Restoring business confidence is the foremost step towards enhancing investment and employment opportunities to drive the nation's macroeconomic progress. He made these remarks while responding to a national daily, according to economists and industry experts.
They identified key challenges for the interim government, including boosting revenue amid economic stagnation, strengthening the banking sector by addressing its weaknesses, and ensuring good governance in the financial system.
Former lead economist of the World Bank’s Dhaka office, Zahid Hussain, said persistently high inflation, reminiscent of the previous year, is expected to continue troubling the economy.
According to the latest data from the Bureau of Statistics, overall inflation in 2024 exceeded 10%, though the figures have been a point of contention.
Various industrial groups, along with small and medium enterprises, have been hit hard, leading to stagnation in trade and commerce.
Entrepreneurs report a near halt in the issuance of letters of credit (LCs), with many businesses closing operations.
From street vendors to grocery shops, sales have dwindled.
The lack of business activity has resulted in reduced cash flow, no new investments, and stagnant employment.
Concerns loom over an exacerbation of dollar shortages and high lending interest rates in the new year.
Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), highlighted the compounding impact of rising policy interest rates.
"Higher policy rates translate into increased bank lending rates. This escalation disrupts calculations, raises instalment burdens, and diminishes profit margins," he explained, adding that businesses are now grappling with mere survival rather than expansion.
The uncertain political climate has further undermined business confidence.
Zahid Hussain stated, “The political shift has induced uncertainty in trade and commerce. Entrepreneurs are anxious about the political trajectory in the next one to one-and-a-half years, factoring in potential shifts in power dynamics. To promote investment and employment, restoring their confidence is imperative.”
Since the change in government, inflation has averaged 11%, with food inflation reaching 13.88%.
Meanwhile, national wage growth has stagnated at around 8% for several months, amplifying financial hardships for citizens.
Despite measures by the new administration, including interest rate hikes and selective tariff reductions, inflation remains uncontrolled.
The government has resorted to printing money to tackle fiscal challenges, a move that economists warn could aggravate inflation further in 2024.
Fahmida Khatun, executive director of the Centre for Policy Dialogue, remarked, “The economic downturn over the past two to three years is likely to persist into the coming year. Recovering from the depth of this decline will take time.”
Following the July uprising, both the Ministry of Finance and the central bank introduced several initiatives to address inflation, declining reserves, systemic corruption in the financial sector, and investment stagnation.
However, not all these measures have yielded results.
The government has attempted to curb inflation by tightening monetary policy through higher policy rates, but inflationary pressures persist.
Dr Fahmida added, “Relying solely on contractionary monetary policy is insufficient. Neither consumer demand nor investment has increased.”
Two years of a negative balance in foreign exchange transactions underline structural economic imbalances.
“Efforts to narrow the gap between exports and imports were already underway, but investment is declining further, compounded by rising interest rates,” she noted.
Addressing banking sector vulnerabilities is critical, she stressed.
Dr Fahmida urged, “Strengthening discipline in the banking sector requires decisive action. Weak banks should be merged to stabilise the system, as many institutions are in precarious conditions beyond the known ten banks.”
The road to recovery demands coordinated efforts to stabilise macroeconomic fundamentals, foster investment, and ensure equitable growth in the years ahead.
