Import suppression measures, energy shortages put Bangladesh under pressure: World Bank

Continued import suppression measures and energy shortages have weighed on both industrial production and the services sector in Bangladesh.

The World Bank came up with the observation in the latest ‘Global Economic Prospects’ report released on Tuesday night. 

“In Bangladesh, continued import suppression measures and energy shortages have weighed on both industrial production and the services sector,” says the report.”

“Real household earnings are yet to recover to prepandemic levels despite an improvement in employment. A policy program supported by the International Monetary Fund (IMF)—approved in January—aims to pre-emptively address further balance of payments pressures and help unwind import suppression measures,” it says.

“Food export bans, however, are expected to remain in place in Bangladesh, India, and Pakistan through 2023 despite falling global prices,” the report adds.

In SAR excluding India, growth is expected to slow to 2.9 percent in 2023 before rebounding to 4.3 percent in 2024, according to the report. 

The report reads, “In Bangladesh, elevated inflation, policy uncertainty, and weakening external demand are expected to slow growth to 5.2 percent in FY2022/23 (July-June) from 7.1 percent in the previous fiscal year.”

According to the report, gains in market share in key export markets are expected to sustain export growth, offsetting the effects of weaker growth in advanced economies. 

“Growth is projected to accelerate to 6.2 percent in FY2023/24 as inflationary pressures ease, reform implementation accelerates, and transportation and energy infrastructure megaprojects are completed.”

Monetary policy tightening in the region has continued, with average real interest rates in the first half of 2023 turning positive on a GDP weighted basis.

In Bangladesh, while the central bank raised policy rates, transmission to the broader economy has been impaired by a cap on lending interest rates. 

Financial sector risks remain elevated in several economies, with high levels of non-performing loans, weak capital buffers, and weak bank governance, the report highlights, adding that ratios of non-performing loans to total loans are elevated and have recently been rising in Bangladesh and Sri Lanka. 

“In Bangladesh, weak corporate governance and capital buffers also increase the risk of stress in the financial sector,” it says.