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Dhaka Tribune

WB keeps Bangladesh GDP forecast at 5.2% in FY23

Reforms in trade, financial sector have the potential to accelerate growth, the World Bank says


Update : 05 Apr 2023, 02:38 PM

As forecast in January, the World Bank (WB) reiterated their GDP forecast for Bangladesh at 5.2% in FY23 but said it will grow to 6.2% in FY24 given global economic conditions improve. 

Rising inflation, tighter financial conditions, disruptive import restrictions, and global economic uncertainty are also expected to slow real GDP growth, as stated by the Washington-based lender.

The World Bank released in their latest report released on Tuesday, "Bangladesh Development Update April 2023," stated that growth in Bangladesh is expected to accelerate over the medium term as inflationary pressures ease, external conditions improve and reform implementation gains traction.

Bangladesh's economy faces new challenges in the context of high global economic uncertainty, rising inflationary pressure, energy shortages, and revenue shortfalls. Accelerating trade and financial reform and implementation can help sustain growth, according to the World Bank's bi-annual report.

Negative risks include declining demand in Bangladesh's major export markets and unresolved financial sector weaknesses.

At the event, Abdoulaye Seck, World Bank's country director for Bangladesh and Bhutan in his introductory speech said that Russia's invasion of Ukraine and global uncertainty have impacted countries around the globe.   

“Bangladesh's post-pandemic recovery has been disrupted by elevated commodity prices, rising interest rates, and slowing global growth. 

The World Bank stands ready to support Bangladesh with reforms to accelerate growth and strengthen resilience,” he also added. 

Bernard Haven, senior economist at the World bank and co-author of the report presents the keynote presentation of the report.

He said the ready-made garments sector accounts for about 83% of Bangladesh's exports. The Covid-19 pandemic underscored the risk of overreliance on a single sector.

He went on to suggest that diversifying exports and enhancing competitiveness will assist Bangladesh in reaching upper-middle income status by 2031. 

Bangladesh will need to remove both tariff and non-tariff barriers to achieve this. A comprehensive reform agenda, particularly with South and Southeast Asia, can deepen regional integration.

The report also stated that the fiscal deficit is expected to widen in FY23 as subsidy expenditures rise, moderating over the medium term.

The fiscal deficit is projected to rise to 4.4% of GDP FY23, narrowing over the medium term. The deficit widened, although Bangladesh remains at a low risk of debt distress. 

On the other hand, total revenues are expected to remain at 8.5% of GDP in FY23.

According to the study, the Balance of Payments (BoP) deficit reached $5.3 billion in FY22 due to an increase in imports and a decrease in remittance inflows. While imports fell in the first half of FY23, the BoP deficit increased to $ 7.2 billion as trade credit shrunk sharply and medium- and long-term borrowing fell, contributing to a financial account deficit.

It also demonstrates that a complex multiple-currency framework has warped market incentives.

The BoP deficit worsened, putting strain on foreign exchange reserves in FY22. 

A multiple currency rate system implemented in September 2022 has demotivated exports and formal remittance inflows while contributing to economic uncertainty and aggravating BoP pressure.

Monetary policy was tightened, while financial sector vulnerabilities deepened. 

Monetary policy became more accommodative near the end of FY22 and in the early half of FY23. Yet, a lending rate cap hampered the transmission of increased policy rates.

Limited liquidity and tight net interest margins hampered private-sector loan expansion. With an increase in non-performing loans, poor capital buffers and bank governance issues, financial sector vulnerabilities have grown.

Bangladesh Development Update, on the other hand, is a companion article to the South Asia Economic Focus, a bi-annual World Bank report that analyzes economic developments and prospects in the South Asia area as well as policy problems faced by governments.


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