IMF shows risks to Bangladesh economy as foreign reserves decline further

According to a recent statement by the International Monetary Fund (IMF), the economy of Bangladesh is facing significant challenges.

The country’s local currency, taka, foreign reserves and economic growth are at risk due to inflation and global economic slowdown.

The IMF’s warning came after its recent visit to Bangladesh, during which the organization assessed the country’s economy.

In January, Bangladesh received a $4.7 billion loan from the IMF to help address growing economic troubles. The country has already received $476 million as the first tranche, with the second tranche of the loan expected in November.

After making import payments for two months next week, Bangladesh’s foreign reserves are expected to fall to $29.86 billion, the lowest in seven years.

The decline in exports and remittances, the two major sources of foreign exchange, has not helped improve Bangladesh’s current account deficit.

Exports fell 16.5 percent to $3.95 billion in April from a year earlier as orders from clothing retailers slowed. Inward remittances, on the other hand, declined 16 per cent year-on-year to $1.68 billion in April.

While Bangladesh’s foreign exchange reserves are dwindling, neighboring India has seen its import cover hit a 10-month high. India’s foreign exchange reserves rose by $4.53 billion to $588.78 billion in the week ended April 28.

This discrepancy highlights the struggles that Bangladesh faces in comparison to its larger neighbor.

Bangladesh, once touted as a strong emerging economy, has been struggling since the pandemic hit the global economy. Bangladesh’s current account deficit reached a record $18.7 billion in the last fiscal year ending June 30, 2022, due to a depletion in foreign exchange reserves due to a drop in exports.

The government has also raised fuel and energy prices in recent months after contacting the IMF for assistance.

As per the estimates, the Bangladeshi economy is expected to contract from 7.1 per cent in 2021-22 to 5.2 per cent in 2022-23 due to the weak macroeconomic outlook.

However, according to World Bank estimates, FY24 (July 2023 to June 2024) is expected to be much better for Bangladesh.

Economic growth is expected to accelerate over the medium term to around 6.5 per cent in FY2024, as inflation eases, external economic conditions improve, and reform implementation picks up.

But structural reforms will be key to Bangladesh’s economic recovery.

The World Bank’s Bangladesh Development said, “Bangladesh needs to establish an enabling policy environment by creating a competitive business environment, diversifying exports, enhancing human capital, building efficient infrastructure, deepening the financial sector, and attracting private investment.” There is a need to generate employment and employment opportunities by doing so.”