Last year, when I wrote my message in The InCAP looking forward to a happy and prosperous 2022, little did I fathom the ominous clouds lurking in the distance. The worst of Covid was behind us, and the economy was showing signs of rebound. However, the Russia-Ukraine war turned the world upside down, and Bangladesh was also caught in the whirlpool. In no time, all the economic indicators took a toss. Commodity and oil price skyrocketed. With imports becoming prohibitively expensive, inflation across the world rose to unprecedented levels, including in Bangladesh. At the same time, the foreign exchange reserve that had risen to record heights suddenly started showing a sharp decline. Overnight, the dollar became scarce, and businesses started suffering. At the same time, in order to arrest this steep decline in reserves, the government reigned down on fuel imports leading to long power cuts that affected industrial production. A high level of inflation brought down the disposable income of individuals. This was a double whammy that further slowed down economic growth.
To my mind, the two big reasons for the sharp decline in reserves are oil price as well as high commodity price in world markets due to freight cost escalation and increase in FOB prices. During Covid, although exports had sharply declined, our reserves climbed steeply due to low oil and commodity prices. Unofficial capital flows in the form of under-invoicing, and over-invoicing is also escalating as well as unofficial flows in remittances. Other challenges in the domestic economy relate to the sharply eroding picture of the financial sector.
2023 will therefore be a challenging year for the world as well as Bangladesh. There is every likelihood of Europe going into recession. This will further dampen exports and lead to a strain on reserves. Repayment of foreign loans for mega projects is starting, which will exert further pressure. The central bank has taken a slew of measures to curb imports that are now showing some results. However, the fundamental issues of uniform exchange rates in line with the market will need to be resolved to attract remittances. The domestic financial sector is plagued by poor governance and rising non-performing loans. This is partly due to the 6 -9% interest regime, lackadaisical monitoring, and relaxed classification rules of Central Banks, including easy rescheduling of loans. Unless some belt-tightening is done in this area, we will continue to be in the doldrums. Cheap loans are fueling inflation and reckless investments.
There is, however, a silver lining. Should the advanced economies go into recession and oil and commodity prices significantly decrease, Bangladesh and indeed the developing economies will heave a sigh of relief as the reserves situation will improve.
Leadership is tested during times of crisis. 2023 will be a year when strong leadership is sorely needed, free from bias, in order to steer this country from the abyss that we are now seeing. We need strong and timely decisions. It is time for all of us to deliver in contributing our bit in taking our country out of troubled waters. Bangladesh has shown extraordinary resilience in the past, and we are hoping for yet another turnaround on the back of our dynamic corporate sector and strong government support.
Unilever Consumer Care Limited