Fiscal Tightrope: Juggling Revenue Gaps and Spending Obligations in an Election Year Budget
The Bangladesh’s economy continues to grapple with macroeconomic stress. These challenges began surfacing domestically when imports spiked due to pent-up demand in the wake of economic recovery after the COVID-19 shock. The rising value of the US dollar across the world exacerbated the situation. The Russia-Ukraine conflict further contributed to the strain by disrupting supply chains and escalating global commodity prices, which in turn made imports even more expensive. On the contrary, for Bangladesh and many other developing countries, earnings from exports and remittances didn’t rise proportionately, leading to a rapid depletion of foreign reserves. To stem this decline, the Bangladesh Bank was compelled to let the taka depreciate and impose import restrictions. These measures fueled high inflationary pressure within the domestic economy.
As of July 2022, the gross foreign exchange reserve was at a robust USD 39.6 billion. However, it experienced a significant reduction over the year, dropping to USD 29.84 billion by June 14, 2023. Inflation also saw a sharp rise, peaking at 9.5% in August 2022 and maintaining an average of 9.1% over the subsequent 9 months, overshooting the annual target by 3.1 percentage points. On the other hand, remittances accumulated from July 2022 to April 2023 amounted to USD 17.72 billion. Projections from PRI-CDRM suggest that by the close of the current fiscal year, the total remittance earnings will amount to USD 21.3 billion. However, this figure still falls short by USD 0.2 billion of the revised remittance target outlined in the Monetary Policy Statement for FY2023.
Inflation also saw a sharp rise, peaking at 9.5% in August 2022 and maintaining an average of 9.1% over the subsequent 9 months, overshooting the annual target by 3.1 percentage points.
The export outlook also appears to be rather bleak. From July 2022 to May of FY2023, total earnings from exports amounted to USD 50.5 billion, falling short of the target by 3.64%. Given the recent downward trend, the PRI-CDRM projects exports at the end of FY2023 to stand at about USD 54 billion —a shortfall of USD 4 billion from the budget target. Additionally, due to the dollar crisis, import figures have also seen a significant decrease.
These recent developments have significantly affected the growth trajectory. The global economic growth is anticipated to decelerate to 2.6% in 2023, and in line with this trend, the IMF has projected a 5.5% growth for Bangladesh. Most recently, the provisional estimate by the Bangladesh Bureau of Statistics (BBS) pegged the country’s growth rate at 6.03%.