To sustain the robust growth, reforms in various areas are required including strengthening of the banking sector, says the regional lender
The Asian Development Bank (ADB) has dubbed Bangladesh as the fastest growing economy in the Asia-Pacific region, while forecasting an 8% gross domestic product (GDP) growth for the current fiscal year based on the continuing positive trend in exports and public investments.
However, the Bangladesh Bureau of Statistics (BBS) estimates an 8.13% GDP growth for FY2019-20.
The Manila-based regional lender came up with the forecast in its flagship economic report, titled “Asian Development Outlook 2019,” released on Wednesday.
ADB Country Director for Bangladesh Manmohan Parkash unveiled the report, highlighting various economic aspects of Bangladesh, at a media briefing at the bank’s Dhaka office.
GDP growth is expected to edge up to 8% in the FY2019 on robust private consumption aided by continued recovery, while growth in FY2020 is expected to remain solid at 8% as momentum from the previous year broadly continues, according to ADB’s forecast.
On the supply side, further expansion in industry is expected to drive growth in the FY2019 as export growth accelerates, it added.
ADB says strong private consumption buoyed by a recovery in remittances and public investment contributed in the robust GDP growth, reflecting substantial progress in implementing large infrastructure projects, notably the Padma Bridge and Dhaka’s metro rail project.
The bank’s Senior Economist in Dhaka Soon Chan Hong said: “Strong economic performance is expected to continue in the short-term. To sustain the robust growth, reforms in various areas are required including strengthening of the banking sector.”
Fastest growing economy in Asia
According to ADB, Bangladesh is also expected to post higher GDP growth in the current fiscal year compared to other Asian countries.
For the FY2019, ADB forecasts 7.2% GDP growth for India; 3.9% for Pakistan; 6.8% for Vietnam; 3.9% for Thailand; 4.5% for Malaysia; 6.6% for Myanmar; 2.5% for Hong Kong; 6.2% for Nepal; and 3.6% for Sri Lanka.
The report also forecasts that growth in the region will soften to 5.7% in 2019 and 5.6% in 2020. Developing Asia’s growth in 2018 was 5.9%.
Public-private investment to grow
ADB also forecasts that public investment will remain strong as Bangladesh government continues to expedite the implementation of large infrastructure projects and other large projects with overseas support.
Private investment is expected to rise too, supported by measures to increase private sector credit, reform initiatives to improve the ease of doing business, and plans to make several hundred industrial plots available in special economic zones.
According to BBS data, in FY2017-18, investment to GDP ratio was 31.23% — of which 7.97% was from public investment and 23.26% from private sector investment.
However, for the current fiscal, the government forecasts that the investment to GDP ratio will stand at 31.57% — of which 8.17% will come from public investment and 23.40% from private sector investment.
Recipe to sustain the growth
In retaining the growth momentum, ADB has suggested bringing reforms to the banking sector, which is going through a crucial time due to the huge burden of Non-Performing Loans (NPLs).
Manmohan Parkash said: “To sustain this momentum in the medium to long-term, Bangladesh requires expanded industrial base, diversified export basket, improved business environment for vibrant private sector development, expanded tax base, better revenue collection for increased resource allocation, and human capital development.
He added that continued focus on prudent macroeconomic policies, sound debt management, strengthening the banking sector, removing infrastructure constraints and reducing the cost of doing business were important to achieve the long-term development vision.
Further, to sustain higher investment and growth, the banking system requires strengthening reforms such as enforcing stronger regulations, introducing a bankruptcy law, corporatizing SCBs, applying a uniform guideline for writing off loans, said the ADB report.
Further, to improve governance, appointment to SCB boards of directors can be limited to competent professionals who possess operational knowledge of banking and finance, avoiding political appointments.
Moreover, SCB management should be given full operational independence, but both the board and management should remain accountable to the central bank.
Export to remain robust
ADB also forecasts a better and sustained export growth, which is expected to be buoyed by the trade war between US and China.
“Despite a weaker growth outlook in key exports markets, earnings from apparel exports are expected higher as new destinations strengthen,” the development outlook says.
Tariff tensions between China and the US make Bangladesh an attractive alternative source of manufactures, it added.
Consequently, the trade deficit will narrow as growth in exports outpaces imports.
Besides, inflation is expected to ease from 5.8% last year to an average of 5.5% in the FY2019, contained by a good harvest and lower global food and oil prices.
Year-on-year inflation declined to 5.5% in February 2019 from 5.7% a year before.
Inflation is projected to edge up to 5.8% in FY2020 on account of likely further upward adjustments in gas and electricity prices, and currency depreciation.