Home Bangladesh Economy poses negative impact on 6 indicators
Bangladesh - December 26, 2023

Economy poses negative impact on 6 indicators

-Rising debt, inflation, commodity prices, poverty pressures
-Decreasing growth and dollar in crisis

Mahfuja Mukul: 2022 was a year of uncertainty in the economy. And the year was the year of inequality. The hope was that the economy would bounce back from the devastating effects of the Covid-19 pandemic. But wars and conflicts, complex threats to food security, dollar crisis and volatile commodity prices, political uncertainty have made the situation more difficult. The world’s poor countries, including Bangladesh, have been mostly affected by the global crisis.
The government is borrowing more to deal with that crisis. Due to this increase in loan and loan interest cost has created pressure on the economy. Besides, negative shock is coming to the growth. The government is forced to correct growth. And due to persistent upward inflation, many middle-class families’ budgets have been strained. Overall, the six major sectors of the economy have suffered major negative impacts this year.
Regarding the overall economy, Finance Minister AHM Mustafa Kamal recently told that the economic condition of the country is going through a critical period – I do not see any logical reason to think so. Barring a couple of recent issues, the overall economy has remained consistently strong. Even if inflation is a bit high at the moment, we will turn around with everyone.
Pressure of poverty: The report of the United Nations Development Program (UNDP), prepared by reviewing the situation of 159 countries in the world, says that 70 million people have become poor in the world in the last 3 months. Mainly higher food and fuel prices are responsible for this. Meanwhile, Bangladesh has been providing some products at low cost to one crore families through TCB in this situation. Due to rising commodity prices, middle class families have almost reached the poverty line. Many families are unable to meet the cost of goods. They are cutting the family budget.
Debt stress: The global crisis has affected the country’s economy. To deal with this crisis, the government has taken foreign loans of more than Tk 100 lakh crore this year. Prior to this, annual loans were taken to the tune of Tk 1 lakh 2 thousand crores. Apart from this, the government is borrowing about Tk 298 crore (about $3 billion) for the purchase of fuel and projects. All loans are rigid i.e. with strict terms.
Out of this, $1.4 billion will be spent only for the purchase of fuel oil. Finance Minister AHM Mustafa Kamal, chairman of the Standing Committee on Hard Credit (SCNCL), has approved nine proposals for these short and long-term loans. Besides, the second tranche of International Monetary Fund (IMF) loan amounting to $ 680 million has already been received. On the other hand, the cost of interest in the sector is increasing due to borrowing. In the current financial year, the government’s expenditure on foreign debt principal and interest payments will increase by about 11 percent over the budget allocation. $14,800 crores of interest will be paid out of this.
According to the World Bank, in the face of the crisis, the poor countries have already taken about $88.9 billion and the developing countries $44.03 billion from the International Development Agency (IDA). Economist MK Mujeri said that various mega projects are currently being implemented. Besides, many bilateral loans have been taken. Most loans are short-term, not long-term. Many loans have started to be repaid. As a result, the cost of foreign debt and debt interest will increase in the coming years.
Growth hit: Global growth has slowed sharply due to high inflation, high interest rates, reduced investment and the Russia-Ukraine war, the Global Economic Prospects report said. Bangladesh is not out of this negative shock. The finance ministry has already lowered the growth target. The GDP growth target for the current financial year (2023-24) was 7.5 percent. In many contexts it will not be possible to achieve this. So, it was decided to reduce the growth rate to 6.9 percent.
Policy Research Institute (PRI) executive director Ahsan H Mansoor said the growth has been brought down to below 7 percent, which is also a high-quality growth. But there are doubts about its achievement. I don’t know where the growth will come from. No good news anywhere.
Rising Inflation: The main challenge for the economy now is inflation. Overall inflation in rural areas rose to 9.62 percent in November and 9.16 percent in urban areas. And the national average inflation has risen to 9.49 percent. This is higher than the target for the current financial year. High food prices are one of the reasons for high inflation in rural areas. However, about 70 percent of Bangladesh’s population lives in villages, and it is from these villages that most of the country’s supply of rice, vegetables, fish, and poultry comes. High inflation has forced many to reduce consumption of other goods. This has affected the retail sales of clothing and other products in rural markets. In such a situation, the government revises and increases the inflation target. The finance department has decided to increase the inflation target from 6 percent to 7.5 percent in the fiscal year.
Economist Kazi Khalikuzzaman Ahmad said supply shortages could lead to price hikes. This is because farmers sell their produce to middlemen at higher prices than those supplied to towns and cities.
The World Bank said central banks have raised interest rates to combat inflation. These risks increasing the poverty rate during the recession, which will exacerbate the crisis.
Dollar crisis and unstable prices: The dollar crisis is not going away. Banks have been asked to buy remittance and export dollars at a maximum of Tk 110.50 according to the rate set by ABB and Bafeda. Against this, the selling price of dollars to importers has been fixed at Tk 111. But the dollar rate fixed in the market is not working. Banks are under pressure to pay import expenses. Therefore, the official selling price of dollar to importers is Tk 111, but in reality, it is being sold at Tk 122-128. Some banks show Tk 111 in the documents but the actual price is much higher.
Due to the fact that the price of the dollar is not left to the market, the remittances coming into the country have decreased dramatically. To manage the situation, Bangladesh Bank is flexible and encourages banks to buy remittances at any price. It has yielded some benefits. The amount of remittances sent to the country increased to $197.75 million in October, which is the highest in the last 4 months. Expatriate income from November 1-6 reached $46.3 million, which is about 35 percent higher than the same period last year.
Commodity Price Record: The current escalation of conflict in the Middle East, the situation caused by the Russia-Ukraine war may push the world’s commodity markets towards an unknown destination. Compared to 2022, global commodity prices are expected to decline by about 25 percent in 2023. That’s the steepest decline since the pandemic. Oil prices are expected to average $90 per barrel in the current quarter.
In 2024, the average may drop to $81 per barrel. The increase in supply will cause agricultural prices to fall next year and is expected to fall by 5 percent in 2024. Commodity prices are expected to stabilize in 2025. Even if the world situation is like this, it has no effect on the Bangladeshi market. Throughout the year, by increasing the prices of sugar, onions, eggs and potatoes, traders have cut hundreds of crores of taka from the consumers’ pockets. Although there is enough production of vegetables in the current winter season, they are not available at low prices in the market. The commodity price situation has changed the life of common people.

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