Looking back at FY23: Reading between the numbers

Infograph: TBS

The just concluded fiscal year of 2022–23 (FY23) marks the last full fiscal year of the Awami League government's present five-year term. At first glance, the leading economic indicators for FY23 seem impressive; however, upon closer examination, it becomes apparent that there are some issues in the economy that need to be addressed.

The fiscal year ended with record-breaking export earnings and overseas employment, second-highest remittances, positive growth in revenue collection, a narrowing trade deficit, high inflationary pressure, depletion of foreign exchange reserves, high government borrowing from the banking sector, and a dip in investments.

Alongside the stress of the global economy, Bangladesh has been facing substantial challenges over the past three and a half years, including the ramifications of the Covid-19 pandemic and the Russia-Ukraine war.

The war-driven global economic domino effect decreased Bangladesh's FY23 economic growth to 6.03% from the previous fiscal year's 7.1% when the country was rebounding from the pandemic.

Exports record, diversification lags

Despite missing the export target, Bangladesh fetched its highest-ever $55.56 billion in export earnings in FY23, riding solely on the apparel sector.

Moving into the new fiscal year, the key pillar of the economy may suffer, as exporters fear deeper losses amid the recent surge in political violence in the country, and declining orders from Western markets.

Export Promotion Bureau (EPB) data shows that $46.99 billion of readymade garment (RMG) products—woven and knitwear—were exported in FY23. The sector alone accounts for 84.58% of the total export earnings in FY23, up from 81.82% in the previous fiscal year.

Beyond RMG, the export of other major products, including leather and leather products, home textiles, jute and jute goods, agricultural products, and engineering products, registered negative growth in FY23.

The negative growth in non-RMG exports and the mounting share of RMG exports indicate that Bangladesh lags in diversifying its export basket.

Record manpower exports

Bangladesh has witnessed a new record in annual manpower exports as the country sent about 11.37 lakh workers abroad in FY23, per the Bureau of Manpower, Employment, and Training (BMET) statistics.

The majority of the workers went to Saudi Arabia (39.8%), Malaysia (20%), and Oman (15.2%) in FY23.

Bangladesh saw an impressive increase of 15% in overseas employment in FY23, compared to 9.88 lakh workers sent in FY22.

Despite the high migration rate, as evidenced by Bangladesh, the country has persisted in sending a large number of unskilled workers to conventional low-paying overseas positions, leading to meagre growth in remittances.

Remittance inflows are at their second-highest ever

Remittances sent by migrant workers are one of the key pillars of the economy and also the greatest source of the reserve of our foreign currencies.

However, the exchange rate gap between the official and market exchange rates widened, which has been diverting remittance inflows away from official to informal channels.

Data from the Bangladesh Bank reveals that Bangladesh received $21.61 billion in inward remittances during the fiscal year of FY23, marking the second-highest ever recorded, with a 2.75% year-on-year increase from $21.03 billion.

Saudi Arabia has been the leading source of remittances in FY23 with $3.77 billion, followed by the United States ($3.52 billion) and the United Arab Emirates ($3.03 billion).

Revenue grows, so does higher bank borrowing

The National Board of Revenue (NBR) posted an 8.12% year-on-year growth in revenue collection, amounting to Tk3,25,272 crore in FY23.

But the collection fell short of the target by Tk44,728 crore or 12.09% according to the provisional data from NBR. 

The various measures taken by the government to control imports due to the dollar crisis during the last fiscal year have affected revenue collection, one of the key reasons for failing to attain the revenue target.

Meanwhile, the shortfall in revenue collection forced the government to nearly double its borrowing from the banking system to finance its budget deficit, which had an adverse impact on inflation.

The trade deficit narrows

Bangladesh's trade deficit narrowed by 44.32% to $17.16 billion in the fiscal year (July–May) from $30.82 billion in FY22 (July–May), due to import curbs that eased pressure on the country's external position.

The decline in the trade deficit is also expected to provide some relief to the exchange rate.

Furthermore, the ease of the balance of payments helped reduce the country's current account deficit by 73.91% year-on-year in FY23 (July–May) to $4.51 billion.

Dip in investments

Investment in Bangladesh has been driven by the private sector. High inflationary pressure and global economic uncertainty have led to lower confidence among investors, resulting in the private investment-to-GDP ratio falling to 21.8% in FY23 from the previous fiscal year's 24.5%.

Meanwhile, the public investment-to-GDP ratio also dropped to 6% in F23 from the previous fiscal year's 7.5%, according to the data from the Ministry of Finance's Medium-Term Macroeconomic Policy Statement (MTMPS).

Capital accumulation is key for development, and hence the government targets private investment to reach 27.4% of GDP in the next fiscal year and 29.4% in the next two years.

Development spending drops

Only 84.16% of the revised annual development programme (ADP) allocation was spent in FY23, a fall from the previous year's 92.74%, as revealed by the Implementation Monitoring and Evaluation Division (IMED).

This decline in the use of development funds can be attributed to the government's various austerity measures in project execution, while also reflecting the low capacity of the implementing agencies.

In FY23, ministries and divisions spent Tk 1,99,099 crore from the total revised ADP of Tk 2,36,560 crore.

Inflation soars to a 12-year high

The inflationary pressure experienced in FY23 is mainly due to supply-chain disruptions.

In FY23, Bangladesh's average inflation climbed to a 12-year high of 9.02%, surpassing the government's revised target ceiling of 7.5%. From FY12 to FY22, inflation averaged 6.3% per annum.

The high rate of inflation reduces purchasing power, particularly for fixed-income earners and the poorer population, and worsens income inequality.

As part of the contractionary monetary policy stance to contain soaring inflation, Bangladesh Bank has increased the policy rate, also known as the repo rate, to 6.50% and the reverse repo rate to 4.50%, as highlighted in the Monetary Policy Statement for July–December 2023.

The central bank also removed the lending rate cap, ensured market-based exchange rates, and implemented quantitative tightening.

The hard part is knowing what lies ahead

Apart from the roaring inflation and dollar crisis, the economy of Bangladesh showed resilience in FY23 amid the challenging global context.

However, there are new concerns as the country is witnessing political unrest, which may force the new fiscal year off to a bad start and potentially weaken the country's economic indicators.

Meanwhile, S&P Global Ratings on 25 July lowered the long-term rating outlook for Bangladesh to negative from stable, citing risks that the country's external liquidity position could deteriorate in the next year, while foreign exchange reserves remain under pressure. The rating agency kept the country's sovereign credit rating unchanged at 'BB-' for long-term and 'B' for short-term.

Earlier in May, Moody's Investors Service downgraded Bangladesh's ratings for the first time, placing it at 'B1' from the 'Ba3' category, but it kept the country's long-term outlook stable.

TBS Sketch of Mohsin

Mohsin Bhuiyan is a Research Analyst at The Business Standard

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.