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BB identifies risks to economic stability
PHOTO: TITU DAS
STAR BUSINESS REPORT
The Bangladesh Bank has identified several macroeconomic challenges that are hurting the economy such as higher inflation and widening income inequality.
“Bangladesh faces several immediate macroeconomic issues that threaten its economic stability and growth,” it said.
In its monetary policy statement released yesterday for the first half of the current fiscal year, the central bank said these challenges arise from domestic and international factors, creating a complex policy environment.
“Persistently high inflation erodes purchasing power and real incomes, exacerbating income inequalities.”
The BB pinpointed some other challenges confronting the country, including the exchange rate volatility, fiscal constraints, and the financial sector instability.
In order to address these issues, the country requires a multifaceted approach involving a prudent monetary policy, effective fiscal management, and structural reforms, it said.
“By navigating these challenges carefully, Bangladesh can sustain economic growth and enhance resilience against external shocks.”
Geopolitical tensions, such as the Russia-Ukraine conflict and the unrest in the Middle East, have disrupted global supply chains and driven up the prices for essential commodities like food and energy, hitting import-dependent nations like Bangladesh hard as foreign currency reserves have witnessed a significant depletion.
The BB has adopted a contractionary monetary policy to manage inflation, but balancing this with economic growth remains delicate.
The global economic outlook is positive, but uncertainties persist due to ongoing geopolitical tensions. Policy rate cuts in advanced economies could affect reverse capital flows and exchange rates.
Bangladesh’s forex reserves fell from $41.7 billion in August 2021 to $21.79 billion on June 30. The taka has lost its value by about 35 percent against the US dollar in the past two years.
“Fluctuations in global commodity prices, especially for food and energy, pose risks due to Bangladesh’s import dependence,” the BB said.
According to the central bank, high non-performing loans (NPLs) undermine financial stability and limit credit availability for productive investments.
Default loans in the banking sector hit an all-time high of Tk 182,295 crore in March, central bank figures showed. However, experts say the figure would be much higher owing to under-reporting.
The BB is implementing measures to reduce NPLs and improve governance
Shoppers at a kitchen market in Notun Bazar area of Barishal city yesterday. Bangladesh concluded fiscal year 2023-24 in June with inflation at an average of 9.73 percent, the highest in 12 years, showcasing a worsening scenario for real income and a deterioration of living standards of low-income groups.