The International Monetary Fund (IMF) revised Bangladesh's economic growth projection further down to 5.5 per cent for the current fiscal year (FY 2022-23), but expected it to start rebounding from the next FY.
In its World Economic Outlook (WEO) Update 2023 report, released on Tuesday, the country's gross domestic product (GDP) growth was revised from the earlier projection of 6.0 per cent in its report published in October last year.
"Bangladesh's robust economic recovery from the pandemic has been interrupted by Russia's war in Ukraine, leading to a sharp widening of Bangladesh's current account deficit, depreciation of the taka and a decline in foreign exchange reserves," the IMF said in a statement.
It issued the statement following its approval to US$4.7 billion credit for Bangladesh earlier on the day.
Despite the war in Ukraine has severely affected the economy, the growth will bounce back in FY '24 and continue for next three FYs up to FY '27, according to the report.
The growth rate would reach 6.5 per cent in FY '24, 7.1 per cent in FY '25, 7.3 per cent in FY '26 and 7.4 per cent in FY '27.
The Washington-based global monetary watchdog also drew a bleak picture for the world economies as it will grow at 2.9 per cent rate in the current FY2023.
The economies will start recovering in the next FY '24 as it forecasted the growth to be 3.4 per cent, but below the historical (2000-19) average of 3.8 per cent, according to the outlook.
It said the rise in central bank rates to fight inflation and the war in Ukraine continued to weigh on the economic activities.
The rapid spread of COVID-19 in China dampened growth in 2022, but the recent reopening has paved the way for a faster-than-expected recovery, it added.
"Global inflation is expected to fall from 8.8 per cent in 2022 to 6.6 per cent in 2023 and 4.3 per cent in 2024, still above pre-pandemic (2017-19) levels of about 3.5 per cent."
Meanwhile, the IMF also forecasted a big inflation push in the current FY '23 for Bangladesh as the country's annual average inflation could reach 8.9 per cent.
Although the Washington-based lender projected a higher inflationary pressure for the current FY, it has given good news for the consumers that the pressure would ease from the next FY '24.
Just after one year in FY '25, the inflation might plummet to a normal level like a couple of years ago to 5.6 per cent, the IMF said.
The IMF also has bad news for Bangladesh in terms of current account deficit which might rise to 4.2 per cent in the next FY '24 from that of 3.2 per cent in current FY '23.
It said Bangladesh's private consumption might fall in the coming years despite a slow recovery of the public consumption.
About the global outlook, the IMF said the balance of risks remains tilted to the downside, but adverse risks have moderated since the October 2022 WEO.
On the upside, a stronger boost from pent-up demand in numerous economies or a faster fall in inflation is plausible, it added.
"On the downside, severe health outcomes in China could hold back the recovery, Russia's war in Ukraine could escalate, and tighter global financing costs could worsen debt distress."
The financial markets could also suddenly re-price in response to adverse inflation news, while further geopolitical fragmentation could hamper economic progress, the IMF said.
Former Lead Economist at the World Bank Dr Zahid Hussain told the FE that it's good news that the global economy as well as Bangladesh's will start recovering from the next FY.
"The inflation rate in the US and Europe are projected to be declining in the coming years. It means the contractionary monetary policy there started yielding results. So, the low inflationary pressure will help recover the global economy."