Out of the frying pan into the fire

One could not ask for more from Bangladesh at the outset of 2022 as the country rebounded from the coronavirus pandemic-induced lows and people's two-year struggle appeared to be over finally and they were raring to return to normalcy.    

But the recovery received a blow when Russia invaded Ukraine in the last week of February and in the subsequent months, Bangladesh faced one of the worst times in its history and people's woes only compounded. 

Still, there are a few bright spots in the outgoing year. They included the opening of the Padma Multipurpose Bridge and a portion of Dhaka Metro Rail, the inauguration of the first unit of Rampal coal-fired power plant, and the 100 per cent population coming under electricity coverage.

Per capita income crossed $2,800 thanks to the increase in economic activities.

Export growth remained in positive territory despite record inflation and the energy crisis in the western economies. In November, merchandise shipment went past the $5-billion mark for the first time, a major boost for the country reeling from the foreign exchange crisis.

Bangladesh also did not face any new challenge in terms of Covid-19 management and the vaccination programme has moved on.

The rest of the picture was largely disappointing.

The flow of remittance, one of the key pillars of the economic strength, has been quite disappointing as monthly receipts hover around $1.5 billion despite Middle Eastern economies, home to a majority of Bangladeshi migrant workers, booming on the back of higher revenues from oil sales, and a large number of migrant workers heading abroad in search of jobs in recent months.

The exchange rate went past the Tk 100 mark for the first time against the US dollar amid the shortage of American greenback, while the forex reserves sank to $34 billion for the soaring imports.

The dollar shortage was so acute that many banks were reluctant to open letters of credit to facilitate imports.

The outgoing year also saw inflation rise to a 10-year high. Fuel price hikes registered the sharpest pace of increase as the government's scope to continue subsidies has been squeezed amid the falling tax-to-GDP ratio.

Consumers had to pay historically high prices in August to buy coarse rice. The retail price of rice rose to Tk 49.5 per kilogramme in Dhaka in August, the highest on record.

Likewise, wheat flour prices shot to record levels in November and sugar prices surged above Tk 100 per kg for the first time.

The urea price was raised for the first time in 11 years as the government moved to reduce pressure on subsidy payments resulting from the surge in the prices of the key production input.

The banking sector made headlines for all the wrong reasons.

Owing to loan-related irregularities in some shariah-based banks spooked the confidence of depositors so many of them pulled out funds, stoking fears that there might be a bank run.

Non-performing loans stood at Tk 134,396 crore in September, the highest on record.

2022 has been perhaps the most turbulent year for consumers in most countries and Bangladesh was no exception as the war drove commodity prices higher. Although data is sparse, many people might have slipped below the poverty line.

A shortage of gas, caused by the suspension of the purchase of liquefied natural gas from the international spot markets, and inadequate production locally, spelt out a power crisis in the year, forcing industries, small and large alike, to cut production.

The outgoing year was tough for savers because the lower interest rate on bank deposits has turned the yield negative owing to the nearly double-digit inflation rate. This led to a liquidity crisis in the banking system since depositors did not feel enthused to park their funds at banks.

The stock market was equally unattractive for investors amid earnings fall and deepening uncertainty. The floor price introduced in the second part of the year kept many of them at bay.

"It was positive at the beginning of the year because we were recovering fast from the pandemic and other challenges. From the middle of the year, the political crisis deepened and the situation has become uncertain," said MM Akash, a professor of the department of economics at the University of Dhaka.

"Owing to the political crisis, the investment climate remained uncertain. Some necessary pending reforms in the governance sector have still remained unrealised."

In order to avoid the balance of payments crisis, the government has turned to the International Monetary Fund for a $4.5 billion loan, the first such attempt in a decade.

Zahid Hussain, a former lead economist of the World Bank's Dhaka office, described 2022 as a year of overlapping crisis.

Bangladesh started 2022 with higher inflation and it intensified following the Ukraine war. Amid the cost-of-living crisis, the dollar crisis emerged.

Drought added to the woes since the rainfall from May to August was much lower than the average, forcing farmers to rely on diesel- and electricity-run irrigation systems to grow Aman, the second-largest paddy crop in Bangladesh.

"This is rare," said Hossain. 

In July, the government unveiled some steps aimed at fiscal austerity. "These were the steps in the right direction," he said.

In some cases, the country took measures in the wrong direction that intensified the crisis, he said.  

"One of them is the multiple exchange rates. This has massively hurt the inflow of foreign currencies through formal channels since September."

In some cases, the steps that were required but have not been taken, Hossain said. And the most notable is the cap on lending rates.

"It was not withdrawn although it is needed to fight inflation and ease the dollar crisis."

Many countries such as Sri Lanka have faced an unprecedented economic crisis in 2022 owing to the shocks caused by the post-pandemic recovery and the Russia-Ukraine war. Comparatively, Bangladesh has not faced any severe economic crisis, said Nazneen Ahmed, country economist at the United Nations Development Programme.

"However, our struggle continues into the next year."