But stagnating private sector investment and poor employment generation are a cause for concern.
Some experts warn that this level of growth is not sustainable.
Private sector investment as a share of GDP declined to 21.78% in FY2015-16 from 22.07% the previous fiscal year, according to Bangladesh Economic Review 2016.
The number of new jobs generated from projects registered with the Board of Investment dropped to a decade low of 146,353 as of February 2016, against 226,411 generated in FY2014-15.
The Centre for Policy Dialogue (CPD), a local think tank, found that the projected acceleration of GDP growth was largely driven by the hike in public salaries.
“It is likely that the boost will last one more year when the second adjustment is made in the new government pay scale,” the report said.
But new employment generation was unlikely to pick up in light of the slowdown in private investment, the analysis found.
“GDP growth is calculated mainly on the basis of consumption. The government wage hike raised the consumption level. Various mega projects also contributed to growth,” Khondaker Golam Moazzem, additional research director at CPD, said.
But the fast GDP growth was nothing to celebrate, he warned.
“The growth is not sustainable. The government must increase private sector investment to foster quality growth and job creation,” he said.
Government expenditure for consumption as a share of GDP saw a significant increase to 5.89% in the outgoing fiscal year, compared to 5.40% in the previous fiscal year. The ratio was 5.34% in FY2013-14.
Although private investment declined significantly, public investment as a share of GDP rose to 7.6% in 2015-16 from 6.82% the year before.
But Golam Moazzem said the budget, which strongly focuses on mega projects that will not likely be completed this year, would not attract private investment.
Former commerce minister Amir Khosru Mahmud Chowdhury questioned the cost and time overruns which seemed to plague the big ticket projects.
“The cost of the Padma Bridge was initially $3 billion. Now it has gone up to around $7 billion and will eventually stand at $9 billion,” he said.
“The cost of a four-lane road is Tk13 crore in China, Tk11 crore in India but in Bangladesh the government has shown the cost to be Tk54 crore,” he added.
The CPD analysis showed that of the 233 projects completed in FY2013-14, only 14.2% projects were completed on time and within budget, the lowest level since FY2000-01.
About half of the completed projects experienced time overruns, the highest number since FY2000-01. These time overruns led to a 51% increase in average cost of completed projects, the highest in eight years, according to the analysis.
Meanwhile, a slump in credit demand has caused excess liquidity in the banking sector.
Mohammed Nurul Amin, managing director of Meghna Bank said lower government borrowing from the banking system had contributed to excess liquidity.
He said continuing political uncertainty would dampen investment.