Austerity measures in the face of strained foreign currency reserves and elevated inflation may reduce overall expenditure, including those meant for development, during the fiscal, it said.

The Bangladesh Bank recently said the rise in domestic energy prices may undermine the country’s expected growth in fiscal 2022-23 and raise poverty by diverting budgetary resources away from productivity-enhancing investment and social protection. Austerity measures may reduce overall expenditure, including those meant for development, it said.

“The cost-push shocks to the Bangladesh economy could intensify due to compounding adverse effects of elevated global commodity and energy prices, recent upward adjustment of petroleum and fertilizer prices in the domestic market, and a significant depreciation of Taka against USD,” said the Bangladesh Bank in its quarterly (April-June 22) report.

Compounding adverse effects of elevated global commodity and energy prices, recent upward adjustment of petroleum and fertiliser prices in the domestic market and a significant depreciation of the local currency against the American greenback could intensify the cost-push shocks to the economy, the bank said.

“The tight market conditions for essential items including fuel price in the global front will likely have lasting knock-on effects on the domestic market,” said the report.

Elevated global commodity and energy prices created significant challenges to the external sector during the last fiscal by pushing import payments up, which outstripped the rise in export earnings.

But the government initiatives to attract remittance inflows along with faster growth in Gulf Cooperation Council (GCC) countries may help recovery in remittance inflows which in turn might be supportive to improve the current account deficit in the near future, hopes the central bank.

It also expects that moderately increasing private sector credit growth will help boost industrial production growth.

Fibre2Fashion News Desk (DS)