Economic growth to slow down in coming years: Cenbank report

Bangladesh's economic growth will decelerate in the coming years as economies having close links with the country are projected to expand slowly through 2024, the Bangladesh Bank has predicted.

The central bank in its recently released Financial Stability Report for 2022 forecasts economic uncertainty and inflation pressure in 2023 due to a more expensive dollar.

"The US restriction on imports of Russian oil disrupted global petroleum flows and rendered prices unpredictable. Despite a downward trend in oil prices since July 2022, import costs and the corresponding pressure on other commodity prices might inflate in 2023 owing to a more expensive US dollar for developing nations like Bangladesh," the report states.

The prediction by the Bangladesh Bank is already evident in this year's economic indicators, as a significant decrease in capital machinery imports amid the dollar crisis, reflects a slowdown in business activities.

The opening of letters of credit (LC) for capital machinery declined by 55% in July-May of last fiscal year as compared to the same period of the previous year due to import curbs amid the dollar crisis.

During the same period, the LC opening for industrial raw materials also decreased by 30%, as per Bangladesh Bank data.

Total LC openings dropped by 25% in the first 11 months of the last fiscal year, with small businesses struggling to acquire dollars even at Tk116 to open LC.

This decrease in import financing led to private sector credit growth registering a 19-month low in June, at 10.49%, according to central bank data.

Mohammad Ali, managing director and CEO of Pubali Bank, told The Business Standard, "Ours is an import-dependent country. The opening of import LCs in banks has reduced much compared to earlier. Post-import finance, which is involved with imports, has also decreased. That is, the trade loans given by the banks in these cases are decreasing. Consequently, the overall credit growth in the private sector has been decelerating."

He further mentioned that the decline in LC openings for capital machinery imports has led to a reduction in new investments in the country, exacerbating the situation.

Shah A Sarwar, managing director and CEO of IFIC Bank, said in the next year there will be a liquidity war in the banking sector due to the dollar crisis and low deposit growth.

He added that banks are cautious in lending to manage liquidity, which will impact business activities.

Abdul Kadir Mollah, chairman and managing director of Thermax Group, disclosed that their spinning factory is running at 40% capacity due to slow export orders.

He stated that most spinning mills are in the same situation, and many factories are shutting down because they could not open LCs to import raw materials amid the dollar crisis.

He warned that the decrease in raw material imports will impact exports in the near future.

Amidst these sluggish economic activities, the government has set a GDP growth target of 7.5% for FY24, which is significantly higher than the projections of global multilateral lenders.

The Asian Development Bank (ADB) and the International Monetary Fund (IMF) have forecasted a growth of 6.50% for FY24, while the World Bank predicted 6.20%.

In May, the government revised down the growth projection for FY23 to 6.03% from the initial estimate of 6.5%. The actual growth for FY23 has not yet been published.