June was a busy month in Bangladesh, with the celebration of the ruling party Awami League’s 75th The main opposition party, BNP, have accused the ruling party of providing shelter to corrupt individuals. On the economic front, there was the announcement of a record USD 68 billion budget for the next fiscal year. The Mastercard Economic Institute projects GDP growth to be 5.8% for FY24 and 5.7% for FY25. Exports took a 16% year-on-year hit, but remittances made a 32% jump. IMF has approved USD 1.15 billion for the third tranche of its USD 4.7 loan for budget support.
BNP Comments on Awami League. “BNP Chairperson’s Advisory Council Member Zainul Abedin Farroque (has) alleged that the Awami League government is providing shelter to numerous corrupt individuals like Aziz Ahmed and Benazir Ahmed.” He said that under the current government, corrupt individuals, such as Abu Mahmud Faisal (first Secretary of National Board of Revenue) have emerged, and that many similar individuals, who were being sheltered by the government, were plundering huge amounts of money from Bangladesh and settling abroad. He urged that these individuals, who were living lavish lives, needed to be exposed and brought to justice. He said that the people of Bangladesh were very conscious of what was happening, and that the Awami League are in power just through the support of a few bureaucrats, and that they retained power (in the recent elections earlier this year) through a sham election, and did a similar thing in the local polls recently.
Awami League Comments. “Awami League General Secretary Obaidul Quader (has) said that looters were not punished during the BNP regime but Awami League will not spare anyone regardless of party affiliation for involvement in corruption.” He said that the budget which was announced recently was done with an eye towards stopping corruption and to stop the looting that was prevalent and rampant when the BNP was in power. He said that peace rallies were a must to protect against the culture of corruption that had built up during BNP’s reign. Separately, Quader also stated that the Prime Minister, Sheikh Hasina, is the ‘magician of politicians’, while the Father of the Nation, Bangabandhu Sheikh Mujibur Rahman, was the ‘poet of politics.’ She credited the Prime Minister for Bangladesh’s economic liberation, and urged people to recognize Sheikh Hasina’s development efforts..
GDP Growth. The MasterCard Economic Institute (MEI) has estimated Bangladesh’s GDP growth to be 5.8% for the current fiscal year (FY24) and 5.7% for FY25. The projection is higher than both the World Bank and International Monetary Fund’s (IMF) projections for FY24. The World Bank projected growth to be 5.6% in FY24 and 5.7% in FY25, while the IMF lowered its estimate to 5.7% for FY24. In their analysis, the MEI identified various challenges when it came to GDP growth. These included weak domestic and external demand, persistently high inflation, and US dollar exchange rates potentially adding to external sector vulnerabilities. MEI projected inflation to rise to 9.8% for FY24 before dropping off to 8% in FY25, and has forecast that the Central Bank may increase the policy rate to 9% in FY25 as a means of curbing inflation.
Banking. The Central Bank has asked commercial banks to offer a maximum of Tk.118 for one USD for purchasing remittance dollars. Any bank buying at a higher rate will be subject to penalties. Banks are currently collecting remittance dollars at between Tk. 117.80 to Tk.118.30 per dollar, with the rates differing slightly depending on the country or region, with slightly lower rates from the European Union, and slightly higher for remittances coming in from the Middle East. Commercial banks have also been told to make their foreign bill payments on time. In further banking news, the Reserve Bank of India (RBI) has imposed a fine of Indian Rupees 96.4 lakh (approx. USD 115,637) for non-compliance issues, including the Know Your Customer (KYC) directions, 2016. In a further important development in the sector, the Central Bank has given permission to individuals and private sector companies to form ‘credit bureaus’ to assess borrowers’ capacity to take and repay loans. They will work by analyzing the borrower data and share it with banks to help them make more informed decisions when it comes to giving out loans to borrowers. The Central Bank believes doing this will reduce information asymmetry on borrowers in the banking system, thereby increasing competition in the credit market, as well as leading to better credit applicants.
Exports. Bangladesh’s export earnings in May 2024 totaled USD 4.07 billion, which signaled a 16.06% year-on-year decrease from the USD 4.85 billion it earned in the same month last year. This brings the overall export earnings in the current fiscal year (July 2023-May 2024) to USD 51.54 billion, which is a slight 2.01% growth compared to the earnings over the same period in the last fiscal year. Exporters have attributed the slowdown in the last couple of months to a slew of internal and external factors, including slowdown in global demand due to inflation, complex customs procedures, and delays in export shipments. They also said that domestic issues such as shortage of gas and electricity, as well as higher bank interest rates, were hindering the competitiveness of Bangladesh’s exports, particularly the ready-made garments sector.
Remittances. Bangladesh’s remittance earnings for May 2024 totaled USD 2.25 billion. This was a 32.25% increase year-on-year, up from the earnings of USD 1.69 billion recorded in the same month in 2023. According to the Central Bank, May’s remittance earnings is the highest single-month figure since July 2021. May’s earnings bring the overall remittance earnings on this current fiscal year (July 2023-May 2024) to USD 21.37 billion. This is already more than 95% of the overall earnings in the previous fiscal year (FY23’s earnings were USD 21.61 billion).
Budget. The Bangladesh government announced a record Tk 7.97 trillion (approx. USD 68 billion) budget for the next fiscal year, starting in July 2024, projecting a 6.75% GDP growth in the next fiscal year. The budget is 14.2% of Bangladesh’s current GDP. The government is targeting to keep inflation to within 6.5% in the next fiscal year, even though the average over the last two years has been 9%. Finance Minister AH Mehmood Ali said that the budget has been formulated with an emphasis on ensuring funding for priority sectors such as reducing poverty, social security, climate change mitigation, and health. The budget is 4.6% more than the ongoing fiscal year’s budget. According to the proposed budget, the overall deficit will be Tk. 2.56 trillion (approx. USD 21.8 billion), Revenue is projected to be Tk. 5.41 trillion (approx. USD 46 billion), which is around 9.7% of GDP.
Development Loans and Funding. The International Monetary Fund (IMF) has approved the third tranche of USD 1.15 billion, part of its USD 4.7 billion loan package for Bangladesh. The approval comes in spite of the fact that the country has failed to meet the net international reserves ceiling and revenue target that the IMF had initially set as conditions for the loan. The amount is significantly more than the USD 681 million amount that the IMF had initially planned to release this month. With this tranche from IMF, Bangladesh is set to receive around USD 2.36 billion in funding this fiscal year from various multilateral and bilateral institutions by the end of June. Other than the IMF loan, agreements have been signed with the World Bank (USD 500 million), Asian Development Bank (USD 250 million) and South Korea (USD 100 million), and a budget assistance deal with the Asian Infrastructure Investment Bank (USD 400 million) is expected to come through in June as well. The payments will come as a welcome relief to Bangladesh, which has been struggling with falling foreign exchange reserves in recent times. This is the second time that Bangladesh has received more than USD 2 billion in budget assistance in a single fiscal year, after receiving USD 2.597 billion in FY22.
Nothing significant to report.
Perhaps the biggest news in June was the announcement of the next fiscal year’s budget, which is a record USD 68 billion. There was also the announcement of target revenue of USD 46 billion. This is highly ambitious, given Bangladesh’s very low tax to GDP ratio (lower than 10%). Key to achieving this will be how the government ensures growth in employment, especially among low-income families, while their ability to collect direct tax revenue will also be central. Given that the revenue target consists of almost a third (33.8%) coming from VAT sources, such high reliance on VAT also opens the door to risks for increased inflation, which is already very high. The lack of significant investment in value creation areas such as education and healthcare remain a worry, and it will be important to monitor if the current monetary policy is revisited to make it more in line with the proposed fiscal policies. While IMF’s USD 1.15 billion loan tranche, the third instalment of its USD 4.7 billion loan to Bangladesh, seems to be good for the country in the short-run, the loan, along with other loans from various other multilateral and bilateral partners, means that the pressure to pay back the principal sums, as well as the interest payments, are also increasing. Bangladesh needs to be careful and plan very well in terms of its repayment plans to avoid falling into a debt trap. With foreign reserves still very low, this area (the repayment of loans) will be important to monitor.