#1Independent Review of RBD Bangladesh's Development বাংলাদেশের উন্নয়নের স্বাধীন পর্যালোচনা Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance? Dhaka: 20 March 2022 POLICY DIALOGUE - CENTRE FOR www.cpd.org.bd#2Independent Review of RBD Bangladesh's Development Introduction ☐ Bangladesh, along with the rest of the world, has been battling with the COVID-19 pandemic since 2020 □ The economic fallouts of the pandemic have been as critical as the health risks As the world was navigating through the COVID-19 crisis, new challenges at the global level emerged in 2022 In this context, we focus on five critical areas of the current economic policy discourse in Bangladesh: ➤ Prices of essential commodities ➤ External sector ➤ Banking sector ➤ Budget management ➤ Energy and power sector CPD (2022): Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance? 2#3Independent Review of RBD Bangladesh's Development 6.5 6.0 5.5 5.0 Prices of essentials Figure: National inflation rate (in %, 12-month average) Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 National General Dec-20 Jan-21 Feb-21 National Food H Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 National Non-food Source: BBS ☐ Food inflation appears to be hovering around the 5.3% mark during the Oct 21 - Jan 22 period – not reflective of the ground realities The sufferings of common people are undermined by the official inflation statistics CPD (2022): Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance? 3#4Independent Review of RBD Bangladesh's Development 70 60 50 40 30 20 10 O -10 -20 -30 -40 External sector Figure: Growth of selected external sector indicators (in %) ----- -- Jul Jul-Aug Jul-Sep Jul-Oct Jul-Nov Jul-Dec Jul-Jan Jul-Feb Jul-Mar Jul-Apr Jul-May Jul-Jun լոր 00 Jul-Aug Jul-Sep Jul-Oct Jul-Nov Jul-Dec Jul-Jan Jul-Feb 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -Import payments FY21 Export earnings Source: Calculated from Bangladesh Bank and EPB data Note: BDT/USD is shown in the secondary vertical axis FY22 -Remittance inflow *- BDT/USD □ Despite the robust export growth, current account deficit reached USD 10 billion at the end of Jan FY22 owing to higher import growth and negative growth of remittances CPD (2022): Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance? 4#50 Independent Review of RBD Bangladesh's Development 120 100 80 63.6 60 40 23.3 20 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Figure: Price of Brent crude (USD/barrel) Nov-20 Dec-20 Jan-21 Feb-21 Energy and power sector Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Source: World Bank Pink Sheet □ Petroleum prices were creeping up even before the conflict in Ukraine ➤ Crossed the 100 USD/barrel mark during the first week of March 2022 CPD (2022): Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance? Dec-21 Jan-22 сл 5 Feb-22 95.8#6Jun-16 10.1 Aug-16 10.3 Oct-16 Dec-16 9.2 Feb-17 Apr-17 Jun-17 CPD (2022): Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance? 10.5 10.1 Independent Review of RBD Bangladesh's Development 10.8 Aug-17 Oct-17 10.7 Dec-17 Feb-18 9.3 3 Apr-18 Jun-18 10.4 Banking sector Figure: Share of classified loans to total outstanding (in %) Aug-18 11.5 Oct-18 Dec-18 10.3 Feb-19 11.9 11.7 Source: Bangladesh Bank □ Despite several provisions in view of the pandemic, the banking sector is plagued by classified loans and capital shortfalls 6 9. Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 12.0 Oct-20 Dec-20 7.7 Feb-21 8.1 Apr-21 Jun-21 8.2 Aug-21 Oct-21 Dec-21#74.0 50.0 33.6 5.6 7.3 10.3 Independent Review of RBD Bangladesh's Development 42.2 35.2 23.2 -15.2 23.6 9.3 Target Actual FY20 Revenue Source: Calculated from MoF data Target Actual FY21 Expenditure Jul-Dec Target Jul-Dec FY22 Deficit (excluding grants) The government has a budget surplus during the first six months of FY22 (excluding grants) ➤ Despite this, a relative conservative have been pursued in the cases of extending budgetary allocations for cash transfer and subsidies to combat the pandemic and rising prices of essentials CPD (2022): Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance? 7 -49.9 Budget management Figure: Growth of selected fiscal indicators (in %) -1.6 12.5 -106.3 18.4 31.4 64.2 15.4 1.4#8Independent Review of RBD Bangladesh's Development Policy stance Curbing inflation should be the centre of policy attentions of the government at present Considering its more adverse impact on the vulnerable and marginalised groups, all available policy tools should be utilised to control food inflation, including exempting duties and taxes on essential commodities both at domestic and import levels, extending social safety net programmes and raising income tac exemption level Stability of exchange rate must be ensured The value of BDT against major currencies should be stabilised in view of its inflationary implications An independent banking commission should be formed on an immediate basis to mitigate the disarrays within the sector ➤ Loan recovery should receive the highest attention ➤ Stimulus packages for SMEs should be continued CPD (2022): Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance? 8#9Independent Review of RBD Bangladesh's Development Policy stance Subsidy on fuel, power and agriculture should be continued for the next few months ➤ Any hike in the administered prices will have multiplier effect on inflation - for the time being no adjustment of administered prices should be made Priority for public expenditure should be set clearly ➤ More fiscal space should allocated for rising demands for subsidies and social safety net programmes ➤ The earlier measures to cut down 'unnecessary and luxury' public expenditure (e.g., government vehicle purchase) should be reinstated ➤ Focus should be on public infrastructure projects that are closer to completion ➤ Tax evasion should be curbed by all means to generate resources for priority expenditures CPD (2022): Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance?#10Independent Review of RBD Bangladesh's Development Thank You cpd.org.bd fcpd.org.bd You cpdbd Tube CPDBangladesh CPD (2022): Changing Global Scenario and Bangladesh Economy: What Should Be the Policy Stance?