World Bank has forecast Bangladesh economy will grow more than 6% in the current fiscal year if the political stability following January 2014 election continues.
Their outlook published yesterday when the country already struggling with political unrest that started from the very beginning of 2015.
The World Bank warned the current political unrest, if prolonged, might dent the growth prospect.
In its bi-annual Global Economic Prospect report released yesterday, the lender predicated the country’s economic growth of 6.2% for this fiscal, higher from its June forecast of 5.9% and much lower than the government projection of 7.3%.
In October, the Bank in its Bangladesh Development Update also projected the same economic growth thanks to strong domestic demand, a revival in private investment and remittance flow.
The WB Bangladesh’s lead economist Zahid Hussain told Dhaka Tribune that the economic growth was projected assuming that relatively stability in political field, improvement in remittance inflow and private investment seen in 2014 will sustain.
“We also predicated that there was political risk, as 2014 did not see any political unrest but there was uncertainty,” he said.
“Now if political unrest prolongs, growth projection for this year will be challenging.”
Hussain said Bangladesh economic growth what hovered around 6% over the past several years despite many odds due to its economic resilience.
“But if the political unrest what we have seen in 2013 is back again, its economic resilience will gradually weaken.”
In Bangladesh, growth will be supported by continued robust remittances and recovery in private consumption demand if political stability is sustained in 2015, said the global lender.
It said the activity in Bangladesh began to normalise in 2014 as social unrest abated from a spike in the run-up to national elections in January 2014.
With the government spending offsetting softness in private demand, the economy is estimated to have grown by 6.1% in last fiscal, ostensibly because increased agriculture and service sectors growth outweighed the decrease in industrial growth, it said.
In Bangladesh, exports are projected to improve after transition to better enforcement of factory safety standards and working conditions, the report said.
However, the Bank warned that wage pressures in the absence of productivity gains could erode its competitiveness.
The sustained remittance inflows in 2014—which are a sizable share of GDP in several countries—helped offset large trade deficits in Bangladesh, it said.
In Bangladesh the share of manufacturing in GDP has gradually increased, reflecting the impact of a programme of reforms (notably investments in human capital), began over a decade ago, which have enabled a successful integration into global supply chains, the lender said.
It said soft oil prices will also raise real incomes and support consumption and help ease current account pressures across a region of energy importers.
Meanwhile, the region’s smallest economies will be lifted by strengthening growth in India, which provides official financing flows to Afghanistan, Bhutan and Maldives, remittances to Bangladesh and Nepal, and tourism to Maldives and Nepal, the report said.
“Supply-side bottlenecks continue to hold back growth in the baseline forecast, particularly in Bangladesh where economies are operating at close to capacity.”
With power generation unlikely to keep pace with growing demand in the region, it said, shortages are expected to persist in the near term, including in Bangladesh, India, Nepal, and Pakistan.
“In this uncertain economic environment, developing countries need to judiciously deploy their resources to support social programs with a laser-like focus on the poor and undertake structural reforms that invest in people,” said World Bank Group President Jim Yong Kim.
“It’s also critical for countries to remove any unnecessary roadblocks for private sector investment. The private sector is by far the greatest source of jobs and that can lift hundreds of millions of people out of poverty.”
Like other forecasters, the Bank predicted the roughly 60% drop in global oil prices since June of last year should be a net positive for the world economy, boosting oil-importing countries.
But while the Bank expected oil prices to stay low this year, it said the positive price shock could take several years to feed into its growth outlook, while increasing short-term market volatility and reducing investments in unconventional oil such as shale and deep sea oil.
The immediate impact of lower crude prices was limited to a 0.1 percentage point boost to the global outlook this year, it said.
“Lower oil prices will lead to sizable real income shifts from oil-exporting to oil-importing developing countries,” said Ayhan Kose, Director of Development Prospects at the Bank.
In its report, the bank said the growth in South Asia rose to an estimated 5.5% in 2014 from a 10-year low of 4.9% in 2013.
“The upturn was driven by India, the region’s largest economy, which emerged from two years of modest growth.
Regional growth is projected to rise to 6.8% by 2017, as reforms ease supply constraints in India, political tensions subside in Pakistan, remittances remain robust in Bangladesh and Nepal, and demand for the region’s exports firms, the report said.
