The central bank estimates a faster recovery in the next two years and economic growth will climb to 8% in FY22
While the global economy is in a tailspin from the effects of Covid-19 and the world is almost sure of entering a prolonged period of economic pain, Bangladesh's economic statistics paint a fairly rosy picture and expect to see a quick recovery next year.
The Bangladesh Bank, for the first time, has prepared an assessment report on the country's economy for the post-pandemic period.
The report anticipates that all major indicators including economic growth, export, import, foreign exchange reserve, and private sector credit growth will recover fast from the next year onwards.
However, the report does not explain how the recovery will take place.
Though the economic growth of the country will tumble to 3.8 percent this year, it will see a faster recovery in the next two years and will climb to 8 percent in fiscal year (FY) 2021-2022 after the pandemic fades, according to the Bangladesh Bank's assessment.
The central bank has made the assessment based on economic statistics presented in a teleconference with the International Monetary Fund (IMF) held last week. The meeting discussed a loan proposal made by the government to the IMF to support the balance of payment as there is apprehension of pressure on it after the pandemic is over.
In the assessment report, the Bangladesh Bank projects a 5.7 percent economic growth in FY 2020-2021.
Bangladesh achieved an 8.15 percent growth in the last fiscal year, and the budgetary projection for the current fiscal year is 8.2 percent.
Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), considers the Bank's growth projection logical. She feels economic activities in all sectors will restart in full swing after the shutdown is withdrawn.
Economic activities in the country have already started to roll slowly, she says, adding many countries also are lifting lockdowns and resuming business operations.
The economy is in a slump now, but it will revive soon after business operations get into gear, she hopes.
Sharing an anecdote from one of her Sri Lankan relatives, Fahmida says people in Sri Lanka rushed to markets soon after those reopened after a lockdown. This gives a message that economic activities will be huge once the pandemic ceases.
"The only area of concern is remittance because many migrant workers have lost their jobs in the Middle Eastern countries," she adds.
But the country's exports will take time to revive, according to experts. Exports will take until August to pick up as the global market needs time to go into full operation, says Ahsan H Mansur, executive director of Policy Research Institute, Bangladesh.
He sees foreign exchange reserves to be in a comfortable position due to oil price slump and a downturn in prices of other commodities in the global market.
Last month, the IMF projected that Bangladesh's economic growth will slump to 2 percent in the current fiscal year, but it will see a big jump to 9.5 percent in the next fiscal after economic activities return to normal.
Meanwhile, the Asian Development Bank (ADB) this month has predicted that Bangladesh's economy will grow by 3.8 percent this year, the slowest since 2002, due to the Covid-19 pandemic.
The World Bank has projected a 2 to 3 percent growth for Bangladesh in the current fiscal year in a recent report. It said Bangladesh's economy will grow 1.2 to 2.9 percent in the next fiscal year and 2.8 to 3.9 percent in FY22. It also forecast that Bangladesh will face a longer recession.
However just three months ago, in January this year, the World Bank projected that Bangladesh would witness the highest growth in the South Asian region this year.
Foreign exchange reserves
The country's foreign exchange reserves look strong even amid the pandemic though the government seeks a loan from the IMF for supporting balance of payment,
The forex reserves stand at $33 billion, according to the latest data that cover imports of around seven months.
The Bangladesh Bank in its assessment report has projected that the reserves will come down to $29 billion by the end of this fiscal which still is considered relatively strong as it will cover the import of 5.3 months when three month's coverage is standard.
Due to the strong reserve, Bangladesh did not seek a balance of payment support from the IMF after 2008.
However, in the wake of the virus outbreak, the government has sought a loan worth half of the country quota from the IMF.
Bangladesh can get around $1 billion in loans from the IMF, according to country quota.
As its forex reserves are still healthy, Bangladesh may not get much support from the IMF, said a senior executive of the Bangladesh Bank, who attended the central bank's latest meeting with the IMF.
"Although the inflow of remittance has declined in recent times, expatriates are still sending money home, which has kept the reserves strong. Moreover, both export and import will remain negative in the coming months," he added.
Bangladesh's strong position in foreign exchange has also been reflected in a recent report of The Economist.
The economy of Bangladesh has featured as strong or relatively strong in some selected indicators including public debt as a percentage of GDP, foreign debt (both public and private), cost of borrowing, and reserve cover, The Economist said.
The volume of forex reserves will fall to $23.9 billion in FY21 but will rebound in the following year to $24.7 billion, according to the Bangladesh Bank report.
Though export earnings, the main source of foreign exchange reserves, saw a massive fall, by 83 percent month-on-month, in April this year, the Bangladesh Bank expects it will recover at a faster pace in the next two years.
The central bank estimates an 18 percent fall in the overall export to $32.8 billion in FY20, which will see a significant rebound in the next year to negative 0.8 percent.
Export growth will see a jump by 16 percent in FY22, according to the Bangladesh Bank.
Meanwhile, import is expected to fall by 8.8 percent in FY20 which will turn to positive growth by 4.8 percent in next year.
The current account balance is estimated to be minus 7 percent of the GDP this year and will continue in the negative territory for the next two years.
Private sector credit
Private sector credit growth remained in a downturn in the last six months, coming down to a single digit in November last year. And it is expected to end up at 8.5 percent by the end of FY20 -- far below the monetary target of 14.8 percent set for this year by the Bangladesh Bank.
However, the growth rate will come back to 12 percent in the next year, according to the Bangladesh Bank assessment report.
In a quick response to Covid-19, the Bangladesh Bank created additional money worth Tk70,794 crore to support banks in lending to virus-struck businesses.
The money was created by forming various refinance schemes and easing CRR (Cash Reserve Requirement).
The injection of new money is a part of the plan to implement a stimulus package of Tk72,750 crore announced by the prime minister to mitigate the economic impacts of the coronavirus outbreak.
Usually, banks disburse loans of Tk70,000-80,000 crore every year following credit demand, but lending capacity is assumed to be less this year due to borrowers not returning money amid a shutdown of business activities.
The central bank expects that about Tk30,000 crore will come from banks this year.
As a result, some Tk1 lakh crore is ready to flow to the market, said a senior executive of the Bangladesh Bank.