IMF flags risks to Bangladesh economy

Bangladesh’s economy is facing significant challenges, according to a recent statement by the International Monetary Fund (IMF).

The country’s local currency, the Taka, foreign reserves, and economic growth are at risk due to inflation and the global economic slowdown.

In January, Bangladesh secured a $4.7 billion loan from the IMF to help address mounting economic troubles.

The country has already received $476 million as the first installment, with the second part of the loan expected in November.

Bangladesh’s foreign reserves are expected to fall to $29.86 billion, the lowest in seven years, after import payments for two months next week. The fall in exports and remittances, two key sources of foreign currency, have not helped improve Bangladesh’s current account deficit. Exports fell 16.5 percent to $3.95 billion in April from a year earlier, as orders from clothing retailers slowed. Inward remittances, on the other hand, declined 16 percent year-on-year to $1.68 billion in April.

While Bangladesh’s forex reserves are declining, neighbouring India has seen its import cover bloat to a 10-month high. India’s foreign exchange reserves rose by $4.53 billion to $588.78 billion in the week ending April 28.

Once touted as a strong emerging economy, Bangladesh has been struggling since the pandemic hit the global economy. Depleting foreign reserves due to a decline in exports widened Bangladesh’s current account deficit to a record $18.7 billion in the last financial year, which ended on June 30, 2022.

The government has also raised fuel and energy prices in recent months after it approached the IMF for assistance. According to estimates, the Bangladeshi economy is expected to deaccelerate from 7.1 percent in 2021-22 to 5.2 percent in 2022-23 due to weaker macroeconomic outlook.

However, FY24 (July 2023 to June 2024) is expected to be much better for Bangladesh, according to World Bank estimates. Economic growth is expected to accelerate in FY24 to around 6.5 percent over the medium term, as inflation eases, external economic conditions improve, and reform implementation gains momentum. But structural reforms will be key to Bangladesh’s economic recovery.

“Bangladesh needs to create jobs and employment opportunities by creating a competitive business environment, diversifying exports, increasing human capital, building efficient infrastructure, deepening the financial sector, and establishing an enabling policy environment that attracts private investment,” noted World Bank’s Bangladesh Development Update 2023.