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Dhaka Tribune

WB: Bangladesh requires bold economic reforms to navigate emerging challenges

Moreover, higher energy prices and currency depreciation in turn have contributed to rising inflation and domestic policies

Update : 19 Oct 2023, 06:33 PM

To navigate emerging challenges and sustain a strong pace of growth and poverty reduction, the country will require fast and bold economic reforms, said Abdoulaye Seck, country director of World Bank, Bangladesh and Bhutan, at a discussion on Thursday.

He also said that Bangladesh, along with other countries, faced unprecedented and intertwined global challenges in the past year which resulted in an elevation of the commodity prices, a persistent Balance of Payments (BOP) deficit, and weighing on foreign exchange reserves.

Moreover, higher energy prices and currency depreciation in turn have contributed to rising inflation and domestic policies.

He was speaking as the guest of honour at an event titled “Inclusive and Resilient Economic Growth in Bangladesh – the World’s Bank Engagement” organized by the American Chamber of Commerce in Bangladesh (AmCham) in the capital.

Seck also said that food prices have been rising faster than wages, reducing the purchasing power of many families and private investment growth slowed with higher uncertainty which is not uncommon in an election year.

Moreover, industrial production slowed with higher raw material and energy prices, and gas and electricity disruptions.

“As the post-pandemic recovery was disrupted in FY23, the World Bank lowered GDP growth projections to 5.6% in FY24, although we expect growth to gradually accelerate over the medium term,” he remarked.

He also said that the inflation is likely to remain elevated in the near term and gradually subside, as import prices stabilize over the medium term.

Pressure on the external sector is expected to persist in FY24, depending on global conditions and domestic exchange rate, monetary, and fiscal policies, he remarked.

“We have already seen this forecast materializing in data from the past two months, which show weak performance in export earnings and remittance inflows,” he remarked.

In the near term, policy adjustments can help stabilize macroeconomic conditions.

To help contain inflation, the transmission of monetary policy can be strengthened, including phasing out the use of interest rate caps on lending, he remarked.

At the same time, financial sector vulnerabilities need to be addressed through effective bank supervision.

“Recent monetary policy updates are a step in the right direction, but a faster pace of implementation is needed,” he remarked.

He also suggested diversifying exports as the country’s exports remain highly concentrated on the RMG.

“With the impending end of preferential access to markets due to the LDC graduation, Bangladesh will need to find new drivers of exports and growth,” he remarked.

Moreover, the financial sector needs to be strengthened to effectively channel savings into productive investments to support future growth as envisaged in the 8th Five Year Plan.

“Banking sector vulnerabilities are growing. A nascent domestic capital market is also constraining longer term financing for infrastructure, housing, and climate change mitigation,” he remarked.

“Infrastructure bottlenecks and slow human capital development are additional constraints to growth. Inequality has slightly widened in urban areas,” he remarked.

These challenges need to be immediately addressed, he suggested.

If Bangladesh adopts key policy reforms, a high pace of growth can be sustained. A strong partnership between the private sector, civil society, and government will be needed in this process, he remarked.

Syed Ershad Ahmad, president of the AmCham, said that the economy has achieved significant milestones, but it still faces major challenges including increasing inflationary pressures, a deficit in the balance of payments, and a shortfall in revenue.

“These challenges are not unique to Bangladesh. Many developing countries are also struggling with similar issues such as local supply disruptions, high import costs, inflation, rising interest rates, low economic growth, unemployment, and heightened uncertainties. The Russia-Ukraine conflict has worsened financial problems for many countries,” he remarked.

“To achieve our goal of achieving upper-middle-income status by 2031, we need to create jobs through a competitive business environment, increase human capital, build a skilled workforce, establish efficient infrastructure, and create a policy environment that attracts private investment,” he remarked.

Members of the AmCham, US embassy, and business leaders of the country were also present at the event.

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