The size of the country’s gross domestic product (GDP) is projected to increase by Tk5,56,823 crore this fiscal year from last year’s Tk44,49,959; however, the increase is primarily due to abnormal rises in prices of goods and services rather than increased production through higher investment.
Bangladesh Bureau of Statistics (BBS) has provisionally estimated the Gross Domestic Product (GDP) at market price to reach Tk5,048,027 crore in the current fiscal year, surpassing the budgetary target by Tk41,245 crore.
Data from several government offices reveal that it has become impossible to meet five of the six real sector economic goals set in the national budget for the current financial year, including GDP size, real growth, investment, per capita income, and inflation control.
GDP growth is projected to fall to 5.82%, 1.68 percentage points lower than the 7.5% target.
The moving average inflation up to April stood at 9.73%, significantly exceeding the target of reducing it to 6%.
Private sector investment as a proportion of GDP dropped to a decade-low of 23.51%, following a target of an all-time high of 27.83%. This lower investment rate, representing a 4.32% shortfall, equates to a deficit of Tk206,832 crore.
| Indicator | Target | Achievement | Gap |
| Size of GDP (Tk crore) | 50,06,782 | 50,48,027 | 41,245 |
| GDP Growth (%) | 7.5 | 5.82 | -1.68 |
| Private investment (% of GDP) | 27.83 | 23.51 | -4.32 |
| Private investment (Tk crore) | 13,93,387 | 11,86,556 | -2,06,832 |
| Total investment (% of GDP) | 33.75 | 30.98 | -2.77 |
| Total investment (Tk crore) | 16,89,788.925 | 15,63,759.4 | -1,26,030 |
| Per capita income (USD) | 2,961 | 2,784 | -177 |
| Average inflation (%) | 6 | 9.73 | 3.73 |
The projected per capita income for the current fiscal year, measured by per capita Gross National Income (GNI), is $2,784, about 6% lower than the target of $2,961.
The BBS estimation used an exchange rate of Tk109.97 per US dollar, but this would be lower than the previous fiscal year when calculated with the current exchange rate of Tk117.48 for each US dollar.
In his budget speech presented to the National Parliament in June last year, then Finance Minister AHM Mustafa Kamal highlighted signs of recovery in key economies crucial for Bangladesh's trade and expatriate income.
He noted that global inflation was expected to moderate as prices for food, fertiliser, and fuel in the international market began to stabilise.
Additionally, he mentioned that economic activities within Bangladesh had gained momentum following the overall improvement of the COVID-19 situation.
Kamal had expressed high ambition about returning to a higher growth trajectory, aiming for a 7.5% GDP growth in FY-24 through investments in productive sectors by stimulating productivity and domestic demand.
“To achieve the growth target, we will gradually move away from contractionary policies and invest in ongoing and new growth-inducing projects, including mega-projects,” he stated.
He had set a target for private sector investment to reach 27.4% of GDP and announced several measures including facilitating economic zones with an investment-friendly environment through offering undisputed land, improved infrastructure, uninterrupted utilities, financial incentives, and ease of doing business.
The budget speech also highlighted initiatives such as the development of the logistics sector and reforms in financial management to reduce the time, cost, and complexity of business processes.
Economists and experts said that the ambitious goals were set in the budget for the current fiscal year without considering the long-term challenges and reality of the economy.
They said that there was a lack of detailed action plans in the budget to achieve the set goals regarding the increase of investment and growth as well as reduce inflation.
Drastic contractionary measures to control inflation, implemented wrongly without first identifying the underlying factors behind the price hike, exacerbated inflation and hindered projected economic growth, according to Dr Salehuddin Ahmed, former governor of Bangladesh Bank.
He said the Bangladesh Bank initiated reducing domestic demand through reducing money supply to control inflation which emerged from the lack of production and supply of goods in the market, weakness in market management and excessive profiteering tendency of traders.
He also said that the production sector facing significant challenges due to increasing interest rates, reducing the flow of credit to the private sector and controlling the import of industrial capital equipment without meeting the demand of providing large amounts of money to industrialisation to bring the economy out of the wounds of the COVID-19 epidemic and the Ukraine war.
Rizwan Rahman, former president of the Dhaka Chamber of Commerce and Industry (DCCI), said boosting production through industrialisation is difficult because of the lack of power and energy.
He also said, the production cost of the industry has increased due to the increase in the price of gas and electricity. Entrepreneurs are not getting loans from banks due to the increase in government debt. The cost of production is also rising due to rising interest rates.
Entrepreneurs are facing a lack of confidence due to instability in most indicators of the macroeconomy, he added.
He also thinks that investment will not increase if the confidence of entrepreneurs is not restored through the improvement of gas, electricity and banking systems.
A shortfall of Tk2,16,293 crore in private investment
Achieving the private sector investment target of 27.83% of the total GDP would ensure Tk13,93,387 crore of investment from the sector in the fiscal but the amount is projected Tk1,17,70,94 crore, with a deficit of TTk2,16,293 crore, according to the BBS.
Private investment would reach to 23.51% of the GDP, the lowest in the last decade.
The private sector invested 24.18% of GDP in the previous fiscal year, the BBS says investment in this sector has declined by 0.67 percentage points in a year.
According to the review, the private sector invested 22.07% of GDP in 2014-15, which increased to 23.7% in the next year.
In the following years, the lowest investment is coming from the hands of the private sector.
Dr Sayema Haque Bidisha, a professor from the Department of Economics, University of Dhaka, said the government committed to an expansionary budget in terms of public expenditure and money supply by moving away from contractionary policies but it was seen complete opposite image at the implementation stage.
“Release of funds for several components under the development and revenue sector have been banned at the beginning of the fiscal,” she added.
“Central bank made a good decision regarding the withdrawal of the cap on the interest rate. However, the rate has been hiked several times through increases of Repo and reverse Repo rates and the introducing the Six Months Moving Average Rate of Treasury Bill (SMART) system in bank loans,” the economist said.
Although the money supply is expected to expand by more than 13% through broad money (M-2) expansion, it grew by just 2.65% from June to March period, she added.
Dr Sayema Haque Bidisha said that the growth in credit flows to the private sector, a key component of trade expansion, also slowed by about 10% and imports of capital machinery, intermediate goods and industrial raw materials have also seen a big decline.
“The goals of increasing GDP growth and reducing inflation has not been met due to not taking initiatives to improve the supporting indicators of the manufacturing sector,” she concluded.
Rise in per capita income: Target vs reality
The per capita income in the current fiscal year is projected to increase by 12% in terms of domestic currency - exceeding Tk3 lakh for the first time.
However, the increase in per capita income remained a mere 1.27% in terms of the US dollar, revealed the BBS report.
Per capita income is to reach $2,784 in the current fiscal year with an increase of $35.
The BBS officials said that the calculation of the per capita income made with an exchange rate of Tk109.97 for each US Dollar, which is far lower than the current exchange rate of Tk117.87.
Calculation with the latest exchange rate would reduce the per capita income to $2,597 which is $152 or 5.52% lower than that of the last fiscal.
The budget document revealed that the government set a target to reach a per capita income of $2,961 in the current fiscal year; but in actuality, it has been less by $364 or 12.29%.
