Bangladesh’s economy, which has been in recovery mode since the Covid-19 pandemic’s outbreak, has faced persistently high inflation that hit close to 10% in recent months. The resignation of Sheikh Hasina as the Prime Minister of Bangladesh and the subsequent takeover by the military could lead to further troubles for the economy that is also facing problems of liquidity and forex reserves.
Even before the current political crisis, international agencies have called for structural reforms to help it take forward growth and maintain economic stability. However, the country has been one of the fastest growing economies in the world with high GDP per capita.
As per its Budget, which was passed on June 30, the country is targeting an inflation rate of 6% and GDP growth rate of 6.75%. The budget spending was also cut, as per news reports. In late June, the country received $1.15 billion from the IMF, which was the third instalment of an approved loan package of $4.7 billion.
The World Bank in April in its Bangladesh Development Update report had forecast that the country’s GDP would grow by 5.7% between July 2024 and June 2025 as against 5.6% in the same period last fiscal.
“Bangladesh’s strong macro-economic fundamentals have helped the country overcome many past challenges,” said Abdoulaye Seck, World Bank Country Director for Bangladesh and Bhutan, had said at the time. “Faster and bolder fiscal, financial sector, and monetary reforms can help Bangladesh to maintain macroeconomic stability and reaccelerate growth,” he had further said.
The World Bank report also called for urgent monetary reform and a single exchange rate regime, which will be critical for improving foreign exchange reserves and easing inflation. Greater exchange rate flexibility would help restore balance between demand and supply in the foreign exchange market.
IMF data shows that the economy has clocked over 5.5% growth annually every year since 2010, barring 2020 when it grew by 3.4%. GDP growth hit a high of 7.9% in 2019, but since the Covid-19 pandemic, the economy is still in the recovery mode. It expects Bangladesh’s GDP growth to slow to 5.7% in 2024 from 6% in 2023.
Significantly, its GDP per capita has exceeded that of India’s since 2018. But India’s GDP per capita is expected to outpace that of Bangladesh in 2024, as per IMF data.
In its 2023 Article IV Consultation on Bangladesh, the IMF had said that to restore near-term macroeconomic stability, monetary policy should be further tightened, supported by neutral fiscal policy and greater exchange rate flexibility. “The IMF–supported program will lay the foundations to unlock Bangladesh’s growth potential, harness its demographic dividend and support long-term inclusive and green growth,” it had said in the report in December 2023.
It had noted that Bangladesh has been among the fastest growing economies in the world, with annual per capita income growth of 4 % over the past three decades and a decline in poverty from 48.9% in 2000 to 24.3% in 2016.
“Bangladesh economy has been buffeted by multiple shocks. Spillovers from Russia’s war in Ukraine and global monetary tightening have interrupted a strong post-pandemic recovery, with real GDP growth slowing to 6% in FY23 and headline inflation reaching a decade high of 9.9% year-on-year in August 2023,” said the IMF in the report in December 2023. It had predicted that inflation would moderate to 7.25% by the end of the current year 2024.