A World Bank report also projected a 7.3% GDP growth for FY2019
Bangladesh is among the five fastest-growing economies of the world, despite insufficient private sector investment, with a 7.3% GDP growth projection in the FY2019, the World Bank said yesterday.
As per the projection of the global lender, Bangladesh is the fifth in the rank of fastest growing economies after Ethiopia, Rwanda, Bhutan, and India respectively. Bangladesh shares the position with Djibouti, Ivory Coast and Ghana.
Ethiopia’s GDP is projected to grow by 8.8%, Rwanda 7.8%, Bhutan 7.6% and India 7.5%.
The World Bank announced this ranking in its report titled “The Bangladesh Development Update April 2019: Towards Regulatory Predictability,” published yesterday in Dhaka.
For this rapid growth, the global lender has given credit to the manufacturing industry as well as domestic demand.
“Driven by industry, Bangladesh’s economy continues to grow at an impressive rate. Bangladesh is among the five fastest growing economies of the world, in spite of insufficient private sector investment,” said the World Bank report.
Bangladesh’s growth outlook remains strong and stable. Sound macroeconomic policies – such as keeping the budget deficit below 5% of GDP – and resilient domestic demand have led to growth in manufacturing and construction industries on the supply side. On the demand side, growth is led by private consumption and exports, it added.
“In addition, the country has substantially improved its electricity generation and a bumper agricultural harvest has further stimulated growth.
“Bangladesh continues to be one of the fastest growing economies in the world. Robust growth in industrial and service sectors, supported by higher public and private consumption, have boosted growth,” said World Bank Bangladesh Country Director Robert J Saum.
After a modest performance in FY18, export earning so far this year from ready-made garments expanded by double digits, and non-garment exports also bounced back, said Saum.
‘Many risks to sustaining growth’
Bangladesh economy continues to be among the fastest growing economies in the world due to stable macro and export-oriented industry-led growth, the World Bank report said.
To sustain this progress, the country needs continuity in priority reform areas: financial sector, fiscal, infrastructure, human capital and business regulation.
“For Bangladesh, our projection is that it will be able to maintain over 7% GDP growth in the short-mid-term. But there are risk factors from both external and internal sources,” said World Bank Bangladesh Lead Economist Zahid Hussain.
The biggest internal risk is in the banking sector, which is ridden with Non-performing Loans (NPLs). Another risk is a shortfall in revenue mobilization, which hinders the implementation of the development budget.
“But there is strong growth,” said Zahid.
To make economic growth sustainable, Bangladesh has to maintain continuity in reforms, especially in the banking sector. Sustainability in the country’s macroeconomy is most important, said the economist.
To this end, the government has to concentrate on bringing stability to the financial sector and increasing price competitiveness in the global market, he added.
In order to become an upper middle-income country by 2031 and achieve high-income country status by 2041, Bangladesh will require huge investments in physical capital, human capital, and innovation enabled by reforms in areas such as financial sector, business regulation, and to address the infrastructure gap.
Private sector investment remains slow
In the development update, the World Bank has noted that private sector investments in Bangladesh remain weak.
Private investment to GDP rate increased a little bit but the investment is not up to the satisfactory level. While Foreign Direct Investment (FDI) to GDP is less than its competing countries, said Zahid.
As of now, FDI remains low at less than 1% of GDP. Net FDI inflow amounted to $910 million in the first half of FY19, compared with $823 million in the first half of FY18.
Initiatives are needed to address several challenges, particularly in boosting private sector investment and diversifying exports. Domestic revenue mobilization is well behind the target so far this year, said WB Country Director Saum.
Concerns over the rise of NPLs
In the development update, the WB expressed concern over the rise of non-performing loans (NPLs).
Directed lending, poor risk management, and weak corporate governance lead to the rise in NPLs. The practice of loan rescheduling and write-offs also increased, creating further stress on banks, said the World Bank report.
To bring stability and discipline to the financial sector, Bangladesh has to ensure Bangladesh Bank’s autonomy on regulation, integrate risk-based supervision in the central bank’s supervisory framework, tighten rescheduling guidelines and stop ad-hoc rescheduling, said Zahid.
Lack of regulatory predictability hits medium enterprise
Businesses face regulatory uncertainty on various fronts, which is an issue that needs proper attention as the investment decision depends on the regulatory predictability.
Regulatory predictability matters because it makes property rights insecure, thereby constraining investment. This leads to uncertainty for businesses – medium-size firms seem to bear the brunt more than large or small firms – and with inconsistencies in policy implementation, it can adversely affect employment growth, said the World Bank report.
As highlighted in the report, sustaining rapid economic growth to meet Bangladesh’s development aspirations will require significant reform efforts including increasing the predictability of regulations, said Saum.
In a report released on Wednesday, the Asian Development Bank dubbed Bangladesh 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 estimates an 8.13% GDP growth for the FY2019-20.