Targets for export, import, reserve also slashed, inflation hiked

Infograph: TBS

In the face of an unforeseen global recession, the government has doubled down on economic trend revisions, significantly cutting export income and remittance targets along with GDP growth, while revising up consumer price inflation by two percentage points to 7.5%.

Export growth target has been cut down to 6% from the actual 20% while import growth now has a new target of negative 4%, according to a presentation at a meeting of the Economic Coordination Council on Fiscal, Currency and Exchange Rate on 20 December.

The meeting also cut the GDP growth target by 1 percentage point to 6.5% in the revised budget at the end of the current financial year.

During the presentation, a copy of which The Business Standard has obtained, the Finance Division revised down the target of the gross foreign exchange reserves to $37.67 billion, which hinges on reducing imports.

The target falls short of the original budget goal by $8 billion.

According to the presentation, the Ministry of Finance has estimated that the balance of payments will be negative at the end of the fiscal year due to reduced growth in exports and remittances despite the promised budget support from the International Monetary Fund and import controls.

They fear that the balance of payments will remain at -2.8% of the Gross Domestic Product (GDP) at the end of next June.

Officials of the finance ministry believe that the fall in the production of the private sector due to the government's cost saving measures and the rise in inflation will affect GDP growth.

Finance Minister AHM Mustafa Kamal, however, said compared to other countries, the economy of Bangladesh was still quite good and would continue to do well in the new year as well.

He expects a growth of more than 6.5% in the current financial year.

Talking to reporters at the Secretariat on Sunday, he said the government is working sincerely to control inflation.

However, the inflation rate increased last year due to the global situation. The government will work to control it next year as well, he said.

Foreign trade uncertainty still there

In the presentation on inflation, it was said there is huge inflationary pressure in Bangladesh due to wide instability in commodity prices at the international level.

"If the Ukraine-Russia war is prolonged and if Russia withdraws from the agreement to export food grains from Ukraine, the inflationary pressure in Bangladesh may continue in the coming days," the finance ministry presentation added.

The ministry, however, also believes that the declining trend of consumer goods and energy prices means inflation will dampen soon.

Besides, if food production is unchanged, then food inflation – an indicator with much weight – will also decrease.

The average inflation rate for the first five months of the current fiscal year is 8.77%. To bring it down to 7.5% by the end of the fiscal year, the inflation rate will have to be limited to 6.59% in the coming months.

Former chief economist of the World Bank in Dhaka Zahid Hussain told TBS that the most important things right now were food and energy security.

"There is load shedding during this winter as well, in which case, attention should still be given to keep the power situation normal during the hot season in March-April," he pointed out.

He said growth will happen, but inflation needs to be reduced.

"There is no guarantee that inflation in the country will fall if the price of fuel oil falls in the international market as the fuel is sold at a price set by the government.

"There is volatility in the international market. At any time, the price of fuel and consumer goods can rise again due to a minor incident. Commodity prices are unlikely to fall if the Ukraine war escalates," he said.

He added that appropriate policy decisions should be taken to reduce inflation or product prices without depending only on the international market.

About the import-export situation, an additional secretary of the finance ministry told TBS, "We have no hand over exports. Overall, Bangladesh's export situation depends on the economic situation of the United States and the European Union. However, we are happy if there is a positive growth in exports this year compared to the last financial year."

He, however, said the issue of import control was in their hands, which is why the revised budget was showing negative growth in imports.

If the export growth is also negative, its impact on the balance of payments and foreign exchange reserves will be fatal, he warned.

Industrial production, credit under scrutiny

According to the Ministry of Finance, industrial production in the country was severely disrupted during the first wave of Covid-19 but it quickly recovered from July 2020.

Even during the second wave of Covid, the industrial production index was above the pre-Covid period.

But due to the instability caused by the Ukraine-Russia war, manufacturing output gradually declined from last February to May.

However, officials of the Finance Division think that the industrial production index is showing growth again in the period from last June to August.

Data from the Bangladesh Bank tells a different story.

During the last July-September period, the amount of opening Letters of Credit for the import of valuable machinery and industrial raw materials decreased compared to the same period last year.

In this situation, the target of credit flow to the private sector is being reduced from 15% of the original budget to 14.1% in the revised budget.

Budget slashed as well

The government has announced a budget of Tk6,78,064 crore for the current financial year, of which 11.1% was spent during July-September.

Out of this, the progress of expenditure on annual development programmes (ADP) is 5% and expenditure on other sectors of the government, including administration, is 14.6%.

The implementation rate of ADP till last October has slightly decreased compared to the previous year due to conditionality in government spending on B and C category projects.

All ongoing projects of the Planning Commission were placed in three categories - A, B and C - considering their importance and priorities.

The Finance Division is also going to reduce the size of the budget by Tk25,264 crore considering the overall situation including achieving austerity in government expenditure.

At the same time, an expenditure of Tk15,000 crore is being reduced from the annual development program to Tk2,31,000 crore.

At the same time, the government's tax revenue target is being reduced by Tk3,000 crore to Tk3,85,000 crore.

Finance Ministry officials expect the revenue collection situation to return to the growth trend soon due to the quick recovery of the affected sectors during the Covid period owing to government incentives.

Economy will improve in the new year: Finance minister

Expressing hope that commodity prices will come down in the new year, and export and remittance income will increase, Finance Minister AHM Mustafa Kamal said the whole world is now going through a crisis, which has also affected Bangladesh.

That is why inflation has increased in Bangladesh like elsewhere.

Speaking to reporters at the Secretariat on the first day of the English New Year on Sunday, he said when the Awami League government took over in 2008, inflation was around 12.8%. After the formation of the Awami League government, inflation came down as a result of various measures.

Kamal said the Russia-Ukraine war is a new crisis for the whole world, which could be felt in Europe and America.

Due to this, exports and remittance are under some pressure. However, the government has taken several strategies and steps to maintain the growth of these two sectors.

The ongoing dollar crisis is slowly disappearing. The central bank has directed banks to take LCs quickly for import of daily commodities and consumer goods, he said.

"I hope that the country's economy will move forward despite the challenges of the global recession. The present government has the experience of dealing with a recession in the past. The whole world praised Bangladesh then. In the future, we will deal with the crisis and move forward," he added.

The finance minister said the Finance Division has started the work of preparing the new budget for the next financial year 2023-24.

There is an emphasis on price control, increase in social security coverage, poverty alleviation and new employment oriented projects.

Besides, several steps have been taken to achieve austerity in the revised budget.

He said, "I hope the instability in the market will not last long. The government will not fail in this regard. We will be able to deal with the ongoing crisis together. As a result, the country's economy will improve in the future."

Finance Secretary Fatima Yasmin, bank and financial institution secretaries and senior officials of the ministry were present at the time.