The Asian Development Bank (ADB) has kept its economic growth forecast for Bangladesh unchanged at 6.7% for the current financial year.
ADB, however, sees that the main challenge is to promote private investment, as despite a very favourable macroeconomic performance and political calm prevailing since the second quarter of 2015, investor confidence remains subdued.
“The growth is expected to inch up in FY16, underpinned by stronger garment exports and rising private consumption as the government employees get wage increases,” said ADB in its Asian Development Outlook 2016, an annual flagship publication released yesterday.
Sticking to the earlier growth projection made in ADB’s economic update report for the Asian countries in September last year, it said domestic political calm is seen as building confidence in consumers, investors, thus supporting growth momentum.
In contrast, the ADB’s latest GDP projection is lower than the government’s revised target of 7% growth and higher than the World Bank’s projection of 6.5% for this fiscal year.
“Bangladesh’s short-term economic outlook remains broadly positive,” said ADB Country Director Kazuhiko Higuchi while launching the report at its Dhaka office.
“The higher growth will be driven by ready-made garment export and a resilient domestic consumption. Growth is likely to be reasonably broad-based with a stronger performance by manufacturing.”
The Asian Development Bank said the growth is expected to rise to 6.9% in FY17, aided by higher remittance and export growth as the US and the euro-area economies strengthen.
Principal country specialist of ADB’s Bangladesh Office, Mohammed Parvez Imdad, presented the Bangladesh chapter report at the report launching programme.
Inflation is seen to moderate slightly in FY16 to average 6.2% despite an increase in public sector wages early in the fiscal year, it added.
Although nonfood inflation is on the rise, driven by higher wages and upward adjustments to administered prices of natural gas and electricity, continuing low food inflation will keep overall inflation in check, it said.
With a stable political environment, export growth is expected to be 8% in FY16, markedly better than the 3.3% recorded in FY15, ADB said, adding that the export growth is projected to accelerate further to 9% in FY17.
“Though export growth is forecasted to rise, it will be partly offset by slackening consumer demand caused by a slow remittance growth.”
ADB said imports rose by 7% in July–December 2015 as higher imports of chemicals, crude oil, pharmaceuticals, and raw materials for the garment industry were only partly offset by declining imports of food grains, sugar, fertilizer and capital equipment.
Imports are expected to pick up in the second half to grow by 9% in FY16 and 11% in FY17.
ADB recommends that retail fuel prices be lowered if international prices fall further and all past liabilities of BPC be duly paid.
Revenue collection in Bangladesh is low even compared with other South Asian economies and must be markedly improved to provide resources for investment in infrastructure and social development, it said.
ADB said operationlising the new value-added tax is an essential first step toward significantly better revenue mobilisation. Likewise rationalizing energy and power subsidies is essential to improve fiscal flexibility. Institutional capacity needs to be strengthened with a sharper focus on project implementation.