Bangladesh sets 5.5% growth target in a modest budget

Amid inflation, strict foreign loan conditions, and the reality of a shortage in revenue, Finance Advisor Salehuddin Ahmed has set Bangladesh’s Gross Domestic Product (GDP) growth target for the 2025-26 fiscal year at a modest 5.5 percent.

The goal, set in the Tk 7.9 trillion budget proposed on Monday, is the lowest in many years.

"Due to this fight against inflation, our GDP growth rate may be slightly lower," Salehuddin said. "According to the provisional estimates, GDP growth in FY2024-25 could be 3.97 percent. However, we expect the final estimate to be higher. We also expect that the growth rate will rise to 6.5 percent in the medium term."

Further explanation was provided in the budget's Medium-Term Macroeconomic Policy Statement, which said that in the face of a rapidly changing global context and a number of domestic challenges, Bangladesh is setting a target for moderate growth in the short term as well as satisfactory and sustainable growth in the middle term.

The policy statement says that the revised growth rate of 5 percent in the 2024-25 fiscal year may increase to 5.5 percent in the 2025-26 fiscal year, to 6 percent in the 2026-27 fiscal year and 6.5 percent 2027-28 fiscal year.

Last year, former finance minister Abul Hassan Mahmood Ali had set a growth target of 6.75 percent in the budget passed by the Awami League government.

That government was ousted in August in the face of a student-led mass uprising. The protest movement, which extended from July to August, and the violence surrounding it led to major setbacks for the economy.

Muhammad Yunus-led interim government took office, the GDP growth target was lowered to 5.25 percent in December. But that lowered target could not be met either. The revised budget puts the growth rate at 5 percent.

The previous Awami League government set ambitious growth targets in its budgets. However, like many economists, the interim government also alleges that data and statistics were manipulated under their tenure and growth figures were inflated.

Salehuddin, who served as the governor of Bangladesh Bank under a BNP-Jamaat administration and the military-backed caretaker government from 2005-2009, spoke of ending that trend.

Although many economists consider the growth rate to be an indicator of the dynamism of the economy, they are reluctant to see it as a sign of sustainable development. Despite this, the economic indicator is often a key part of economic discussions in Bangladeshi politics.

In his budget speech, the finance minister said: "This year's budget is somewhat exceptional. For the first time in the country's history, we are proposing a smaller budget for the next fiscal year than the budget of FY2024-25. Moving away from a growth-centric concept, we have tried to emphasize the concept of holistic development."

Bangladesh achieved a record 8.15 percent GDP growth rate in the 2018-19 fiscal year. Then came the pandemic. Despite the impact it had on the world and the economy, the Awami League government pushed for a growth target of 8.2 percent in the 2019-2020 fiscal year. The economy only achieved 3.45 percent, which is the lowest in three decades. The last time growth had been lower was 3.24 percent in the 1990-91 fiscal year, according to the Bangladesh Economic Review.

In fiscal year 2020-21, the economy made a turnaround from the pandemic, rising to 6.94 percent. It rose again to 7.10 percent in the fiscal year 2021-22.

Then finance minister AHM Mustafa Kamal set a growth target of 7.50 percent in the fiscal year 2022-23, but it was later revised down to 6.50 percent. It was not achieved. According to the BBS, GDP increased by 5.78 percent at the end of the fiscal year.

Investment in Bangladesh had decreased during the pandemic, but just as the economy looked to be on the road to recovery, the Ukraine-Russia war began. That war threw the whole world into turmoil as uncertainty roiled the economy.

The impact of the war could be felt across the world as the prices of various products, including food, increased in the international market, and the exchange rate of the dollar rose. This also increased the cost of production for many products. The result was a growth rate of 4.22 percent for Bangladesh in the 2023-24 fiscal year.

Still, the previous Awami League government set an ambitious target of 6.75 percent growth in the budget for the 2024-25 fiscal year. The year now ends with what is likely to be a growth rate below 4 percent.

According to the provisional calculations by the BBS, the growth of the agriculture and service sectors in the GDP of the outgoing fiscal year has decreased slightly year-on-year. The agricultural sector grew by 1.79 percent, while the service sector by 4.51 percent. Manufacturing grew by 3.51 percent.

International organisations had already suggested that the growth rate would be more modest this time. The World Bank estimated that GDP growth could be 3.3 percent in the coming fiscal year, while the International Monetary Fund (IMF) forecast 3.8 percent and the Asian Development Bank (ADB) predicted 3.9 percent.

In the new budget, the GDP size at current prices has been estimated at Tk 62.45 trillion, up from Tk 55.97 trillion in the revised budget for the outgoing fiscal year.