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The Bangladesh Bank has said that the country’s growth prospect is clouded by a number of uncertainties, including higher input costs and a decline in exports in Europe amid the Russia-Ukraine war.
The central bank came up with the caution in its January-March quarterly report of 2022.
The caution came at a time when the Bangladesh Bureau of Statistics estimated Bangladesh’s gross domestic product at 7.25 per cent for the financial year 2021-2022 and set the growth target at 7.5 per cent for FY 2022-23.
Due to the global price spiral, the country’s inflation reached an eight-year high of 7.42 per cent in May as the price of almost all essentials continued to rise amid a lacklustre monitoring by the government agencies.
The central bank’s quarterly report said, ‘The strong growth momentum in economic activities is expected to prevail during the rest of the financial year, led by robust industry and service sector activities.’
‘Despite a downturn in global economic outlook in the face of Covid-driven global supply shock further amplified by the Russia-Ukraine war, the rebound of Bangladesh economy appeared to have continued until third quarter of FY22, reflected in several indicators,’ it said.
A broad-based expansion of manufacturing production and a pick-up in activities in the service sector helped maintain the robust growth momentum, the central bank said.
Large- and medium-scale manufacturing output grew at a faster pace in the third quarter of FY22, relying upon supportive fiscal and accommodative monetary policy measures, ongoing stimulus package, strong both domestic and external demand, and government’s higher development spending, it said.
The service sector was also benefitted from the healthy growth performance of local industries as well as higher external demand, it said.
‘However, this growth prospect is clouded by some uncertainties in the form of pass-through effects of higher global commodity and energy prices into domestic wage and production costs and potential loss of export demand in Europe caused by the Russia-Ukraine war-driven economic slowdown.’
Though the war and inflation have already affected Bangladesh’s commodity prices, the country’s export earnings till April of 2022 were significantly high.
The export earnings, however, dropped to a nine-month low at $3.83 billion in May.
However, the country’s export earnings in the 11 months of FY22 was still 34.09 per cent higher compared with that of in the same period of FY21.
‘The inflation and exchange rate volatility may be elevated in the coming quarters due to global commodity price hikes and growing current account deficits,’ it said.
‘Overall macro stability warrants cautious monetary and fiscal measures in the near term,’ the report said.
Meanwhile, global price spiral-induced sharp import growth of the country in FY22 also created volatility on the foreign currency market, prompting the central bank to inject over $6 billion in the banking system.
Even after the injection of US dollars in the banking system, the central bank had to allow devaluation of the taka against the US dollar.
On Monday, the US dollar exchange rate was Tk 92.8, up Tk 8 on Tk 84.8 in August 2021.
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