Stoked-up inflation, external-sector pressures, financial vulnerabilities and political uncertainty could demote Bangladesh’s economic growth this fiscal, the World Bank says in its latest study accompanied with suggested remedies.
If the government fails to improve the supply-side management of the essential commodities, especially of food, only the monetary policy won’t work in taming the inflation, says WB Senior Economist in Bangladesh Dhruv Sharma.
“Food inflation is continuing on double-digit trajectory over the last few months. Bangladesh’s nearly 45-percent weight in the Consumer Price Index (CPI) is coming from food. So, if the supply-side management of the food items is not addressed, the inflation will not decline,” Mr Sharma noted.
He was speaking at a function held marking the launch of World Bank’s Bangladesh Development Update Tuesday at the Bank’s Dhaka office.
The WB has projected the country’s GDP growth at 4.0 per cent in the current FY2025 before going for a rebound in the next FY2026 to 5.5 per cent.
The global development financier gives bad news as far as employment generation in the country is concerned.
Bangladesh’s economic progress over the last decade had failed to translate into a sufficient number of urban jobs in industry rather it has largely been driven by informal jobs (84.9 per cent), the Bank observes.
“Between 2016 and 2022, the manufacturing sector grew at 9.1 per cent on average while the jobs in this sector declined by 9.6 per cent,” the WB Senior Economist told the meet.
Most new employments were created in the agricultural sector, accounting for 45.4 per cent of total employments, where a significant portion comprises low-paying informal employment.
Mr Sharma said the average inflation increased to 9.7 per cent in FY2024 from 9.0 per cent in FY2023 mainly due to high food and energy prices and higher import prices as a result of a depreciating taka.
“Inflation continued to increase in the first quarter (Q1) FY2025 and in July reached 11.7 per cent. The spike was caused by supply-chain disruptions due to social and political unrest during July-Aug period. Food inflation surged to 14.1 per cent in July and averaged 11.9 per cent in Q1.”
The WB projection, however, bears a bit good news for the consumers for second half of this fiscal as the inflation is showing signs of moderation for the beginning of the ease of challenges of the food-supply chain.
World Bank Country Director in Bangladesh Abdoulaye Seck aired his concern about the gaping income inequality in Bangladesh over the past years-evidently marked by overconcentration of wealth in few hands in the upper segment of the population.
From 2010 to 2022, Bangladesh’s Gini index-a measure of income inequality-had increased by nearly three points from 0.50 to 0.53, he said, suggesting urgent and bold reforms that are necessary to help the country return to a strong, inclusive and sustainable growth path.
Mr Seck said: “In recent years, Bangladesh’s growth has not translated into job creation for the large number of youths entering the job market every year. Particularly, the educated youth and women faced difficulty in getting jobs to fulfil their aspirations.
“But time and again, Bangladesh has shown extraordinary resilience and determination in the face of adversity. I am confident that with urgent and bold reforms to enhance economic and financial governance, improve business environment, Bangladesh can return to a strong and inclusive growth path, with millions of jobs for its youth.”
The WB report states Bangladesh’s post-COVID recovery continues to be impacted by high inflation, balance-of-payments deficit, financial-sector vulnerabilities, and increasingly limited job opportunities for its youth, especially women and educated youth.
The Update projects deceleration of the economic growth to 4.0 per cent in FY2025 driven by subdued investment and industrial-sector activities, before accelerating to 5.5 per cent in the next fiscal and returning to a robust growth trajectory thereafter.
About investment climate, WB economist Mr Sharma said Bangladesh stood in a poor condition compared to its peer India, China, and Vietnam in terms of business climate, which is affecting the foreign direct investment here.
The WB says Bangladesh also faces increasing income inequality, particularly in urban areas, citing reasons. Despite the overall unemployment rate declining between 2016 and 2022, young people face significantly higher unemployment rates, particularly in urban areas.
“The availability of jobs has declined for urban educated youth, and job creation in large industries, like the ready-made garment sector, has stagnated. Since 2016, while more jobs were created in Dhaka, three divisions-Chattogram, Rajshahi, and Sylhet-faced significant net employment losses,” the WB report reads.
About the fiscal deficit, the WB says it is estimated to have moderated marginally to 4.5 per cent of GDP in FY2024 and is expected to remain within the government’s target of 4.3 per cent of GDP in FY2025, with fiscal space for productive expenditures increasing only gradually.
It notes that the country’s current-account deficit narrowed to $6.5 billion in FY2024, thanks to a contraction in imports and robust remittances. Remittances declined in July due to disruptions but rebounded. The balance-of-payments deficit also improved.
“Pressure on the external sector is expected to persist in FY2025, easing later if global conditions improve and exchange-rate flexibility increases,” said Dhruv Sharma, also the co-author of the report.
The Bangladesh Bank implemented crawling-peg exchange-rate system that has led to narrowing the gap between the formal and informal exchange rates, he said.
Mr Sharma noted that while banking sector faced tight liquidity conditions and elevated non-performing loans, the Bangladesh Bank made restoring discipline and stability in the sector a priority alongside managing inflation.
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