Despite a strong recovery from the COVID-19 pandemic, Bangladesh’s economy faced challenges such as high inflation, shortages in power and energy, global economic uncertainties, and continued tightening of monetary policies in 2023. Additionally, an increase in import demands—mainly due to rising international commodity prices—along with declining foreign direct investment (FDI) and remittances has significantly lowered the value of the taka and depleted foreign exchange reserves over the past few years. As a result of weak private demand, economic growth decreased to 6% in 2023, down from 7.1% in 2022. On a positive note, exports remained strong, growing by 6.7% in fiscal 2023 (ending June 2023), driven by ongoing global demand for ready-made garments. Implementing a $4.7 billion, 42-month program by the International Monetary Fund (IMF), which started in January 2023, is aiding Bangladesh in maintaining economic stability, strengthening foreign exchange reserves, financing climate investments, and mitigating the impact of increased imports on economic growth.
The IMF projects that economic growth will continue at 6% in 2024. Despite a slowdown in major export markets, moderate export growth is expected to persist, supported by a weaker taka, which enhances export competitiveness. Ongoing physical infrastructure development will likely bolster investment and attract more foreign direct investment, while energy projects are expected to address power shortages gradually. However, private demand will likely remain weak due to tight monetary policy, neutral fiscal stance, and high inflation.
The economic outlook faces significant risks, including vulnerability to weather events that can impact agriculture, potential increases in global food and energy prices, which could strain household budgets, and financial sector weaknesses, particularly concerning asset quality in banks that could further strain liquidity. Increased competition in garment production from countries like Vietnam and Sri Lanka and/or a decline in remittances could reduce incomes and consumption. Political unrest could also disrupt economic reforms. Although there has been some diversification within the garment export sector, the Bangladesh economy remains sensitive to a downturn in global demand for clothing and textiles.
In the long term, a young population and rising incomes should bolster private consumption. Remittance inflows are expected to increase, supported by strong labour demand in the Gulf region. Continued investment in human capital, expanded internet access in rural areas, increased foreign investment, and greater participation of women in the workforce are projected to sustain economic and social development. As Bangladesh faces significant climate risks, the country aims to move towards greener growth strategies; long-term funding from the IMF should help catalyse investments for climate-related initiatives, such as low-carbon investments and adopting climate technologies for livestock and irrigation. If these green energy investments are successfully implemented, they could support sustainable development over the long term. Continued policy reforms and social development initiatives under IMF guidance are also expected to help reduce poverty and improve human capital development.
Source: Export Finance Australia