The Ministry of Finance has outlined several key challenges that may threaten the stability of Bangladesh’s economy in the short term in a recent report.
The finance ministry's report, titled "Bangladesh's Economy: Recent Challenges and Future Actions", provided an in-depth analysis of the current economic situation, government measures, and recommended actions moving forward.
It acknowledged the ongoing inflationary pressures but noted significant progress, with inflation expected to dip below 10% and potentially reach 8% by June 2025.
The report, delivered by Finance Adviser Salehuddin Ahmed to Chief Adviser Muhammad Yunus, specifically highlighted the risks posed by financial sector weaknesses and escalating labour unrest, which require urgent attention from the interim government.
"Restoring discipline in the financial sector and addressing labour unrest before it escalates should be top priorities for the interim government," the report stated, underscoring the need for swift action to stabilise these two critical areas.
Amid these challenges, the Bangladesh Bureau of Statistics (BBS) revealed that the country’s GDP grew by a modest 4.22% in the fiscal year 2023-24, marking the lowest growth rate in four years.
This figure is 1.6 percentage points lower than the previously anticipated 5.82%, a stark contrast to the 3.45% recorded in FY20, which had been severely impacted by the coronavirus pandemic.
The revised GDP figures were officially presented to the CA on Sunday (9 February), with Chief Adviser's Press Secretary Shafiqul Alam confirming the update in a press conference at the official residence, Jamuna.
As a result of the slowed growth, per capita income has fallen to $2,738 in FY24, down from the initial estimate of $2,784.
However, the ministry highlighted that high inflation remains a major hurdle, driven in part by supply chain disruptions that have exacerbated food prices.
While inflationary pressure from imports is relatively low due to stable exchange rates and subdued inflation in major import-source countries like China and India, the weakness in domestic supply chains has undermined efforts to control inflation.
To address these issues, the finance ministry has proposed several initiatives, including deploying special mobile courts across the country to combat price manipulation and increasing monitoring of cold storage facilities and warehouses for daily necessities.
The Competition Commission may also see its mandate expanded to prevent abnormal price hikes.
In the energy sector, the report revealed that the government has raised its subsidy allocation from Tk40,000 crore to Tk62,000 crore to reduce arrears in the power sector.
However, efforts to control subsidies through lowering production costs without increasing electricity prices have been successful, with projected savings of Tk11,444 crore, or roughly 10% of the sector’s total expenditure.
Meanwhile, the financial sector remains under scrutiny, with at least ten banks identified as facing severe risks due to mismanagement under the previous government.
Non-performing loans in the banking sector have reached a staggering Tk2,84,977 crore, further stressing the need for an immediate asset quality review and potential mergers to safeguard the financial system.
The report also noted a worrying decline in foreign direct investment (FDI), which has dropped by one-third compared to the previous fiscal year.
The FDI figure now stands at $213 million, down from $744 million in the same period of the previous year.
The finance ministry has urged improvements to the investment climate, citing successful practices in countries like Vietnam and Thailand that could help bolster foreign investment in Bangladesh.
Labour unrest, particularly involving approximately 40,000 employees at Beximco Group, remains another critical issue.
The report recommended closing down Beximco factories and liquidating assets to address outstanding dues and calm worker dissatisfaction.
The unrest, fuelled by corruption allegations and the financial struggles of factory owners, has led to road blockades, vandalism, and arson.
Food security is another concern, with a shortfall of 13.13 lakh tonnes in Aush and Aman production compared to targets.
The finance ministry has outlined plans to import an additional 9 lakh tonnes of food this fiscal year to ensure adequate supplies.
Interim government has also increased fertiliser subsidies to Tk28,000 crore to support agricultural production.
The report stresses the importance of improving the regulatory environment and infrastructure to attract more foreign investment, with an emphasis on tax reform, automation of revenue collection, and increasing income tax collection through nationwide offices.
In conclusion, while the interim government faces significant challenges, the finance ministry’s report also pointed to positive trends driven by strategic fiscal and monetary policies.
If these initiatives are successfully implemented, Bangladesh’s economy may regain its momentum in the medium term.
