Bangladesh requires increasing private investment to attain higher and sustainable economic growth, said Asian Development Bank yesterday.
Investment should rise 37.6% of gross domestic product from the current 28.7% if 8% GDP growth is targeted, said the lender in its quarterly economic update on Bangladesh.
The Manila-based anti-poverty bank blamed lower than expected level of investment as principal reason for growth deficit in Bangladesh.
In the budget this fiscal, the government has set 7.3% growth target.
ADB said to achieve the target, the country will need to increase total investment to 34.3% of GDP, around 6 percentage points higher than the current level (28.7%).
For faster poverty reduction, it suggested Bangladesh needs to lift its annual GDP growth rate to about 8% in the medium term. But it needs more investment.
From FY2011 to FY2014, the Bangladesh economy grew at an average annual 6.3% rate compared with 7.1% average growth targeted for the first four years of the Sixth Five-Year Plan from FY2011 to FY2015.
GDP growth in FY2014 is provisionally estimated by Bangladesh Bureau of Statistics (BBS) at 6.1%, slightly up from 6.0% in FY2013.
“Higher growth in exports contributed to the higher GDP growth,” the bank said adding that public investment also rose offsetting the decline in private investment.
It said growth in private consumption was lower than in FY2013.
A decline in remittances, low private credit growth and weaker consumer confidence ahead of January 2014 elections contributed to lower growth in private consumption, it said.
The ADB said although public investment as a percentage of GDP rose in recent years, the quality of investment also needs to improve.
ADB study findings suggested Bangladesh’s GDP growth during the past two decades was mainly driven by capital stock growth, while the output gap between actual output and estimated potential output remained small.
“This implies further acceleration in GDP growth will require expansion of the economy’s productive capacity by raising capital stock, improving labour skills, and lifting total factor productivity growth through deepening policy and institutional reforms.”
On cost of doing business it said Bangladesh needs to make major progress in cutting the costs of doing business.
“Strong efforts are needed in the areas of enhancing access to electricity and credit, reducing the burden of paying taxes, registering property and enforcing contracts, improving the trading environment, improving law and order, and strengthening public sector management,” it said.
To increase the economy’s external competitiveness, the bank said Bangladesh needs to raise the overall quality of the country’s infrastructure, including roads, ports, railways, electricity supply, and water supply and sanitation.
At 9.6% of GDP in FY2014, Bangladesh’s tax–GDP ratio is low compared with other countries in South Asia, and also lower than that of developing countries, it said.
The lender praised Bangladesh for “some progress in reforming tax systems,” with advice for further reforms to simplify tax laws and collection procedures.
ADB put emphasis on public-private partnerships (PPP), saying large financing for infrastructural investment, significant private sector participation including through PPP will be needed.
It also said financial soundness indicators for the banking system show slightly better performance as the ratio of gross nonperforming loans (NPLs) to indicators slightly improved.
Total loans in the banking system fell to 10.5% at the end of March 2014 from 11.9% at the end of March 2013.
Earnings from remittance inflows declined by 8.5% in the first half of FY2014, but rose by 5.6% in the second half.
Given the trends during the second half of FY2014, remittance inflows are likely to grow in FY2015, the bank said.
ADB also termed the country’s macroeconomic management prudent.
It said a cautious monetary policy together with a supportive fiscal policy contributed to slowing down inflation, with a more rapid deceleration in nonfood inflation.
