Bangladesh's Economic Outlook Amidst Political Turmoil
Bangladesh's economy, on the path to recovery since the COVID-19 pandemic, faces new challenges with persistently high inflation nearing 10%. The recent political upheaval, with Sheikh Hasina's resignation and the military takeover, adds further uncertainty to an economy already grappling with liquidity and forex reserve issues.
Despite these challenges, Bangladesh has been one of the fastest-growing economies globally, boasting a high GDP per capita. The government's budget, passed in June, targets an inflation rate of 6% and a GDP growth rate of 6.75%. However, budget spending has been cut, and the country received a $1.15 billion loan from the IMF in June, the third installment of a $4.7 billion package.
The World Bank, in its April report, projected Bangladesh's GDP to grow by 5.7% between July 2024 and June 2025, compared to 5.6% in the same period last year. The report emphasized the need for urgent monetary reform and a single exchange rate regime to improve foreign exchange reserves and ease inflation.
IMF data shows Bangladesh's economy has grown over 5.5% annually since 2010, except for 2020 when it grew by 3.4%. While GDP growth reached a high of 7.9% in 2019, the economy remains in recovery mode post-pandemic. The IMF expects Bangladesh's GDP growth to slow to 5.7% in 2024 from 6% in 2023.
Significantly, Bangladesh's GDP per capita has exceeded India's since 2018. However, IMF data suggests India's GDP per capita is expected to outpace Bangladesh's in 2024.
The IMF, in its December 2023 report, recommended further tightening of monetary policy, supported by neutral fiscal policy and greater exchange rate flexibility, to restore near-term macroeconomic stability. The report also highlighted Bangladesh's impressive growth trajectory, with annual per capita income growth of 4% over the past three decades and a significant decline in poverty.
However, the report acknowledged the challenges posed by the war in Ukraine and global monetary tightening, which have interrupted the post-pandemic recovery and contributed to high inflation. The IMF predicted that inflation would moderate to 7.25% by the end of 2024.
In conclusion, Bangladesh's economic outlook remains uncertain amidst political turmoil and global economic headwinds. While the country has a strong track record of growth and poverty reduction, addressing inflation, liquidity issues, and forex reserves will be crucial for maintaining economic stability and achieving its ambitious growth targets.