Bangladesh is trying to cope with a challenging economic situation. It is dealing with both a current account and a budget deficit, which means, we import more products and services than we export, and the government spends more than it earns. These deficits are more than simply statistics; they are vital indicators that require an immediate response to ensure economic stability and long-term development.

A new reappraisal of Bangladesh's GDP numbers has sparked widespread surprise. According to investment analysts, the country's GDP is predicted to be about $300 billion in fiscal year (FY) 2023–24. This represents a significant drop from the previously stated $459 billion. This recalibration, which was based on electricity use patterns in connection to regional economies, revealed disparities in the country's declared economic performance.

A big change like this has far-reaching consequences. Bangladesh's debt-to-GDP ratio is predicted to climb from 36% to a staggering 55% under the latest GDP projection. This shows that the country's debt is significantly more than previously anticipated. Accurate data are the foundation of appropriate policy formulation and effective government policy implementation. Therefore, these figures necessitate a rethinking of debt management and economic planning strategies.

To lower the fiscal deficit, the government needs to act decisively. Bangladesh has long struggled with a low tax base, extensive tax evasion and various tax exemptions without much economic logic. Comprehensive tax reforms that streamline compliance procedures are crucial. At the same time, a thorough examination of public expenditures is required. During high inflation, only essential expenditures should be carried out. While the government needs to pursue austerity for unproductive expenditures, it has to continue public investment which is critical for job creation so people have money to spend which will help boost the economy. Streamlining spending can free up resources for job-creating industries, physical infrastructure and social sectors such as healthcare and education.

Conversely, resolving the current account deficit requires a comprehensive approach. Diversification of the export basket is essential in several aspects. Though the readymade garments (RMG) sector has been the most important source of foreign exchange earnings of Bangladesh the over-dependence on one sector for foreign reserves and employment generation for decades has increased the vulnerability of Bangladesh's economy to several threats, both internal and external. Within the RMG sector, product and market diversification is essential. Parallelly, the country needs to enter new export markets with new products and services such as information technology services, pharmaceuticals, leather and agribusiness, which could add to its export income streams.

Another strategy is to advocate for foreign direct investment (FDI) which is currently less than 1% of Bangladesh's GDP. The Asian Development Bank predicts that Bangladesh's gross capital formation will account for 31% of its GDP in 2024, highlighting the growing importance of investment in the country's economic growth. Increasing the ease of doing business and ensuring regulatory uniformity are critical for attracting new investors.

Additionally, monetary policy has a significant role in addressing the current challenges. Bangladesh Bank must strike a delicate balance between preserving currency stability and reducing inflation. A falling taka value can increase export competitiveness, but also boost import costs, fuelling inflation. Although the central bank's monetary policy review for FY 2023-24 identified steps to ensure price stability, additional work is needed to increase the resilience of the economy to external shocks.

Structural reforms are essential and cannot be compromised. The enhancement of infrastructure, the fortification of institutions, and the establishment of a transparent regulatory framework can collectively augment national competitiveness. Investors underscore the importance of reliability and efficiency, and Bangladesh demonstrates the potential for progress in these domains. These measures can alleviate long-term deficits while simultaneously promoting productivity and fostering sustainable development.

Addressing the twin deficits in Bangladesh constitutes both an economic challenge and a critical assessment of leadership and vision. The recent adjustment to GDP highlights the need for immediate action, appropriate monetary policy, strategic export enhancement, and reinforced fiscal discipline. Bangladesh's capacity to confront these challenges with prudent and practical measures will help the economy be resilient in the short, medium and long term.

The author is the chairman of Financial Excellence Ltd