Bangladesh's Economy At Risk Of Covid-level Decline; Moody's Cuts Growth Forecast To 5.1%

A recent report by Moody's warns that the ongoing curfews in Bangladesh could severely harm the country's economy, potentially bringing it back to levels seen during the pandemic. The report also emphasised that the closure of businesses, which are already struggling due to global economic issues, will worsen the situation.

"The curfews, the latest of which was lifted on Tuesday, have been reminiscent of the pandemic lockdown in terms of their economic consequences. If the situation in Bangladesh doesn't calm, and businesses are forced to shut for prolonged periods, we would expect similar drops in exports" said the report.

Moody's has also lowered its GDP growth forecast for Bangladesh this year from 5.4 to 5.1 per cent.

The report added, "For now, we have downwardly revised our GDP growth forecast for this year to 5.1 per cent from 5.4 per cent previously. This is a provisional figure that is contingent on the length and severity of the political, social, and economic upheaval."

The report also noted that the ongoing disruptions might lead companies to reconsider their operations in Bangladesh. Some businesses have already redirected their orders to other countries to avoid supply chain disruptions.

Highlighting the growing currency crisis in Bangladesh, the report added that it could potentially lead to economic collapse. It links this crisis to the global rise in food and oil prices caused by the COVID-19 pandemic and worsened by Russia's war in Ukraine. These events disrupted supply chains and drove up oil prices, significantly increasing Bangladesh's import costs and negatively affecting its trade balance.

"The seeds of the currency crisis can be traced to the surge in global food and oil prices that stemmed from the COVID-19 pandemic that was subsequently exacerbated by Russia's war in Ukraine" said the report.

In 2021, Bangladesh's average monthly trade deficit was BDT 4.1 billion, slightly improving to BDT 4 billion in 2022, compared to a deficit of BDT 2.3 billion in 2019 and BDT 1.5 billion in 2020. This worsening trade balance caused the value of the taka to drop, leading to increased inflation on imported goods.

After months of political unrest, Bangladesh has a new interim government in place headed by Nobel laureate economist Muhammad Yunus. The government took charge three days after Sheikh Hasina was forced to quit as Prime Minister and subsequently leave Bangladesh.

The countrywide protests erupted in early July due to demands for reforming the quota system that reserves civil service jobs for specific groups, including descendants of 1971 war veterans.

The unrest intensified after students opposed a new policy allocating government jobs to descendants of freedom fighters, leading to violence, including attacks on state television headquarters and police booths in Dhaka. (ANI)