Omicron, a new variant of the coronavirus, will be a major determinant for the future direction of the country's economy as it has already caused worldwide panic. It is more infectious than the previous variants. The next three months, especially March, are crucial for Bangladesh.
If the new variant spreads in the country, the economy may come to a standstill as before, and the government will have to spend extra money to deal with the virus, including the expenditure to save the livelihood of the poor.
Overall, the biggest challenge for the country's economy will be the rising cost of living resulting from the increase in the prices of capital equipment, raw materials and final products in the world market.
However, the positive thing is the sign of recovery in the business, investment and livelihood from the economic turmoil caused by the pandemic.
If you want to get an idea of how the country's economy will be next year, you have to look at how the current year is going. Throughout 2021, the economy of Bangladesh, like the rest of the world, has tried to recover from the impact of Covid-19, which is also reflected in the key indicators of the economy.
The increase in capital machinery and intermediate commodities import is signaling a recovery in the industrial sector. The growth of credit flow in the private sector is also a bit higher although the target of 14% set by Bangladesh Bank has not been achieved. So, based on this information we can say that the factories in the country are in operation.
Many of the people who lost their jobs due to the pandemic have rejoined their work and their income is also returning to the previous level. As a result, domestic demand is also increasing, which is reflected in the exchange of consumer goods.
However, it is true that the cost of all types of consumer goods, including raw materials, has increased.
The economic activities in the whole world has gained momentum after the stagnation caused by the pandemic and as a result the demand for all kinds of products and services is increasing.
Entrepreneurs are facing new challenges as the cost of doing business has increased a lot. Most of the raw materials of export products like readymade garments have to be bought from different countries at higher prices. So, the entrepreneurs need to reduce business costs to survive in this situation.
For this we have to increase productivity and reduce expenditure in other sectors, including transport. If the profits of the entrepreneurs do not increase, the wages of the workers will not increase either.
We have been discussing business facilitation for a long time but the situation has not improved. The overall production cost in the country is high due to the hidden costs resulting from the lack of good governance and corruption. We have to take immediate steps in all these matters.
Many large investors may be able to manage these extra costs on their own but the small ones do not have this ability.
There is not enough foreign direct investment (FDI) as Bangladesh is lagging behind in ease of doing business index. The investment demand of the government is much higher in the future.
Government funding and investment play a major role in recovering from Covid-19 and there is no alternative to resource mobilisation to speed it up.
Every year, the National Board of Revenue (NBR) targets a huge amount of revenue collection, which is much more than the actual capacity. At the end of this year, the revenue collection has slightly increased compared to the previous year. However, to achieve the target, it is necessary to increase revenue collection by 30.7% in the next six months, which is very challenging.
In the outgoing year, a significant amount of foreign aid has been added as budget aid. But it is declining as the year is ending. On the other hand, project assistance does not play a significant role in filling the budget deficit due to the obligation to use it in specific sectors.
The sales of savings certificates have declined due to various taxes and reduction of interest rates. In this situation, bank loans are the only reliable source to meet the demand of the government in the future.
Currently, there is low demand for bank loans in the private sector. But if the goal of loan disbursement is achieved in this sector, the government will have to face difficulties. So, depending on one sector for loans will increase risk.
Dr Fahmida Khatun is the executive director, Centre for Policy Dialogue