

On one hand, there's a foreign currency crisis, while on the other hand, there's gradual economic smuggling. According to a report by the Washington-based research institution Global Financial Integrity (GFI), Bangladesh has lost at least 1100000 crore taka through smuggling in the last 16 years. According to GFI data, in 2009, $510 crore was smuggled, in 2010, $540 crore, in 2011, $592 crore, in 2012, $722 crore, in 2013, $966 crore, in 2014, $911 crore, and in 2015, $1151 crore was smuggled.

Eighty percent of this money laundering has occurred through over-invoicing and under-invoicing in trade or imports and exports. The majority of expatriate income is being smuggled abroad through hundi. The primary destinations for smuggled money are the United States, Canada, Singapore, European countries, Malaysia, or the United Arab Emirates. This is accompanied by instability in bank accounts. There's also a significant revenue deficit. Economic growth in the country's second quarter of the current fiscal year has reached 3.78 percent, according to the latest data from the Bangladesh Bureau of Statistics. Economists and experts say that the country's economy is under various pressures. Economic indicators are in a negative trend. To overcome this crisis, initiatives need to be taken immediately. Dr. Mostafizur Rahman Monju, a special fellow at the Centre for Policy Dialogue (CPD), believes that the country's economy is under various pressures.

He told Views Bangladesh that due to economic pressure, GDP growth has decreased, investment in non-governmental accounts has decreased, and opportunities for new employment have decreased. To overcome this situation, institutional capacity, capacity for ADP implementation, productivity need to be increased. Advanced market management, increased capacity for government service-oriented accounts, investment environment creation, revenue enhancement planning must be implemented. If appropriate initiatives are not taken now, it will be very difficult to move away from the current situation.

The economist further said that many countries have overcome economic crises within two years after the Ukraine-Russia war. If we manage the overall economic management properly, it is possible for Bangladesh to overcome the crisis. However, our problem has become deeper. We need to implement various reform programs from that perspective. It is very important to ensure the capacity, cleanliness, accountability, and good governance of government institutions.

According to the analysis of statistics, in the second quarter of the current fiscal year (October-December), the country's GDP growth rate has increased by 3.78 percent. During the same period of the previous fiscal year, growth was at 7.8 percent. Bangladesh Bureau of Statistics (BBS) data indicates that the least growth has occurred in the industrial sector in the second quarter of the current fiscal year, at 3.24 percent. During the same period in the previous fiscal year, growth in this sector was 10 percent.

Moreover, the World Bank has also predicted a decline in Bangladesh's growth rate for the current fiscal year. The institution suggests that economic growth in Bangladesh could be around 5.6 percent this fiscal year. However, in April, the World Bank had hinted at a growth rate of 6.2 percent. Various challenges are being analyzed, indicating a decline in growth and further inflation. On the other hand, the Asian Development Bank (ADB) has suggested that the GDP in the country could grow by 6.1 percent in the current fiscal year. The difference in forecasts between the two institutions is five percentage points. The government has set a target growth rate of 7.5 percent in the current fiscal year's budget.

At this moment, the most crucial issue in the country's economy is the continuous inflation. According to the BBS report, inflation was at 9.81 percent in March. Inflation has remained above 9 percent for thirteen consecutive months. Despite a decrease in commodity prices in the international market, its impact is not visible in the country. Factors such as excessive profit orientation of a certain class of businessmen, cartel formation in everyday goods trading, lack of full competition in the market, speculation by middlemen, depreciation of currency, manipulation in various markets, increased transportation costs, are causing the price reduction not to occur.

In this situation, market analysts advise to reduce taxes at NBR, ensure import opportunities for a large number of businessmen, and advise the TCB to distribute goods at reasonable prices. Besides, they suggest that the government institutions responsible for maintaining consumer rights, such as TCB, BTRC, Tariff Commission, Competition Commission, should strengthen their activities. Additionally, taking strict punitive measures against dishonest businessmen, along with increasing supply, is also advised to tackle inflation.
The country's foreign currency reserves have fallen below $20 billion or 2 billion dollars according to the latest update from Bangladesh Bank. According to the latest update from Bangladesh Bank, as per the IMF's Special Data Dissemination Standard, on April 17, the foreign currency reserves decreased to $19.89 billion or 1 trillion 98 billion dollars. On the same day, the total reserve amount was 2 trillion 530 billion dollars. During the same time last year, the total reserve amount was much higher at 3 trillion 118 billion dollars.

At the beginning of the fiscal year 2023-24, the gross reserves stood at $29.73 billion, according to the Bangladesh Bank's report. According to IMF's BPM6, it was $23.37 billion. The latest report from the Economic Relations Division (ERD) states that in the first nine months of the current fiscal year, the expenditure on interest payment for foreign loans has increased compared to the same period of the previous year by almost $890 million. During the last nine months, $2.57 billion more interest and principal payments have been made compared to the previous year's same period. This pressure on foreign loan repayment comes at a time when the country is facing a crisis in foreign currency reserves for several months.

According to the analysts, the pressure on foreign loan repayment due to increased expenditure is creating additional pressure on reserves and the budget. Due to short-term loans from China and Russia, the pressure to repay loans is increasing. Repayment of loans for the Rooppur Nuclear Power Plant construction project has already begun. Also, installment payments for the Metro Rail project have commenced. Moreover, repayment of loans for the Karnaphuli Tunnel project will also start soon. If repayment for other mega projects begins within the next two to three years, the pressure will further increase.

In the current fiscal year, the National Board of Revenue (NBR) had set a revenue collection target of Tk 4.30 trillion. Analyzing factors such as inflationary pressure, dollar crisis, stock market downturn, foreign currency reserves, default loans, and the pace of revenue collection, the Ministry of Finance revised the target downwards to Tk 4.10 trillion. However, even with the revised target, the NBR is struggling to meet revenue targets. In the first nine months (July-March) of the current fiscal year, there has been a shortfall of Tk 2.193 trillion compared to the revised target. Originally, the target for revenue collection at NBR was Tk 2.817 trillion. Against this, revenue collection amounted to Tk 2.598 trillion.

In this context, Dr. Ahsan H. Mansur, Executive Director of the Policy Research Institute (PRI), said that one of the primary reasons for the slow implementation of the Annual Development Programme (ADP) is the government's inclination towards reduced spending. The government's main objective is to cut costs, leading to reduced allocations even in the revised ADP. Moreover, the banking sector in the country is experiencing instability, which the Bangladesh Bank is working to address. Private banks such as Exim Bank and Padma Bank have agreed to merge. Additionally, decisions have been made to merge Rajshahi Krishi Unnayan Bank with Agrani Bank and Sonali Bank with the Bangladesh Development Bank. However, the World Bank has raised concerns about the consolidation of banks, emphasizing the need for specific policy guidelines before consolidation.

According to the institute, it is crucial to be cautious when consolidating banks, ensuring that it is based on asset quality and specific policy guidelines. The institute suggests that while revenue from some sectors such as clothing and a few non-traditional items has increased, revenue from the four main sectors has decreased. According to data from the Export Promotion Bureau (EPB), revenue from hilsha and shrimp exports has decreased by 14 percent compared to the same period last year. Specifically, revenue from shrimp exports has decreased by 21.33 percent. Additionally, revenue from home textiles has decreased by 26 percent, earning only $63.65 million during the last nine months, which is 31 percent less than the target. Furthermore, revenue from jute and jute goods has decreased by 5.6 percent, and revenue from leather and leather goods has decreased by 13.65 percent. These declines are attributed to inflation, default loans, currency smuggling, and fluctuations in foreign currency.

On the other hand, in the past nine months, revenue from home textiles has amounted to only $63.65 million, which is 26 percent lower than the same period last year. The revenue shortfall exceeds the target by 31 percent. Additionally, revenue from jute and jute goods has decreased by 5.6 percent, while revenue from leather and leather goods has decreased by 13.65 percent. Corruption, default loans, currency manipulation, and foreign exchange fluctuations are contributing factors. If not addressed, these issues could lead to economic crisis, ultimately affecting the ordinary people of the country.