Close to the estimates of the IMF and ADB, the World Bank has forecast Bangladesh’s economic growth for the current financial year would remain at 5.7% due to the deepening political strife and weakening investment.
It said the pace of economic activity in 2013-14 would be hampered by the ongoing political uncertainty, together with frequent general strikes and associated hostilities, to aggravate the situation further from the longstanding energy crisis and infrastructure deficits.
Early this month, both International Monetary Fund (IMF) and Asian Development Bank (ADB) have projected the gross domestic product (GDP) growth to 5.8%, much lower than the government’s estimate of 7.2%.
The growth will continue to remain subdued owing to internal instability and slow policy reforms, said the World Bank in its report titled “Bangladesh Development Update” released at the country office in Dhaka on Wednesday.
“Bangladesh’s growth outlook depends on internal stability and structural reforms. Several macro vulnerabilities prospect of rising inflation due to disruptions in supply chain and wage push factors, decline in exports and remittance growth, fiscal expansion due to increased recurrent expenditures in response to political pressures, and failure of financial intermediation could impact the economic recovery,” said Johannes Zutt, the World Bank’s country director.
The real GDP growth in FY14 may slow to 5.7%, reflecting the negative impact of the recent strikes on sentiment towards Bangladesh on the part of foreign investors and a hiatus in policymaking as the parliamentary election approaches, he said.
Traditional risks remain while newer challenges mount: The global economy is slowly getting back on its feet, albeit with some hesitancy and unevenness, according to the World Bank.
“Overall, the Bangladesh economy is moving into a more volatile phase,” said Zahid Hussain, Lead Economist of the Bank. “The risks stemming from the impending political transition have grown significantly while new risks and challenges have gained prominence, including notably the risks associated with the damaged image of Bangladesh’s major manufacturing success story - the garments industry.”
About continued record-breaking foreign exchange reserve that hit $17bn on Tuesday, he said the reserve level is satisfactory but not excessive. The reserve constitutes almost seven months of import cover, providing an effective cushion against external shocks.
About inflation, the World Bank said production and supply chain disruptions due to intensified political violence in the run-up to elections are a major near-term inflation risk. The NBR’s revenue collection grew 12% in July-August relative to the same period the previous year well below the 20% target for FY14.
Achieving the revenue growth target will be challenging if economic growth slows further and imports do not recover, it said.
It said the growth in remittance might weaken as manpower exports declined. The current instability in the Middle East and North Africa may have negative consequences for Bangladeshis living and working in those regions, hampering their ability to earn and remit money home, it said.
The World Bank said fragile corporate governance in the financial sector poses systematic risk. The financial scam exposed the vulnerabilities of the state-owned banks, and the risks they pose to the soundness and stability of the financial system, which are compounded by inherent weakness of the banking sector, it said.