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Recovery strong, but macro-economy under strain

THE DAILY STAR/ANN – Bangladesh is staging a strong economic recovery from the coronavirus pandemic but the government should be cautious about tackling the pressures building up in some macro-economic indicators, economists said yesterday.

The government needs to be careful about the indicators such as the balance of payments, budget financing, and inflation, said Executive Director of the Policy Research Institute of Bangladesh (PRI) Ahsan H Mansu. “Otherwise, things can go out of control.”

His comments came at a webinar styled “After the Pandemic Onslaught – Economy on Strong Recovery Path” organised by the PRI.

There is an emerging pressure involving the balance of payments as import growth has exceeded export growth amid slowdown in remittance inflows.

The current account balance is already in deficit by around USD6 billion, so if the trend continues, it would be much higher, he said.

“How will it be funded?” asked Mansur. Pressures are growing in the foreign exchange market. The unofficial kerb market is also up. But the Bangladesh Bank is responding slowly when it comes to devaluing the taka.

A market area of the Kutupalong refugee camp in Bangladesh. PHOTO: AFP

“The central bank needs to act faster to make the adjustment,” said Mansur. He also pointed to the tax-to-gross-domestic-product (GDP) ratio, which fell to a historic low of 7.7 per cent last year. “But lower revenue collection will not help since demand for education, health, and infrastructure has grown tremendously.”

On the expenditure side, subsidy bills have surged. As a result, an additional BDT70,000 will be needed beyond the budgetary plan.

Another challenge for the country is the entire annual development programme being funded by borrowing, either through domestic loans or external loans.

“You can borrow 50-60 per cent but not more than that,” said Mansur. General inflation rose to a 14-month high of 6.05 per cent in December last year, with non-food inflation reaching seven per cent, a six-year high, and food-inflation to 5.46 per cent, the highest in six months.

“It is a difficult to curb inflation in an economic reality when global inflation is also going up,” said the former official of the International Monetary Fund (IMF).

“Inflation may go up during economic recovery but we have to be cautious so that it doesn’t spiral beyond the tolerable level,” said Research Director of the Bangladesh Institute of Development Studies Monzur Hossain.

He said investment had not reached the pre-pandemic level, but the positive thing was that both export and import were rising.

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