The finance division has identified around half a dozen challenges, including high inflation, a low tax鈥揋DP ratio, non-performing loans, and high borrowing costs, to macroeconomic stability in the new financial year beginning on July 1.
Besides, geopolitical conflicts, volatile commodity prices, and climate change can amplify economic uncertainties in the highly crucial year ahead of the country鈥檚 promotion as a developing country in 2026 from its status as a least developed country.
Finance ministry, led by finance minister Abul Hassan Mahmud Ali, admitted the macro-economic challenges in the Medium-Term Macroeconomic Policy Statement 2024-25 to 2026-27, one of the important budget documents.
Economists said that the government had yet to take any comprehensive measures other than admissions to mend damages suffered by the macroeconomy since FY23 amid the shortage of dollars, high inflation, capital flight, and hundi.
The Bangladesh Bank has imposed import restrictions since April 2022 but has failed to check the depletion of forex reserves, which dropped below $18 billion from $48 billion in August 2021.聽
The country loses almost $1 billion every month from reserves, said former Bangladesh Bank governor Salehuddin Ahmed.
The depletion of forex reserves has continued despite receiving financial and technical assistance from the International Monetary Fund since FY23.
The Washington-based lender has already disbursed $1.1 billion and is expected to disburse $1.15 billion in the current month.
The former BB governor said that the country needed to curb hundi and capital flight for the forex reserve build-up.
The MTMPS, however, did not make any significant focus on hundi and its negative impact on the country鈥檚 economy.
Saying additional measures have been taken to check hundi, the MTMPS identified high interest rates in the advanced economies as one of the major reasons for the dwindling foreign exchange reserves in Bangladesh.
This high interest rate regime in the advanced countries may continue for a while, and hence it will be challenging to increase reserves in the coming months, said MTMPS.
The MTMPS also highlighted inflation, a low tax鈥揋DP ratio, and non-performing loans as challenges to the macro-economy.
The top priority of the government now is to contain the high inflation that has stubbornly persisted for the last several months, according to the document.
鈥業f inflation does not come down in the next few months, the high interest rate prevailing in the market may have adverse impacts on GDP,鈥� said the MTMPS.
The policy statement said reforms were imperative to increase the tax-GDP ratio, which is lower than comparable countries.
It, however, said that designing those reforms might be challenging.
According to the policy statement, NPL and lack of financial discipline have become a concern recently, while the country鈥檚 graduation from the group of LDC in 2026 will gradually diminish certain benefits, necessitating emphasis on export diversification, increasing productive capacity, and improving the business environment.
Former caretaker government advisor Hossain Zillur Rahman lamented that the country鈥檚 business environment had not improved at all.
The country鈥檚 business environment deteriorated in 2023 compared with 2022, mainly because of sluggish regulatory reforms and weak infrastructure, according to the Bangladesh Business Climate Index FY24 launched by the Metropolitan Chamber of Commerce and Industry and Policy Exchange in May.
The business climate is often more important than access to finance, he said.
Economists said that the government had also failed to ensure access to funds for essential sectors, including cottage, micro, small, and medium enterprises, to bolster economic activities.
The CMSMEs sector is the largest segment of the economy in Bangladesh, accounting for 25 per cent of the country鈥檚 GDP.
聽The sector directly creates employment for 7.8 million people.
However, they can hardly find access to the funds of banks that are busy providing loans to industrialists and corporate groups, although the rate of loan defaults is high in the industrial sector.
According to a BB update, defaulted loans surged to a historical high of Tk 1,82,295 crore at the end of March, from Tk 1,45,633 crore in December 2023, Tk 1,20,656 crore in December 2022, and Tk 1,03,273 crore in December 2021.
Executive director Ahsan H Mansur of the Policy Research Institute said NPL would grow further in the coming months due to inaction by BB.
The size of NPL will be much higher if calculated accurately, with a significant portion being laundered abroad, he said.