The International Monetary Fund (IMF) has forecast the headline consumer price index (CPI) inflation in Bangladesh to rise to 5.9 per cent in FY22, driven by higher international commodity prices.
The projection was outlined by the US-based agency on Thursday at the conclusion of its executive board's consultation with Bangladesh on the country's economic prospects, reports bdnews24.com.
Rising prices of food and other daily commodities have increasingly become a point of concern in the South Asian country in the wake of the coronavirus pandemic.
According to the latest Bangladesh Bureau of Statistics data, CPI inflation in January stood at 5.86 percent, up from 6.05 per cent in December.
The rate of inflation was 5.02 in the same month last year.
Despite the government's aim of keeping the inflation rate within 5.30 per cent in FY22, consumer prices have been on the rise since August 2021.
Inflation has been a global issue over the last few years, with the coronavirus pandemic-induced lockdowns and slowdown in factory output contributing to the rise in prices of raw materials and transportation costs.
The situation is likely to be exacerbated by Russia's ongoing 'special military operation' in Ukraine, which has sent oil prices soaring beyond $100 for the first time since 2014.
But Bangladesh has earned praise from the IMF for its 'quick' and 'decisive' response to the fallout from the COVID-19 pandemic.
"Entering the crisis with macroeconomic stability, the authorities announced support packages worth Tk 1.9 trillion (or 6 percent of GDP) with space from curtailing non-priority current spending and suspending low-priority capital projects. Vaccination, dragged down by initial supply shortages, is catching up."
Highlighting the "substantial progress" made by the country in its first 50 years of independence, the IMF noted that Bangladesh's steady per capita real GDP growth, averaging 5 percent annually since 2010, has resulted in a steady decline in poverty, with increasing access to education and healthcare.
This in turn has paved the way for Bangladesh's graduation from the category of Least Developed Countries in February 2021.
Macroeconomic policies in recent years have been successful in keeping inflation stable, debt-to-GDP low, and external buffers adequate, according to the financial institution.
GDP GROWTH TO PICK UP IN FY22
The IMF also expects GDP growth to pick up to 6.6 percent in FY22, supported by a robust rebound in exports, continued implementation of the stimulus packages, and accommodative monetary and fiscal policies.
GDP grew by 3.5 percent in FY20, reflecting a sharp contraction in exports, remittances, and imports at the onset of the pandemic, and a nationwide lockdown that decreased domestic activity.
Growth is estimated to have scaled back up to 5 percent in FY21 supported by a rebound in exports, high take-up of stimulus packages by the export sector, and a partial exemption of the RMG sector from the second round of lockdowns, according to the IMF.
Bangladesh could further lift its growth potential by implementing structural policies that focus on diversifying exports, increasing FDI, enhancing productivity, investing in human capital and addressing corruption, according to the IMF executive board.
Meanwhile, remittances, a key contributor to the economy, also surpassed pre-crisis levels, supporting consumption and moderating the current account (CA) deficit to 1.3 percent of GDP in FY21 from 1.7 percent in FY20.
The current account deficit is a measurement of a country's trade where the value of the goods and services it imports exceeds the value of the products it exports.
The CA deficit is projected to widen to 2.4 percent of GDP in FY22 as imports rebound and remittances moderate.
But uncertainty around the outlook remains high and risks are tilted to the downside, the IMF warned.
The IMF directors recognised Bangladesh’s "impressive economic growth" and "social development", but noted the risks, including the uncertain path of the pandemic, low vaccination rates, and vulnerabilities to climate change.
They emphasised that continuing with sound macroeconomic policies, modernising policy frameworks, and addressing structural impediments will be key to successfully graduate from the Least Developed Country status and realising the country’s aspiration of reaching upper-middle income status.
They also commended the authorities for exercising fiscal prudence and maintaining a low risk of debt distress, while noting that Bangladesh’s capacity to repay the Fund remains sound.
However, they also pointed out that the pandemic increased existing vulnerabilities in the banking sector could impair medium-term growth.
They called for exiting the COVID-19 policies in a timely and orderly way, monitoring bank asset quality closely, and ensuring adequate capital buffers.
The IMF also stressed the need to strengthen banking regulation and supervision, improve corporate governance, and reform legal systems to stem the flow of high non-performing loans, particularly in the state-owned commercial banks.
They welcomed the authorities’ efforts to build resilience to climate change and natural disasters, including by allocating budgetary support for climate adaptation. They also encouraged the authorities to undertake reforms to help catalyse climate financing.