The World Bank keeps the growth forecast for Bangladesh unchanged, but rings alarm over reserve use for development projects. “Bangladesh remains at a low risk of debt distress and the GDP unchanged at 6.4 percent for the current fiscal year,” says Hans Timmer, the WB’s chief economist for the South Asia region, at the launch of the report in Washington.
In view of the situation, the WB advised the Bangladesh government to reconsider its decision to dip into the foreign exchange reserves for development projects given the elevated balance of payment deficit and the need for exchange rate flexibility. “The March 2022 joint World Bank-IMF Debt Sustainability Analysis (DSA) assessed that Bangladesh remained at low risk of external and public debt distress,” said the report launched on Wednesday. As of April 13, the country’s foreign exchange reserves stood at $44.3 billion, enough to cover six months’ import bills, according to the Bangladesh Bank, but the reserves are being used to support the currency and development activities.
Earlier, in March last year, the government formed the Bangladesh Infrastructure Development Fund with proceeds from the country’s foreign exchange reserves — a first-of-its-kind fund in the world. Around the same time, the reserves were channelled to the Export Development Fund, whose size stands at $7 billion. The twin decisions were taken when the country had a large balance of payments (BoP) surplus on the back of a surge in remittance, said the Washington-based multilateral lender.
WB identifies some strengths of Bangladesh’s economy for its resilience compared to most other economies in the region. Bangladesh exports grew in 2021 as quickly as they had declined in 2020. Rising global energy prices since the second half of 2021 drove inflation rates in most energy-related goods higher in Bangladesh as in other economies in the region. However, compared to other countries in the South Asian region, Bangladesh has the “weakest pass-through” of global oil price hikes to consumer prices, it points out.
In the context of the situation that emerged from the World Bank’s comprehensive report, the government needs to take a pragmatic decision to resolve the situation in the best interest of our nation in line with the changing global scenario.
