The old year is about to bid adieu and make way for the New Year. 2021 has been yet another eventful year. The dreaded pandemic was showing signs of receding towards the early part of this year and the economy was gradually normalizing. However, the Delta variant started wreaking havoc with infections and death recording an all-time high since the inception of the pandemic. Lockdown was imposed that again put the brakes on the economy. The government and private sector health care service providers deserves kudos for handling the second wave through our creaking health care.
With the recession of the second wave of Covid, economy started bouncing back. All indicators started showing a growth. However, the world economy was hit by skyrocketing increase in commodity prices. On top of that, international freight costs jumped due to increase in fuel cost as well as vehicle chartering costs resulting in most commodities being imported at 2 to 3 times of the earlier cost. Foreign exchange reserves that had climbed to an all-time high of 48 million USD started declining again mainly due to higher cost of fuel and commodity prices as well as sharp decline in remittances. The latter was mainly caused by return of informal channels, which had almost disappeared during the pandemic and also due the official USD versus the high kerb market rates.
Two other headwinds are worth noting. Sharp escalation in international commodity prices has spiked domestic prices leading to a cost-push inflation. This is causing a dampening effect on consumer spending across all sectors. Sitting in the Boards of leading MNCs, bank and a local company spanning consumer durables, construction and FMCG, I can see that Inflation is certainly leading to sluggish consumer spending since a large portion of the income earning population are fixed income earners whose income levels have gone down or slowed down with the pandemic.
Declining foreign exchange reserves is leading to devaluation pressures on the taka. In order to arrest unbridled devaluation, the central bank is continuously infusing dollars into the banking system leading to an outflow of local currency from the market. At the same time, with the pandemic receeding, private sector investment is fast escalating. As a result, overnight, the banking sector that was awash with liquidity a few months back are now facing a liquidity crunch. This is expected to increase borrowing rates for private sector that will cut margins and may dampen economic growth.
The silver lining is that exports have rebounded thanks to the reopening of US and EU. Exports volumes have gone up but margins have shrunk. Unfortunately, as we speak, the new Covid variant Omicron is now wreaking havoc in Europe that will again push the EU as well as US for another phase of lockdown again putting brakes on economic revival.
Despite all these headwinds, Bangladesh is a resilient country. The country prides itself as being flexible and agile honed by years of facing natural calamities. The CSME sector is expected to rebound that employs almost 97% of the workforce as well as the large informal sector, both of which are the mainstay of the economy. These are showing signs of revival but will need government support in terms of financing. Once these sectors pick up, the growth engine and GDP should perk up.
Unilever Consumer Care Limited