MD FAZLUR RAHMAN

Both the International Monetary Fund and the World Bank have painted a gloomy scenario for the global economy for 2023 as uncertainty persists amid the protracting Russia-Ukraine war, the volatility in the international energy market and higher inflation. The world is expected to head for a recession.

Two weeks ago, World Bank Chief Economist Indermit Gill said they expect the global economy to grow by less than 3 per cent, and 2023 will be even worse.

The world faces record debt levels, declining investment rates, high inflation and widespread hunger.

“As a result of all of these things, there is actually growing political instability. Things have become a lot worse in these 11 months,” he said.

“Overall, this year’s shocks will re-open economic wounds that were only partially healed post-pandemic. In short, the worst is yet to come and, for many people, 2023 will feel like a recession,” wrote Pierre-Olivier Gourinchas, the director of research of the IMF, in October.

Under such a grim prognosis, Bangladeshis will ring in 2023.

Although the country is expected to surpass the global average growth rate comfortably, headaches for the country are deepening. This is because the economy is beginning 2023 on the back foot for the depletion of the foreign currency reserves, the higher US dollar rate, the runaway inflation, gas shortage, lower remittance, and moderate exports.

“The situation is very uncertain,” said MM Akash, a professor of the department of economics at the University of Dhaka.

Some of the problems are known for ages. They include the governance in the banking system and the lower tax-to-GDP ratio. But little has been done to resolve them.

But the banking sector has already seen the first glimpse of the cost of inaction when depositors began to pull out funds fearing that banks might become insolvent after loan-related irregularities involving some Shariah-based lenders surfaced recently.

While the taka depreciation and softening of some commodity prices could improve terms of trade in the medium-term, global ratings agency Moody’s expects the energy crisis to exacerbate balance of payments and liquidity risks in the near-term.

“2023 would be a difficult year if large economies face recession and China finds it very difficult to overcome the current struggle,” said Zahid Hussain, a former lead economist at the World Bank’s Dhaka office.

The three largest economies -- the United States, China, and the euro area -- will continue to stall, said the IMF.

“If Europe encounters a deep recession for a longer period, it would be bad news for Bangladesh,” said Hussain. The continent accounts for more than 60 per cent of the country’s export earnings.

Hussain suggests Bangladesh move out of the wrong steps as quickly as possible.

“Bangladesh Bank has said that it would make the exchange rate uniform and go for a floating rate when the situation returns to normalcy. It is like taking medicines after the disease is cured. The situation would not return to normalcy if you don’t remove the bottlenecks.”

He, however, acknowledged that removing multiple exchange rates and the lending rate cap are not the panacea. “But they stand in the way of increasing the supply of US dollars.”

The economist estimated that Bangladesh is at least losing half a billion US dollar in remittance per month to informal channels because of the system.