Better Outlook, Less Optimism

Despite good projection about inflation and growth, Here less optimism is shown for the both.

NBR last week disclosed that around 10 million people registered as TIN holders. But only 3.5 million taxpayers submitted returns till the last day of return submission, which was extended to January 31,2024. Revenue shortfall is becoming the inevitable reality amid a commitment to increase it as part of IMF loan deal. January inflation data has not been published yet. But prices of kitchen commodities and winter fruits have shown no sign to ease. Meat items still remain out of reach to the Middle class. So we may see another hike in interest rate in coming weeks.

Government last week also announced to lower the cash incentives for the export sector. But many exporters did not appreciate it. It is a belated move when govt is increasingly feeling the pressure to cut the spending amid funding crisis.

In my post “Economic Reforms: Morning Shows The Day”, I highlighted how government plans to provide bonds to the banks and power providers instead of the due payments of Taka 220 billion may provoke inflation in the future. Last week, 5 banks received the bonds worth Taka 50 billion as payment to subsidies in fertilizer and power.

Moody’s foresees a 3%-4% depreciation of local currency as Bangladesh Bank plans to adopt “crawling peg” exchange rate mechanism before moving to market adjusted rate. It will definitely make our export items more competitive but the downside is the depreciation pass-through may worsen the inflation.

IMF in its world economic outlook update for January ,2024 sees a global growth rate of 3.1%. But Bangladesh’s biggest apparel destination USA is likely to witness decline in growth in the coming years, resulting from policy rate hikes. Consumer demand in the USA is not bouncing back soon. So uncertainty looms large on apparel export growth in the US market. Meanwhile, euro area is projected to register a positive growth in the coming years. But what political stands the USA and the EU will make following the one-sided election will have a deeper impact on the exports to these markets.IMF anticipates global inflation to fall to 5.8% in 2024 from 6.8% in 2023. IMF also acknowledges that escalation of tensions in the Middle East may cause supply side disruption and worsen the price levels, delaying the economic recovery.Downward growth projection is reported for Russia, China and Japan. India is projected to achieve 6.5% growth for this year and next year. Apparel exports to India and Japan have already reached the $ 1 billion mark. And any fall in consumer demand will likely to impact our export.

In brief, falling revenue, not-so-optimistic inflation situation cast shadow over Bangladesh’s economic recovery amid a positive global growth projection of 3.1% in 2024. Unless miracle happens in export order ,bumper crop harvest and spike in remittance inflow, Bangladesh GDP is likely to shrink in terms of USD estimates. Govt's delay in starting bold reforms throws weight behind such possibility.