Bangladesh has earned the status of a dynamic and fast-growing economic power in the last decade and a half. The average growth of gross national income was more than 6.7 percent during this period and the per capita income was Taka 2 lakh 73 thousand 360 at the end of the FY2022-23. Bangladesh is the 33rd largest economy in the world according to the size of the GDP estimated in 2023.
Bangladesh has achieved today’s position by overcoming many obstacles and setbacks. With targeted actions and appropriate policy followed by timely implementation to overcome the key challenges, Bangladesh has the capacity to become an upper-middle-income country by 2031.
However, in 2024, the economy is also facing challenges on multiple fronts such as rising inflation, the balance of payment deficits along with budget shortfalls, a declining foreign exchange reserve, a contraction in remittances, a depreciating currency, rising income inequality, the demand-supply imbalance in the energy sector, and an ailing banking sector crippled by loan defaults. Bangladesh could not bring down inflation, whereas it has come under control in most countries.
Despite impressive growth rates, Bangladesh faces challenges in its export basket’s diversification, more than 80 per cent of Bangladesh’s total export earnings come from garment exports. Bangladesh has significant opportunities in leather and footwear, food processing, pharmaceuticals, light engineering, assembling plants, and API production. Both domestic investment and FDI will need to be geared towards these sectors. Despite developing economic zones, adopting one-stop services, and various other steps, Bangladesh is far behind of neighboring countries in attracting FDI.
March Towards Smart Bangladesh Following the Path of Sustainable Development, Finance Minister AH Mahmood Ali placed the proposed national budget in the parliament for the fiscal year 2024-25 on 6 June 2024. The size of budget is Tk. 797,000 crore with revenue collection goal is Tk. 541,000 and the deficit is expected to be Tk 2,56,000 crore. Summary of proposed budget structure for the FY2024-25 is shown below:
Bangladesh challenges in context of proposed national budget for FY2024-25:
Inflation
Inflation is a rise in prices, which can be translated as the decline of purchasing power over time. Prices rise, which means that one unit of money buys fewer goods and services. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some time. This loss of purchasing power impacts the cost of living which ultimately leads unfavorable economic growth. The consensus view among economists is that sustained inflation occurs when a nation’s money supply growth outpaces economic growth. An increase in the supply of money is the root of inflation, though this can play out through different mechanisms in the economy. In national budget for FY2024-25 indicated financing required for Tk. 256,000 crore out of which from domestic banking source is Tk. 137,500 crore. According to the projection made by IMF during April this year, the world inflation rate will decrease to 3.9 percent by 2027. However, the inflation rate in Bangladesh remains stubborn at above 9 percent (so far in 2024 average general inflation is 9.79 percent). Bangladeshi taka was devalued approximately by 25.5 percent against US dollar. This devaluation increased the price of imported goods which also had an impact on the overall inflation of the country.
Inflation needs to be controlled to keep optimum production costs of commodities resulting living costs reduction and improving purchasing power of people.
Decline Foreign Reserve and Exchange Rate Pressure
Bangladesh export earnings was USD 55.56 billion in FY2022-23 and USD 47.5 billion in July-April of FY 2023-24 which is 3.93 percent higher than the corresponding period of the previous fiscal year.
The import decreased by 15.81 percent in FY2022-23 due to the reduction of import of less important and luxury consumer goods which essentially eased the pressure on its foreign exchange reserve. This policy of controlling the import of less important and luxury consumer goods continuing in the current fiscal year 2024-25 and the import volume during July-March has decreased by 15.5 percent compared to the same period of the previous year.
The gross foreign exchange reserve stood at USD 39.6 billion in July 2022-23 which went down to USD 24.22 billion in May 2024. To stabilize the foreign exchange market, the Bangladesh Bank had to sell off approximately USD 22 billion from the reserve. This also caused the decline of reserve. In this context, Bangladeshi taka was devalued approximately by 25.5 percent against US dollar.
The ‘Crawling Peg’ system has been introduced as a primary measure to make the exchange rate market-based. As a result, exports will be encouraged and remittances through official channel will be increased as well. Though the financial account is facing a deficit, it is expected that it will reduce in the medium-run and foreign exchange reserve will continue to grow. The exchange rate of taka will gain again once the reserve is stabilized.
Challenge of LDC graduationBangladesh will graduate formally from the least developed countries in 2026. Bangladesh is moving forward with the goal of becoming an upper middle-income country by 2031 and a developed country by 2041. Subsequent to the graduation, the rules and regulations related to international trade will be applicable to Bangladesh as they are applicable to the developed and developing countries. Preferential tariff and quota free access to the market in different countries that are being enjoyed by exporters currently will be abolished. Cash incentives that are currently given for exporting goods will be withdrawn gradually.
As a result, producers who are getting extra benefits for exporting goods will face open competition particularly ready-made garments which contributes more than 80% of total export earnings.
Currently, Bangladesh enjoys GSP (Generalized System of Preferences) benefits in 27 countries of the European Union for everything but arms (EBA). Furthermore, GSP benefits will continue in Canada and the United Kingdom until 2029 and duty-free benefits in Australia until 2032.
To survive in the changed realities, local industries must innovate new strategies and skills. The government of Bangladesh set up a high-level committee to make policies against the probable adverse effects which may arise after the graduation. The committee and sub-committees formed under the committee have determined various strategies based on which Bangladesh is preparing for the challenges arising from the upcoming graduation. As the government continues to focus on signing preferential trade agreements (PTAs) and free trade agreements (FTAs) with potential partners, the country also needs reinforced emphasis on diversifying its export basket.
The goal to build Bangladesh a happy, prosperous, developed, and smart Bangladesh by 2041. To achieve this goal and sustain the country’s ongoing development, transparency in public expenditure, increasing tax-GDP ratio, capacity building of workers, necessary infrastructure, research and innovation, diversifying products, improving quality of the products, skilled human resources, export diversification and expansion of market, using advanced technology in production and service delivery, renewable energy and conducive investment environment need to be ensured. Besides, existing incentives to the agriculture sector should be continued since food security is the highest importance for the high populated country of Bangladesh.
Transformative Technology and Human Resources Development
Expatriate workers are the driving force of Bangladesh economy. Their remittance plays an important role in ensuring good living of their family members and certainly very significant contribution into national reserve. During July-May period of the FY2023-24, a total of USD 21.3 billion of remittances repatriated into the country which is around 9.82 percent higher than the remittances of the same period in the last fiscal year. Which has been contributing to strengthen the foreign exchange reserve and growth and development of Bangladesh.
The opportunity for unskilled and semi-skilled migrant workers may narrow down in the overseas market in future since it is observing revolutionary transformation of technology caused by artificial intelligence (AI), Robot and other machine-dependent production system due to the 4th Industrial Revolution (IR).
Bangladesh government must to take initiatives to create a conducive environment for the new generation so that they can acquire necessary skills and knowledge to face the challenges arising out of 4th IR. Side by side, Bangladesh has to create opportunities for upskilling and reskilling them to meet the global standards. Government should also think about increasing the more possible benefits of the remittance fighters for keeping them motivated and repatriating reserve through banking channel resulting to boost the much-needed reserve fund.
Climate change
Climate change is a burning issue now globally. Even though Bangladesh remains one of the least GHG emitting countries in the world it is highly vulnerable to the adverse effects of climate change. According to the Global Climate Risk Index 2021 by Germanwatch, Bangladesh stood seventh among the countries that are most exposed to the climate risk. Agricultural land and agricultural production of Bangladesh are at the risk of damage due to the increasing number of climate refugees, sea level rise and increasing intensity of temperature mainly induced by climate change.
Considering these and steps to combat the effects of climate change, Bangladesh government have taken up different programmers and have started implementing them accordingly to build resilience against the adverse effects of climate change. The government have already prepared plans like National Adaptation Plan (NAP), Mujib Climate Prosperity Plan (MCPP), Nationally Determined Contribution (NDC) and Bangladesh Delta Plan 2100. Focusing on climate-resilient development, green infrastructure and community-based management of natural resources can help address such risks and make the economy less vulnerable to climate change.
Bangladesh opportunities in context of proposed national budget for FY2024-25:
Overseas employment is one of the main sectors of Bangladesh’s economy. The remittance sent by expatriate workers is playing a significant role in increasing the foreign exchange reserves and making the country’s economy self-reliant by reducing dependence on foreign aid. From 2009 to 2023, a total of 97 lakh 7 thousand 250 workers from Bangladesh, including 10 lakh 85 thousand 117 female workers, have been employed in 176 countries across the world. The increase in overseas employment has led to a significant rise in remittance inflow. In FY 2009-10, the amount of remittance was USD10.99 billion, which doubled to USD21.61 billion in FY2022-23. To maintain the continuous remittance flow through overseas employment and to meet the demand of the global labor market, government emphasis has been laid on skill development through various technical trainings, alongside the importance of learning foreign languages. Government have established the National Skills Development Authority (NSDA) to create skilled human resources and to bring about fundamental structural changes in the skills development ecosystem through planning and coordination based on the demands of the national and international labour markets.
The amount of ICT goods/services exported in 2006 was USD21 million, which increased to USD1.9 billion. The number of IT Freelancers increased from 200 to 6 lakh 80 thousand. Bangladesh occupies the 2nd position considering the number of Freelancers. The ICT sector’s export volume is expected to increase to US$ 5 billion in the next five years and to US$ 50 billion by 2041. Special initiatives will be undertaken to encourage innovation and research across the country, including at the grassroots level, by enhancing the capabilities of stakeholders in the ICT sector and setting benchmarks for becoming smart in every sector.
Medicine being an essential part of health care, the pharmaceutical industry has been identified as a thrust sector. The different initiatives coupled with the policy support, Bangladesh is now capable of producing world-class medicines. About 98 percent of the total demand of medicines in the country is being produced locally and after meeting the domestic demand, medicines are being exported to more than 150 countries of the world including Europe and America. From January to December 2023, the export of medicines worth Tk. 9,880 crore from Bangladesh to different countries has been approved.
To strengthen the economy food security plays very important role and Bangladesh is going to bring about agricultural revolution. Bangladesh government in the last decade and a half, have undertaken a wide-ranging initiative, including the development of improved and resilient crop varieties, innovative farming technologies, rapid dissemination of adapted varieties and technologies, supply of agricultural inputs such as fertilizers and seeds at fair prices, expansion of irrigated areas, adoption of improved food security in the country and strengthened the economy.
Finding and creating opportunities in challenges is always difficult so it is important to keep long-term visibility and strategy. Besides, the ongoing revaluation in ready-made garment industry Bangladesh may also progress remarkably with shrimp industry, leather industries and footwear industry, ship recycling and export-oriented ship-building industry, tourism and hospitality sector, dairy products, food processing, assembling plants, attracting FDI by working on infrastructural development, removing bureaucratic obstacles, and enhancing the ease of doing business in Bangladesh.
References:
- National Budget Speech FY2024-25
- Bangladesh Bank
- Bangladesh Bureau of Statistics (BBS)
- https://thefinancialexpress.com.bd/economy/bangladesh/challenges-and-opportunities-for-bangladesh-economy-in-2024
- https://www.tbsnews.net/thoughts/locating-opportunities-amidst-challenges-575890