BANGLADESH

Growth moderated in fiscal 2023 as monetary tightening in the advanced economies

lowered external demand. Inflation rose significantly, and the current account deficit
narrowed. Despite macroeconomic headwinds, GDP expansion is expected to accelerate
gradually this year and next with resilient exports and the government committed to
structural reform. Inflation will gradually moderate, while the current account turns into
small surpluses. Reforms to enhance Bangladesh’s competitiveness will be critical for the
country’s smooth graduation from least-developed country status.

Economic Performance
GDP expansion moderated to 5.8% in fiscal year Figure 2.15.1 Supply-Side Growth
2023 (FY2023, ended 30 June 2023) from 7.1% in Growth slowed with lower industry and services expansion in FY2023
the previous year. The slowdown hit both industry but will turn higher with sectoral rebounds in FY2024.
and services (Figure 2.15.1). Growth in industry slowed Agriculture Gross domestic product
to 8.4% from 9.9% in FY2022, reflecting reduced export Industry
Services
demand and domestic shortages of electricity and fuel,
with large-scale manufacturing production growth %
falling to 8.4% from 15.7% in FY2022. Services growth 12

also slowed, to 5.4% from 6.3%, reflecting lower growth 9

of domestic demand due to high inflation. However, 7.9
6.9 7.1 6.6
5.8 6.1
growth in agriculture increased to 3.4% from 3.1% in the 6
3.4
previous year despite inclement weather patterns. 3

On the demand side, slower rises in private 0

2019 2020 2021 2022 2023 2024 2025
consumption and investment dragged down GDP Forecast
growth. High inflation hit private consumption, while FY = fiscal year.
public consumption expanded with higher expenditure Note: Years are fiscal years ending on 30 June of that year.
on subsidies and current transfers. The high cost of Sources: Bangladesh Bureau of Statistics; Asian Development Bank
estimates.
production and difficulties in opening import letters of
credit constrained the growth of private investment.
Growth in public investment slowed as only 84.2% of of Bangladesh taka against the dollar. Year-on-year
the annual development program was implemented headline inflation reached 9.7% in June 2023 from 7.6%
in FY2023, compared with 92.7% in FY2022. With a in June 2022. Food inflation accelerated to 9.7% year
sharp decline in imports, net exports added to growth. on year in June 2023 from 8.4% in June 2022, and
nonfood inflation to 9.6% from 6.3%, due to upward
Inflation surged to an average of 9.0% in FY2023 adjustments in domestic fuel and energy prices and
from 6.2% in FY2022. It was driven by high and volatile marked depreciation of the taka against the dollar
food, fuel, and fertilizer prices, and the depreciation (Figure 2.15.2).

This chapter was written by Barun K. Dey and Mahbub Rabbani of the Bangladesh Resident Mission, ADB, Dhaka.
Economic trends and prospects in developing Asia: South Asia Bangladesh 135

Figure 2.15.2 Monthly Inflation Figure 2.15.3 Monetary Indicators

Price pressures rose in FY2023. Overall credit growth moderated in FY2023 as contractionary
monetary policy took effect.
Food
Nonfood Broad money
Overall Credit to the private sector
Credit to the public sector
% year on year
15 % change year on year
50
12
40
9
30
6
20
3
10
0
Jan Apr Jul Oct Jan Apr Jul Oct Jan 0
2022 2023 2024 Jan Apr Jul Oct Jan Apr Jul Oct Dec
FY = fiscal year. 2022 2023
Source: Bangladesh Bank. 2024. Monthly Economic Trends. February. FY = fiscal year.
Source: Bangladesh Bank. 2024. Major Economic Indicators: Monthly
Update. January.

Monetary policy was tightened in FY2023 to

restrict credit growth and contain inflation. to 17.7% (Figure 2.15.4). The government continued
Bangladesh Bank, the central bank, raised its policy to seek mainly concessional external borrowing,
repo rate by 0.5 percentage points to 6.0% in FY2023 especially to finance infrastructure projects. With the
and 8.0% in January 2024. It replaced the capped government’s reduced reliance on national savings
lending rate with a market-driven lending rate for certificates without increased recourse to bank credit,
bank loans based on the 6-month moving average domestic public debt decreased from 22.5% of GDP
rate of Treasury bills and, further, imposed fees on to 22.1%. Several reforms being implemented—
loans to micro and small enterprises. Private sector notably automation in revenue administration, such
credit grew more slowly as interest rates rose and as as electronic tax filing and payment of return, tax
political uncertainty surrounding a general election deduction at sources, and implementing a new income
in January 2024 reduced private sector appetite for tax law—should ensure fiscal and debt sustainability.
loans. Meanwhile, credit to the public sector rose Increasing the ratio of revenue to GDP will be critical
substantially, by 35.0%, while the issuance of national to support much-needed social, development, and
savings certificates was curtailed. As a result, broad climate spending.
money grew by 10.5%, compared to 9.4% in FY2022,
and rose by 8.6% year on year in December 2023
Figure 2.15.4 Government Debt
(Figure 2.15.3).
Government debt continued to rise.
Fiscal policy supported growth in FY2023. Revenue Domestic
External
grew by 9.5% and was equivalent to 8.2% of GDP, lower
than 8.4% in FY2022. Income and value-added tax, % of GDP
accounting for 64.0% of total revenues, grew by 9.5%. 50
41.4 42.0
Significantly slower growth in capital expenditure, down 40 34.5 35.6 37.9 39.8
32.0
from 15.7% in FY2022 to 4.6% in FY2023, tamped 30
down government expenditure to 12.6% of GDP
20
from 13.0% in FY2022. On balance, the fiscal deficit
10
declined to 4.4% of GDP from 4.6% in the previous year.
0
2019 2020 2021 2022 2023 2024 2025
Bangladesh remains at a low risk of external and Estimate Forecast
overall debt distress. The ratio of public debt to GDP = gross domestic product.
GDP increased from 37.9% in FY2022 to 39.8% in Note: Years are fiscal years ending 30 June of that year.
FY2023, with external debt rising from 15.4% of GDP Source: International Monetary Fund.
136Asian Development Outlook April 2024

Export growth decelerated sharply. It slowed from Figure 2.15.6 Current Account Components
33.4% in FY2022 to 6.3% in FY2023 and 2.5% in the Lower imports and high remittance inflows narrowed the current
first 7 months of FY2024, from 9.8% during the same account deficit significantly.
7 months in FY2023 (Figure 2.15.5). Export growth Exports
Imports
in FY2023 was entirely due to expansion in garment Net income
exports, which grew by 10.3% as other exports declined Net services
by 9.5%. The marked economic slowdown in the Remittances
Other net transfers Current account balance
European Union and the United States were mainly
responsible for the sharp deceleration of export growth, $ billion % of GDP
90 6
but domestic fuel and electricity shortages in factories
60 4
also played a role.
30 2
0 0
–30 –2
Figure 2.15.5 Export Growth
–60 –4
Merchandise exports have grown more slowly since the beginning of
–90 –6
FY2024 on lower demand in advanced economies.
2019 2020 2021 2022 2023 2024 2025
% Forecast
40 GDP = gross domestic product.
33.4
30 Note: Years are fiscal years ending on 30 June of that year.
20 Source: Bangladesh Bank.
12.4 9.8
10 9.1
6.3
2.5
0
sharply depreciated taka, government cash incentives,
–10
and increased ease of transfer through mobile financial
–20
–17.1 services led to an increase of 3.7% in remittances in the
Jul–Jan Jul–Jan
2019 2020 2021 2022 2023 2023 2024 first 7 months of FY2024, slightly below 4.3% growth in
FY = fiscal year. the same period a year earlier (Figure 2.15.7).
Note: Years are fiscal years ending on 30 June of that year.
Sources: Bangladesh Bank; Export Promotion Bureau, Bangladesh. Foreign exchange reserves fell significantly in
FY2023, leading to a squeeze on imports and
pressure on the exchange rate. Even with a
Imports declined across the board in FY2023. This significantly reduced current account deficit, sharply
occurred in tandem with slower GDP growth and as reduced financial inflows including a decline in
central bank restrictions on opening letters of credit medium- and long-term loans led to gross foreign
aimed to stem a marked decline in foreign exchange
reserves. Imports of intermediate goods decreased
sharply in line with curtailed manufacturing. Imports Figure 2.15.7 Growth in Remittances
of capital goods and petroleum goods also declined. Remittances grew more slowly in the first half of FY2024.
However, fertilizer and rice imports increased under %
government efforts to ensure food security. Total 40 36.1
imports contracted by 15.8% from a marked 35.9% 30
expansion in FY2022 and by 18.3% in the first 20
9.6 10.9
7 months of FY2024 from 5.7% contraction in the 10
2.8 4.3 3.6
same period of FY2023. 0
–10

The current account deficit narrowed sharply –20 –15.1

Jul–Jan Jul–Jan
to 0.7% of GDP in FY2023 from 4.1% in FY2022 2019 2020 2021 2022 2023 2023 2024
(Figure 2.15.6). The improvement resulted from a lower FY = fiscal year.
trade deficit, as imports declined sharply while exports Note: Years are fiscal years ending on 30 June of that year.
expanded moderately, and from rising remittances. A Source: Bangladesh Bank.
Economic trends and prospects in developing Asia: South Asia Bangladesh 137

exchange reserves falling by 25% to $31.2 billion at Economic Prospects

the end of FY2023 and to $25.1 billion at the end of
January 2024, covering about 4.1 months of imports Growth is projected to edge up to 6.1% in FY2024
(Figure 2.15.8). and 6.6% in FY2025 on resilient export growth
(Figure 2.15.10 and Table 2.15.1). Despite weaker
The taka depreciated by 11.8% against the dollar in global demand, exports of Bangladesh’s traditional
FY2023. It depreciated by a further 9.1% to the end of low-end garments will continue to grow, as exporters
January 2024 from January 2023 as adjustment toward use domestic yarn and fabric due to the dollar crisis.
a market-determined rate continued (Figure 2.15.9). It Private consumption is expected to rise with easing
depreciated in real effective terms by 8.3% in FY2023 inflation, while public consumption is expected to
and by 0.5% in calendar year 2023. Central bank witness moderate growth on lower subsidy spending
net sales of foreign exchange worth $13.4 billion to and continued austerity measures already announced
commercial banks were intended to curb excessive by the government. Public investment will increase
exchange rate fluctuations in FY2023. Bangladesh aims with ongoing priority mega infrastructure projects in
to move toward a more market-oriented exchange rate energy and railways. Growth in private investment
system by initially adopting a crawling peg arrangement. is expected to edge up as uncertainty diminishes

Figure 2.15.8 Gross Foreign Exchange Reserves Figure 2.15.10 Demand-Side Contributions to Growth
Foreign exchange reserves trended lower. Subdued consumption pulled down growth in FY2023.
Foreign exchange reserves Reserves in month of imports Consumption Statistical discrepancy
Investment Gross domestic product growth, %
$ billion Months
Net exports
50 10
Percentage points
40 8
9
30 6
6
20 4

10 2 3

0 0 0
Jan Jul Jan Jul Jan
2022 2023 2024 –3
Source: Bangladesh Bank. 2019 2020 2021 2022 2023 2024 2025
Forecast
FY = fiscal year.
Note: Years are fiscal years ending on 30 June of that year.
Figure 2.15.9 Exchange Rates
Sources: Bangladesh Bureau of Statistics; Asian Development Bank
The taka depreciated against the dollar. estimates.
Nominal Real effective

Taka/$ (Inverted scale) Index

80 125
Table 2.15.1 Selected Economic Indicators, %
85 120
90 115 Economic growth is forecast to edge up.
95 110
100 105 2022 2023 2024 2025
105 100
GDP growth 7.1 5.8 6.1 6.6
110 95
115 90
Inflation 6.2 9.0 8.4 7.0
Jan Jul Jan Jul Jan Jul Jan Jul Jan GDP = gross domestic product.
2020 2021 2022 2023 2024 Note: Years are fiscal years ending on 30 June of that year.
Source: Bangladesh Bank. Sources: Bangladesh Bureau of Statistics; Asian Development Bank
estimates.
138Asian Development Outlook April 2024

following the general election in January 2024. Growth weather, inflation is projected to moderate further in
will rise further in FY2025 on a continuing rebound in FY2025 under continued monetary policy tightening
exports due to economic recovery in major importing and fiscal consolidation.
countries, an easing in energy costs, and reduced
import restrictions, aided by gradual improvement The current account should move into surplus in
in foreign exchange reserves. Private consumption FY2024 and FY2025 on a narrowing trade deficit
will be buoyed by an increase in remittances. Private and rising remittances (Figure 2.15.6). The surplus
investment is expected to rise along with consumer is expected to grow from 0.8% of GDP in FY2024 to
and investor confidence as inflation further eases, 0.9% in FY2025 on modest growth in remittances
and public investment will rise as fast-tracked projects and exports. With a growth slowdown in key export
are implemented. destinations, restrictions on opening letters of credits
affecting imports of key inputs, and shortages of
On the supply side, a rebound in industry and electricity and fuel, export growth is projected to be
services will contribute to higher GDP growth. slower in FY2024. It will rise further in FY2025 on
Agriculture is expected to maintain its trend growth improving energy supply, strong growth in new markets
of 3.2%, reflecting a good crop outlook and better for garments, and measures aimed at easing access
market prices encouraging farmers to produce more. to trade financing. Imports are forecast to contract
While inadequate rainfall during the monsoon severely in FY2024 but rise in FY2025—assuming a relatively
affected the summer crop, the wet monsoon crop stable exchange rate, stronger foreign exchange
was cultivated on a planted area larger than earlier reserves, and reduced geopolitical tensions—as central
projected and is anticipated to have high yields. bank restrictions are lowered. Remittances are forecast
Barring natural calamities, winter crop production is to increase in FY2024 and further in FY2025 driven by
also expected to rise with government support for cash incentives, the availability to residents of foreign
farmers’ use of subsidized harvesters and modern exchange savings accounts, and the increased use
seeds. Industry is projected to grow faster at 8.8% of mobile financial services for remittance transfers.
with a rebound in manufacturing aided by resilient However, the wide difference between official and
exports. The index of large-scale manufacturing market exchange rates will still encourage remittance
production grew by 15.0% in the first quarter of FY2024 transfers through unofficial channels. The gradual move
compared to the same period of the previous year, toward a market-driven exchange rate should alleviate
indicating a rebound. Service sector growth is expected this problem.
to increase to 5.5% in FY2024, following the trend
in industry. Similar factors will raise sector growth The fiscal deficit is forecast unchanged at 4.5% of
in FY2025. GDP in FY2024 and FY2025, compared to 4.4% in
FY2023. Revenue collection is projected at 8.8% of GDP
Inflation is projected to moderate, averaging in FY2024, as tax collections by the National Board of
8.4% in FY2024 and 7.0% in FY2025. Year-on-year Revenue grew by only 14.8% in July 2023–January 2024,
monthly headline inflation exceeded 9.0% in the representing only 40% of the overall revenue target
first 7 months of FY2024. Though nonfood inflation for the year, owing to uncertainty in the run-up to the
moderated as monetary policy was tightened, food January 2024 general election. Total fiscal spending
inflation reversed unexpectedly, keeping headline is projected to rise to 13.3% of GDP, as government
inflation elevated. However, inflation is expected to expedites implementation of priority mega projects.
moderate in the remaining months of the fiscal year
and edge down to the projected rate for the whole The ratio of public debt to GDP is expected to
year on continued monetary tightening, expected remain relatively stable in the near-to-medium
decline in global oil and commodity prices, and a term. The government remains cautious about
better crop outlook. The government’s plans to reduce contracting external debt, especially commercial debt.
exchange rate volatility and eliminate structural The ratio of public debt to GDP is forecast to increase
subsidies for petroleum products while keeping to 41.4% in FY2024 from 39.8% in FY2023, with
the budget deficit unchanged will, if successfully external debt rising to 18.1% of GDP from 17.7% and
implemented, ease inflation. Assuming favorable domestic debt growing to 23.3% from 22.1% in FY2023.
Economic trends and prospects in developing Asia: South Asia Bangladesh 139

Policy Challenge—Overcoming Figure 2.15.11 Apparel Market Share in Major Countries

the Challenges of Graduation from Bangladesh’s share of ready-made garment imports has expanded in
major markets on trade preferences for least-developed countries.
Least-Developed Country Status Australia Japan
Canada United States
European Union
Bangladesh is on track to graduate from the
Import share, %
group of least-developed countries (LDCs) in
18
2026, but the transition poses challenges. This
15
milestone in the country’s economic development
12
necessitates careful preparation, as the post-LDC 9
period involves the conclusion or significant reduction 6
of many international support measures received as 3
an LDC. Graduation involves three key economic 0
implications that affect the nation’s capacity to export 2001 2004 2007 2010 2013 2016 2019 2022
and attract investments. First, policy flexibility granted Note: The European Union market share includes trade within the union.
under special treatment in World Trade Organization The US does not provide any trade preference for Bangladesh, but
preferences offered by other countries strengthen Bangladesh’s exports.
(WTO) agreements may be lost. LDC graduation Source: Razzaque M. A., H. Akib, and J. Rahman. 2020. Bangladesh’s
would limit policy space and flexibility in compliance Graduation from the Group of LDCs: Potential Implications and Issues
with WTO rules. Subsidies for exporters may cease for the Private Sector. In Razzaque, M. A., ed. Navigating New Waters:
Unleashing Bangladesh’s Export Potential for Smooth LDC Graduation.
due to WTO subsidy rules, and full enforcement Bangladesh Enterprise Institute.
of trade-related aspects of intellectual property
rights could hinder Bangladesh’s pharmaceutical
self-sufficiency, jeopardizing 98% of local demand Table 2.15.2 Change in Post-Graduation Tariff Rates
previously met through patent waivers. Second, some in Major Export Markets
development financing may shift from grants to loans After graduation, Bangladesh to face high tariff rates.
on concessional terms, though grant assistance could
Share of
still be available depending on the areas of cooperation.
Exports from Current Average
After graduation, Bangladesh may encounter challenges Bangladesh Tariffs on Post-
in accessing certain LDC-specific funds unless terms of in Fiscal Bangladesh Graduation
engagement are adjusted in response to a reduction in Countries 2023, % as an LDC Tariff Rates
the overall number of LDCs. Third, and perhaps more European Union 45.4 0 12.00a
importantly, preferential access to export destinations, United States 17.5 15 b
15.00
including through duty-free and quota-free schemes United Kingdom 9.6 0 0.00c
and LDC-specific preferential rules of origin, may India 3.8 0 8.61
be lost.
Japan 3.4 0d 8.71
Canada 3.1 0 17.00
As more than 70% of merchandise exports
d
currently enjoy trade preferences, imminent PRC 1.2 0 16.20
graduation poses significant concerns for exports. LDC = least developed country, PRC = People’s Republic of China.
a
This especially applies to the country’s ready-made Not yet settled.
b
Bangladesh does not enjoy any tariff preference in the United States.
garments, which constitute more than 83% of total c
But with more stringent rules of origin.
exports. This industry has successfully expanded its d
On 98% of products.
market share in major importing countries, capitalizing Sources: Export Promotion Bureau of Bangladesh, 2023; World
Integrated Trade Solution.
on trade preferences (Figure 2.15.11). Following
graduation, Bangladesh may lose these preferences and
face less-favorable trade conditions, or most favored Smooth and sustainable graduation would require
nation tariff rates, contingent on the trade policies enhanced trade and investment competitiveness.
of receiving countries (Table 2.15.2). According to a This task becomes exceedingly challenging without
WTO estimate, post-graduation tariff hikes could lead substantial foreign direct investment (FDI),
to a 14% decline in exports. considering that current FDI equals less than 1% of
140Asian Development Outlook April 2024

GDP (Figure 2.15.12). Inadequate infrastructure, Investment Climate Improvement Program. The
underdeveloped logistics, cumbersome border Bangladesh Economic Zones Authority is developing
processes, an opaque regulatory environment, and 100 special economic zones. The government is
a lack of integration between trade and industrial developing a model bilateral investment treaty to
policies are major deterrents to FDI. A high tariff facilitate negotiations. To graduate with momentum,
regime poses a significant constraint to the goal of Bangladesh is preparing a smooth transition strategy
fostering a diversified, export-oriented industry base that will guide the various policy actions.
through FDI and collaboration between foreign and
domestic investors. Additional measures are required to tackle
graduation challenges. The implementation of
NTP 2023 needs to be closely monitored by the
Figure 2.15.12 Net Foreign Direct Investment Inflows
LDC graduation subcommittee on internal resource
Foreign direct investment has been below 1% of GDP in most years. mobilization and tariff rationalization, as trade
% of GDP liberalization and tariff rationalization are two primary
1.4 objectives of the policy. Through tariff rationalization,
1.2
the NTP 2023 can help tackle various policy-induced
1.0
0.8
disincentives to exports, reduce tariff complexity,
0.6 and ensure a WTO-compliant tariff regime. Proper
0.4 implementation of the NTP 2023 will contribute to
0.2 establishing a predictable tariff regime, as envisioned
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
in the policy, which will further attract investment.
GDP = gross domestic product. Proactive and bilateral engagement with key export
Note: Years are fiscal years ending on 30 June of that year. markets should be ensured to retain favorable market
Sources: Bangladesh Bank; World Bank. World Development Indicators access terms even after LDC graduation. To provide
database.
WTO-compliant export support measures, it would be
helpful to learn from experience of other developing
Recognizing the need for competitiveness, the countries, such as the People’s Republic of China and
authorities are taking necessary steps. Seven Viet Nam. Further, the implementation of the Business
subcommittees under the Prime Minister’s office Investment Climate Improvement Program should be
are addressing market access and trade agreements, accelerated to facilitate investment and boost investor
intellectual property rights, WTO issues, investment, confidence. Existing investment treaties should be
domestic market development, export diversification, modernized and considered for renegotiation in line
internal resource mobilization, tariff rationalization, with the evolving market dynamics. Focus should be
and branding. The government has adopted for the given to fully operationalizing a few economic zones
first time a National Tariff Policy, 2023 (NTP 2023) to set examples for future ones. To prepare for LDC
to address various policy-induced disincentives and graduation and beyond, Bangladesh should undertake a
undertake pertinent reform measures to comply comprehensive capacity-building program in such areas
with WTO obligations. The Bangladesh Investment as trade policy and negotiation, investment, logistics,
Development Authority has initiated its Business standards and testing, and intellectual property rights.