Inflation, declining reserves, BOP deficit among Bangladesh’s 2024 challenges: ICCB

The International Chamber of Commerce-Bangladesh (ICCB) has pinpointed 10 significant challenges facing Bangladesh's economy in 2024, including inflation, declining reserves and balance of payment deficit.

The other challenges are budget shortfalls, declining remittances, currency depreciation, increasing income inequality, energy sector demand-supply imbalances, and a struggling banking sector plagued by loan defaults.

In the editorial of the current News Bulletin for January-March 2024, the trade body further observed that Bangladesh has been unable to curb inflation, a stark contrast to many other countries that have successfully managed their inflation. 

ICCB said Bangladesh has demonstrated remarkable development progress in the last five decades, starting its journey from one of the poorest countries at independence to a lower-middle-income nation within four decades is a testament to its resilience, policy decisions, and commitment to reducing poverty and fostering shared prosperity, said the World Bank in its recent publication "World Bank in Bangladesh in 2024."

2024 is anticipated to be a year to reap the benefits with several major infrastructure projects reaching completion, like the Padma Multi-Purpose Bridge, Dhaka Elevated Expressway, Bangabandhu Tunnel, linking Dhaka to the tourist haven of Cox's Bazar, and the 3rd terminal of the Hazrat Shahjalal International Airport, it said.

Despite impressive growth rates, Bangladesh faces challenges in its export basket's diversification with more than 80% of the country's total export earnings coming from garment exports, said the ICCB.

Bangladesh has significant opportunities in leather and footwear, food processing, pharmaceuticals, light engineering, assembling plants, and API production. Both domestic investment and foreign direct investment (FDI) will need to be geared towards these sectors, said the trade body.

However, Bangladesh, after it graduates from the least development country (LDC) status in November 2026, will experience significant preference erosion. Although the European Union (EU) and the United Kingdom (UK) have offered to extend preferential duty-free market access for an additional three years, the export scenario to other markets will change immediately after graduation, it observed. 

The ICCB said Bangladesh has a greater opportunity to increase exports to The Association of Southeast Asian Nations (Asean), having a population of 661 million with a GDP of $3.08 trillion and trade exceeding $2.7 trillion. 

According to 2020 data, Bangladesh imports goods worth nearly$7.0 billion from Asean countries as against its exports of only $1 billion. So, Bangladesh should give priority to having a Free Trade Agreement with Asean to increase its exports.

The ICCB also finds that despite developing economic zones, adopting one-stop services and various other steps, Bangladesh is far behind Maldives and Sri Lanka in attracting FDI. Bangladesh is the second-largest economy in the South Asian region. 

Vietnam, comparable to Bangladesh, ranked fourth in Asia-Pacific after China, India, and Indonesia in attracting FDI. 

The majority of total FDI inflows of $274 billion at the end of 2022 into Vietnam were in the manufacturing sector, which accounts for 61% of the total registered FDI. Bangladesh received an annual average of $2.92 billion in FDI as against Vietnam's $36.61 billion. FDI is one of the key elements for increasing export earnings and much-needed foreign exchange reserves, Bangladesh should review its strategy for attracting FDI, said the trade body.

Bangladesh is facing an energy crisis due largely to reliance on imported fuels which is estimated at around $2.5 billion a year for power generation and also a lack of renewables and cleantech alternatives. 

In fact, instead of moving towards exploring renewable energy sources, Bangladesh turned to the use of more fossil fuels such as coal, oil and LNG. With a depreciating currency, a reliance on imported fuels for power generation has led to a significant rise in power generation costs.

Climate change is a critical issue in Bangladesh as it is one of the most vulnerable countries to the effects of climate change, according to Germanwatch's 2021 Global Climate Risk Index, Bangladesh ranked seventh in the list of countries most affected by climate calamities during the period 2000-2019, observed the ICCB.