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2022: A year of mixed blessings for Bangladesh economy

As the year was winding down, the United Nations General Assembly (UNGA) in November adopted a resolution on the graduation of Bangladesh from the LDC category. With the adoption of the resolution at the 40th plenary meeting of the 76th UNGA, Bangladesh completed all procedures to graduate from the LDC category.

This is a “landmark achievement” in Bangladesh’s development journey, which coincides with the celebration of the 50th anniversary of Bangladesh’s independence and the birth centenary of the Father of the Nation Bangabandhu Sheikh Mujibur Rahman.

But the elevation to developing country status will not come without its challenges as Bangladesh loses some of the advantages and concessions it had previously enjoyed on the world stage.

On top of that, Bangladesh faces some formidable obstacles.

The COVID-19 pandemic with its lengthening shadows was a staggering blow to Bangladesh’s economy, dragging GDP growth in fiscal 2019-20 down to 3.51 percent, its lowest level in three decades. In 2022, the surge of the delta variant saw an even more severe second wave of infections and deaths in the country.

The government took action, imposing a series of successive lockdowns that brought much of the country to a standstill in the hopes of breaking the transmission chain. The decision was a tough one, hitting manufacturing, exports and imports, and all other sectors and sub-sectors of the economy.

But the measures seem to have paid off. Not only have cases and deaths dwindled over time, but the economy also seems to have rebounded, with positive indicators from the import-export sector, consumption, investment and infrastructure.

A visiting team from the International Monetary Fund agreed.

“Despite being hit by multiple waves of the COVID-19 pandemic, quick and decisive actions by the authorities, supported by the external environment, led to a much quicker rebound than Bangladesh’s regional peers,” IMF economist and team leader Rahul Anand said on Dec 18.

The international financial institution had good news for the future as well, estimating Bangladesh’ GDP growth at 6.6 percent in the fiscal year ending June 2022 as the pandemic recedes and the government’s policies stay accommodative.

The optimistic outlook was also shared by economist Ahsan H Mansur, executive director of the Policy Research Institute, a Dhaka-based think tank.

“This year is a recovery from the standstill brought upon by COVID,” Mansur said. “The situation is much better than in the first year of the coronavirus. There has been an upswing in nearly all economic indicators and we hope this will continue to improve. Overall, we’re doing well in all sectors except for rice production.”

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There are concerns, too.

Import spending is on the rise as remittances decline. A spike in consumer prices, spurred by rising oil prices, threatens to squeeze a population that has already tightened their belts due to the pandemic.

EXPORTS ARE ON THE RISE, SO IS IMPORT SPENDING

The pandemic caused the export market to stumble in 2020. In April, May and June of that year especially, exports slowed to a crawl. Though there was a turning point in July, Bangladesh didn’t reach its export targets.

This year was a different story. As pandemic restrictions eased in July, exports saw a new dynamism. In the first 11 months of 2020, export earnings were about $30 billion. Over the same period in 2022, exports topped $56 billion.

Import spending has, however, risen in line with export orders. According to Bangladesh Bank, the country imported $42.15 billion worth of goods in the first 10 months of 2022, compared to $33 billion a year earlier.

But the import situation is not particularly alarming, according to Mansur.

While import spending has shot up due to dramatic hikes in global commodity prices, Mansur believes that, with the corresponding rise in exports, the outlook for the sector is quite positive overall.

Another positive indicator is that Bangladesh’s foreign currency reserves have grown about 9 percent year-on-year, despite the increase in import spending, the appreciation of the dollar and the jump in international prices.

FALLING REMITTANCE NO CAUSE FOR CONCERN

However, one major contributor to the reserves, the inflow of remittance, was down this year.

Remittance had trended up in 2020, bolstering reserves amid a pandemic. It began strong this year too, performing well throughout the first six months before it started to slow in June. Bangladesh fetched $1.55 billion in inward remittances in November, the lowest in 18 months.

What caused this sudden change?

Some experts believe that, during the pandemic, expatriate workers chose to send money home through mostly legal means. But, as the pandemic has abated in recent months, they have once again resorted to using hundis and other illegal methods, which has removed these inflows from the government’s records.

Ahsan H Mansur says the remittance growth at the height of the pandemic was always going to be a temporary one and the drop in remittance is just the market returning to normal.

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“Due to COVID, some excess cash was coming into the country and raising remittances. Maybe the money that would be spent by our own citizens on trips or entertainment abroad was coming into the country as remittances,” Mansur said.

“Now, as movement restrictions are lifted, the situation is returning to normal and the remittance inflows are trending down again. For this reason, we shouldn’t expect too much more from this sector this year.”

He believes the trend will continue for some time, but remittances may improve if Bangladeshi workers reach new markets within the next two to three years.

Finance Minister AHM Mustafa Kamal also noted the drop in remittances but was also unworried.

IS INFLATION ‘TOLERABLE’?

The inflation rate in November was 5.98 percent, compared to the rate of 5.52 percent last year. Though the official data says the rise in prices is largely tolerable, the ordinary people may disagree.

The prices of everyday commodities such as rice, lentils, sugar, oil, fuel, vegetables, meat and fish have been on the rise since June.

Onion prices are down slightly compared to the past two years, but the prices of soybean oil, mustard oil, sugar, meat, fish and vegetables have risen by 50 percent, or even doubled.

But this does not seem to be reflected in the official data. As such, many believe the actual inflation rate is much higher than the official data.

Ahsan H Mansur agrees there is a significant disparity between the official data on inflation and the experience of the ordinary people but believes the rise in prices isn’t specific to Bangladesh.

It is a global phenomenon, he said, adding that US inflation was at its highest level in 39 years and it recorded an inflation rate of 7 percent last month.

Part of the blame lies with oil prices, which have been on a steady upward trajectory since a sharp drop during the pandemic and have now passed 2019 levels.

Few commodities have as far-reaching an impact as oil, as the last few months have shown in Bangladesh.

The government’s decision to raise the price of fuel oil on Nov 3 by 23 percent soon spiralled into an extended period of unrest.

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Transport owners and workers declared a nationwide strike to demand that set fare rates be increased in response to the price hike. The government accepted the demands on Nov 7, raising bus fare by 27 percent.

Then came protests from students who demanded a 50 percent discount on the new fare, which expanded into a broader movement for road safety across the country.

The unintended victim in this long chain of repercussions was the general public, who not only bore the cost of the fuel and fare increase, but also the burden of the transport strike and the gridlock of student protests.

Given the financial straits of an extended pandemic and its accompanying lockdowns, it might be prudent to monitor the additional squeeze rising inflation can put on the poor and lower-income groups.

The pandemic pared down Bangladesh’s anti-poverty gains. Currently, some 50 million people are without food security, Mansur said. This number has risen during the pandemic. “We are doing well in terms of food production, but there is much left to do if we are to achieve food equality,” he said.

“If the poverty rate has risen near 30 percent, we must again bring it down to 20 percent. The pandemic has hit many people and we must first restore what they have lost before we work to improve their situation further.”

PREPARE FOR THE FUTURE

Now that 2022 is behind us, Bangladesh must look to the future and confront the inevitable question – what are its plans once it graduates to developing country status?

There is no doubt the graduation will occur, said Mansur. But the question is whether Bangladesh is adequately prepared for what is to come once Bangladesh graduates.

There are significant gaps in Bangladesh’s preparation and a lot of work needs to be done to remedy them, he said.

Bangladesh needs to reach bilateral trade deals with those countries that have yet to agree to one. In some cases, Bangladesh hasn’t even started the lengthy process of reaching such deals, which usually take years to complete. The country needs to ensure market access, improve its external competitiveness and solve problems in transport, ports and power, Mansur said.

“If we can do so, we may be able to complete the transition from graduation smoothly.”

[With assistance from Shoumik Hassin]

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