Bangladesh
a year ago

Inflation, foreign debt affect economy

BB suggests caution in quarterly review

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Persistent higher inflationary pressures, rising cost of foreign borrowing and debt burden overshadow Bangladesh's economic rebound, the central bank says.

In its latest available quarterly economic review the Bangladesh Bank (BB) attributes the adversity to the uncertainties caused by the prolonged Russia-Ukraine war, among other headwinds.

"…ongoing uncertainties could emerge due to the slowdown of major economies and overshooting cost-of-living driven by persistent and increasing inflationary pressures," the central bank of Bangladesh says in its July-September quarterly economic review.

The BB also cautions that compounding adverse effects of elevated global commodity and energy prices, recent upward adjustment in petroleum and fertilizer prices on the domestic market, and a

significant depreciation of BDT against USD could intensify the cost-push shocks to the economy

According to the central bank, significant depreciation of BDT (Bangladesh taka), upward movements of interest rates in the advanced-and emerging-market economies, and tight global financial condition might lift the cost of foreign borrowings and thus debt burden.

"Compounding adverse effects of elevated global commodity and energy prices, recent upward adjustment of petroleum and fertilizer prices in the domestic market, and a significant depreciation of BDT against USD could intensify the cost-push shocks to the economy," it says.

Sustaining growth momentum, stabilizing the exchange rate, and curbing inflation warrant prudent and coordinated fiscal and monetary-policy actions, it mentions.

The BB quarterly, however, says the current depreciation of BDT and several policy initiatives for increasing exports and remittance inflows and limiting luxury and unnecessary imports are expected to help improve the current-account balance and stabilize the exchange rates of BDT in months.

Given the current external and internal macroeconomic challenges, Bangladesh's growth performance is expected to be moderated marginally in FY23.

"The prolonged Russia-Ukraine war-induced global supply- chain disruption and volatility in commodity markets continued to have spillover effects on the robust post-pandemic recovery of Bangladesh economy," the BB notes in its periodic review of the country's economic health.

Keeping this in view, the real GDP (gross domestic product) growth target adjusted downward to 6.50 percent from the earlier forecast of 7.50 percent for FY23, it mentions.

Given the prevailing situation, the central bank, in coordination with relevant stockholders, has been extending various supportive policy measures to sustain the economic-recovery momentum.

The review report, however, says the Bangladesh economy maintained a broad-based growth performance during the first quarter of FY23, aided by favorable outcomes in agriculture, industry, and service sectors with some discomforts in the external-sector developments and internal price situation.

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