The government is setting a high growth target for the next fiscal year, banking on the possibility of stability returning to the Middle East by June next year and the expansionary fiscal and monetary policies being pursued.
Even though GDP growth has been declining for three consecutive years, the government is targeting 6.5 percent growth for the next fiscal year, The Daily Star has learned from finance ministry officials involved with the proceedings.
This is much higher than the economic outlooks from the World Bank, the International Monetary Fund, and the Asian Development Bank, which projected Bangladesh’s GDP growth between 4 and 5 percent.
“The government always sets a high growth target, while development partners provide more conservative projections,” said a finance ministry official, adding that the BNP-led government has begun taking several measures after assuming office to boost growth.
To boost public investment to deliver the high GDP growth, the annual development programme for the next fiscal year will be increased by 50 percent to Tk 3 lakh crore.
On the other hand, to encourage private investment, policy interest rates will be reduced from July. Besides, the Bangladesh Bank has already announced a stimulus package of Tk 60,000 crore.
“The current economic situation in Bangladesh is stagflationary -- and under the current global conditions and with this pace of reform, 6.5 percent is pie in the sky, I would say,” said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office.
Growth projections depend on improvements in key “choke points” in the economy: banks, ports, the National Board of Revenue, roads and markets.
“Whether ports function properly, whether extortion occurs in roads and markets -- all these things matter.”
Without reforms in policies and institutions, these choke points will not open.
“The knots must be untied first,” he said, adding that the solution is not more government spending or investment, but making institutions and policies investment-friendly.
For instance, as many as 35,000 factories are idle simply because there is no gas.
In such cases, higher spending cannot increase production.
“Therefore, instead of chasing targets, the question is whether we can do better than this year.”
Reforms are needed in areas like port functioning, banking and energy.
“Everything cannot be changed overnight. But there must be a roadmap -- what is being done, what will be done -- a clear plan. The journey is long, but progress must be visible. Without these, turning growth around -- even to 5 percent, let alone 6 percent -- will be difficult in the current context.”
If the Strait of Hormuz remains closed, the economy will be hit until the situation is resolved, he said.
Globally, commodity prices are rising due to supply constraints, while fiscal and monetary expansion will create demand.
“So how will inflation fall?”
Therefore, to meet the 7.5 percent target for the next fiscal year, productivity must increase significantly while maintaining the current policy stance.
“The current fiscal year’s inflation target of 7 percent is impossible to achieve. As of April, inflation was above 9 percent. How will it fall below 8 percent by June?”
Electricity price adjustments will add about 1 percentage point to inflation directly and indirectly in the next fiscal year.
“However, this does not mean the adjustment is wrong -- prices had to be raised. Directionally, inflation is expected to rise compared to the current fiscal year. If it falls by chance, that would be different.”
Inflation can only be brought down by maintaining a tight monetary policy stance -- that is, by not lowering policy rates -- and by fiscal consolidation, following a revenue-based expenditure policy, Hussain added.
On inflation control measures, the finance ministry said that due to Middle East instability, the current policy interest rate will be maintained until June.
However, from July, rates will gradually be reduced to encourage investment while controlling inflation.
Government spending will prioritise social and economic sector projects. During the cost-of-living crisis, targeted subsidies will be provided, along with ensuring a low-cost goods supply.
The Family and Farmers’ card programmes will be expanded, market monitoring and price control strengthened, and import duties on essential goods reduced.
These measures will bring inflation down to less than 8 percent for the first time in four years in fiscal 2026-27 and 6.5 percent in the following year.
The finance ministry maintains that moderate growth is achievable even this fiscal year due to the government’s business- and investment-friendly policies and regulatory measures led by its aim to build a trillion-dollar economy by 2034.
The government expects to surpass the $600 billion-mark in its third year. The current size of the economy is less than $500 billion.
Economic liberalisation, improvements in the ease of doing business, establishing discipline and good governance in the financial sector, increased food grain production, industrial growth, higher remittances and expanded import-export activities will power growth.
“It is expected that investor interest will increase under an elected government,” the finance ministry official said.
