A persisting dollar crunch together with loan scams, capital flight, lax governance, sharp hike in the prices of essentials and widening inequality kept the country’s economy under pressure in 2022.

Economists, however, said that the tumultuous year of 2022 had started on a positive note with the inauguration of the Padma Bridge in January, promising recovery from the economic fallout of the prolonged Covid pandemic.

But the war in Ukraine since February made fuel oils, fertiliser and food costly on the global market, resulting in a dollar crisis for import-dependent Bangladesh amid the spectre of an unprecedented bankruptcy and regime change in its South Asian neighbour Sri Lanka.

The government has recently, in a pre-emptive move, struck a preliminary deal to borrow $4.5 billion from the International Monetary Fund.

A lower inflow of remittance has aggravated the dollar shortage and adversely affected manufacturing, power generation, prices of essentials, income and consumption across the board.

The dollar shortage that fanned high inflation undermined many positive outcomes like a substantial rise in overseas employment, the launch of elevated metro rail in the capital in late December and the scheduled commissioning of the tunnel under the River Karnaphuli in January.

‘In the end, the outgoing year turned out to be a worst one,’ said former Bangladesh Bank governor Salehuddin Ahmed.

He recalled the previous economic crisis that had gripped the economy between 2005 and 2008 against the backdrop of a record high fuel oil price at $148 per barrel on the international market and two rounds of crop loss to floods at home.

‘But there was no shortage of dollars then and the exchange rate was well-managed,’ he noted.

But, this time, the local currency depreciated by about 20 per cent against the greenback in the past six months while the overall import bills shot up to bring down the country’s foreign exchange reserve below $35 billion in December 2022 from $48 billion in August 2021.

To tackle the economic meltdown, the government has resorted to limiting imports and cutting public expenditure. It has also enforced power outages in summer and has kept suspended the import of liquefied natural gas.

But the inherent weaknesses of the country’s macro-economy, un-coordinated policy decisions and the low capacity of the key monitoring agencies are preventing the expected outcomes from  these measures from happening, said economists.

According to them, the government decision of bypassing the Bangladesh Energy Regulatory Commission to adjust energy prices is an example of how capacity of an institution was curtailed.

The provision for the BERC to hold public hearings on price adjustment for energy items gave scopes for many to know the situation in the sector plagued with mismanagements and notorious capacity charges.

Referring to the latest loan scam in Islami Bank Bangladesh Limited in 2022, against the backdrop of the earlier series of loan scams in Sonali, BASIC and Janata banks since 2012, economists said that the Bangladesh Bank had again failed to play its due role as the key regulator in preventing the IBBL loan scam.

The groundwork for the IBBL loan scams was laid in 2017 when the country’s largest private bank was taken over amid silence of the BB, said Policy Research Institute executive director Ahsan H Mansur.

The extension of shady loans by the IBBL and other Shariah-based banks to fictitious companies having links to the S Alam Group is worrisome as it will increase the non-performing loans in the ailing banking sector.

According to economists, there has been a general perception that the growing NPL have links to the capital flight occurring mostly in the form of misinvoicing in export and import.

The Washington-based Global Financial Integrity calculated that the over-invoicing cost Bangladesh on average $7.53 billion annually from 2008 to 2017 while, Bangladesh Financial Intelligence Unit data show, the number of suspected trade-related transactions has been growing over the past two financial years.

The number of such transactions rose by 62.33 per cent in 2021–22 over 2020–21.

The amount of money deposited by Bangladeshi nationals in Swiss banks jumped by 55 per cent to Tk8,345 crore in 2021 while investments by Bangladeshis in Malaysia and the ‘Begum Para’ in Canada for second homes became open secrets.

Former World Bank Dhaka Office lead economist Zahid Hussain said, ‘You can’t rule out the general perception that funds from loan scams ended up in capital flights.’

Former NRB Global Bank Limited managing director Prashanta Kumar Halder, popularly known as PK Halder, allegedly embezzled more than Tk 10,000 crore in loans from various financial institutions.

PK Halder, who escaped to India, is currently in prison there in alleged money laundering cases there.

Former Bangladesh Institute of Development Studies director general MK Mujeri said that such capital flight amid lax governance sharply reduced the much-needed employment generation scope in the country.

‘It also results in uneven distribution of economic gains for the country approaching to a danger level of inequality ahead of its graduation from the least developed country’s status in 2026,’ he further said.

Income inequality, as measured by the Gini coefficient, increased in Bangladesh to 0.48 in 2016 from 0.46 in 2010 and 0.42 in 2005.

According to the National Human Development Report 2021 released in January 2022, the richest 5per cent of the county’s population owned nearly 30 per cent of the national income while the poorest 5 per cent of the population shared less than 0.3 per cent of the national income in 2016.

Economists predicted that the current economic woes would continue through the coming year if un-coordinated policy approaches were not corrected ahead of the looming recession, particularly threatening the country’s export incomes.

The government is following wrong policies on exchange rate and lending interest rate, said Mujeri.

‘Such policies help only a few people’, he said.

According to Centre for Policy Dialogue research director Khonokar Golam Moyazzem, having a right coordination between the fiscal and monetary policies is an imperative for the government to enhance the country’s social safety net programmes.

Extension of social protection programmes for low-income groups is a must to deal with the impact of continuous price hike of essentials for these groups, he said.

Economists viewed that the ongoing dollar crunch would liner through the coming year, creating problems for the government to maintain its sound overseas debt management.

The Economic Relations Division has already projected that the maturity of a number of big foreign loans with their short grace periods would almost double the country’s external debt repayment at $4.02 billion in FY25 against $2.4 billion in FY22.

About 10.24 lakh Bangladeshis obtained overseas jobs in the first 11 months of 2022 surpassing the previous highest of 10.2 lakh throughout 2017, according to the Bureau of Manpower, Employment and Training.

However, the country’s foreign exchange volume is likely to fall further in the new year as the BB has decided to follow the international standard practice to calculate the forex reserves, shunning the previous method that, according to the IMF, jacked up the reserve volume artificially.

Meanwhile, the CPD in its publication ‘Managing the Economic Crisis’ said, published in December, also emphasised on quality-disaggregated data that should be made available and accessible to all stakeholders in a timely manner for making better policy decisions.