Recovery won't be faster until FY27, IMF projects

Infographic: TBS

Despite an air of optimism, gloomy days will linger for a few more years before the pall lifts, according to projections by the International Monetary Fund (IMF).

According to the IMF's assessment, the current fiscal year will be the most challenging as most of the indicators show the economy will be in stress.

For example, GDP is projected to grow at 5.5% this year, 6.5% in FY24 and 7.4% in FY27. GDP grew by 7.2% in FY22.

Bangladesh's consumption, which mainly drives the economy, will dip this fiscal year by more than half of what was in the previous year amid rising inflation.

The multilateral lender projected 7.6% growth in private consumption for FY23, down from 13.2% in FY22, while public sector consumption is expected to see negative growth of 7.5% from positive 5.8%.

The IMF came up with the projections while approving a $4.7 billion loan package for Bangladesh on Monday night.

Edimon Ginting, Bangladesh country director of the Asian Development Bank (ADB), recently said consumption is the biggest engine of economic growth which will be affected by the high inflation.

However, Bangladesh is lucky because it is heading towards becoming a middle-income country, so there is social growth.

The slump in consumption will lead the economic recovery lingering as Bangladesh's growth will remain below the pre-pandemic level until FY27 when the country is aspiring to reach upper-middle income status by 2031, according to the IMF.

Inflation which skyrocketed to above 9% in August after record hikes in fuel prices is projected to be 8.9% at the end of FY23, 6.6% in FY24 and 5.5% in FY27. Though price pressure started to ease in December by registering 8.7%, it is  likely to go up further as the government hiked electricity price for two times in a month in January.

The report also projected a 7.2% drop in export of goods and services in the current fiscal year following a 23.2% growth in the last. The IMF projected 8.9% growth of export in FY24 which will recover over 9% in FY27.

The global lender also anticipated 22.6% negative growth of imports in the current fiscal year, 14.2% in FY24 and 8.6% in FY27.

Economists and experts found consumption expenditure as the major driver of growth of the economy in Bangladesh. And the growth is also accelerating thanks to the export industry. They are raising questions about how 5.5% GDP growth will be achieved in the rescission of these two sectors.

Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), told TBS that most of the major economic indicators in Bangladesh have been worsening following the global recession and the government also reduced the growth target for the current fiscal year considering the issue.

"The IMF projection is more realistic than the government projection but the question remains – from where will the growth be achieved?" he said.

He said consumption spending reached 78.44% of the GDP in the last fiscal year with a big jump from 72.92% in FY20. Any further reduction in consumption will hamper the growth.

The Bangladesh Bank in its monetary policy statement projected forex reserves worth $37 billion at the end of the current fiscal year with a negative growth of import by 9%. Downward trend in imports will hamper the availability of capital machinery and raw materials, which will hamper industrialisation.

"We will reduce import, export and production. From where will the growth be achieved? Either the figure delivered regarding the balance of payment is overestimated or growth projection is inflated," said Mustafizur Rahman.

However, IMF analysis shows a rosy picture where the country's reserve will grow faster reaching $53.1 billion in FY27.

The forex reserve is expected to be $30 billion in FY23. Bangladesh Bank data shows the reserve stood at $32.29 billion on 25 January.

High reserves will reduce pressure on external positions as the current account deficit will be 3% to 4% of GDP during the period till FY27 which is considered a standard level.

Besides, remittance inflow is expected to experience a downward trend from the next fiscal year. The IMF projection for FY24 is 4.9%, for FY25 4.6%, for FY26 4.4% and for FY27 it is 4.1%. Remittance inflow for the current fiscal year now stands at 5.1%.

The IMF expects the public sector will rise significantly to 8.8% in FY23 from 7.6% estimated for FY22 and the growth will continue to rise till FY27 reaching 11%.

On the other hand, the private sector will remain at 24% of GDP during the period.