International Monetary Fund foresees an accelerated economic growth of the low income countries (LICs) like Bangladesh.
It, however, warned that decline in many commodity prices and more modest growth prospects in emerging markets, coupled with low growth in advanced economies, might challenge the ability of the LICs to sustain strong growth.
“The LICs is expected to remain broadly robust, despite rising vulnerabilities associated with high fiscal and current account deficits in some countries,” said IMF in its latest World Economic Outlook.
The world economy would grow at 3.8% next year, compared to a July forecast for 4%, after a 3.3% expansion this year.
The World Bank in its latest economic update projected Bangladesh to grow at 6.2% and Asian Development Bank sees it to be 6.4% the for fiscal year 2014-15. The government, however, targets 7.3% growth for the current fiscal year.
Given their relatively limited exposure to global financial markets, the LICs were less affected by last year’s tightening in financial conditions and are expected to benefit from stronger global and regional growth via stronger trade, remittances, and tourism, the report said.
“The projections imply a robust outlook for low-income developing countries, with growth projected to exceed 6% in both 2014 and 2015,” it said about recent developments and prospects of those economies.
The IMF said stronger growth in advanced economies will buoy low-income developing countries’ net external demand, although the projected easing in non-fuel commodity prices will induce some deterioration in the terms of trade for the net exporters of commodities. “Domestic demand is expected to remain resilient as in recent years.”
Emerging and developing Asia comprises Bangladesh, Bhutan, Brunei Darussalam, Cambodia, Fiji, Kiribati, Lao P.D.R., Maldives, Marshall Islands, Micronesia, Mongolia, Myanmar, Nepal, Palau, Papua New Guinea, Samoa, Solomon Islands, Sri Lanka, Timor-Leste, Tonga, Tuvalu, and Vanuatu.
The report, however, expects the small states of the pacific will continue to underperform as a result of infrastructure gaps and competitiveness issues.
It said growth rates for many low-income countries have been high for a number of years, supported by better macroeconomic policies, more favorable business and investment regimes leveraging increased interest from foreign investors, and in a number of cases strong terms of trade.
It said but vulnerabilities remain. Overall, LICs progress in achieving the Millennium Development Goals has been uneven and slow, it said. For a few of these countries, the IMF said, the recent widening of fiscal deficits and higher debt levels reflect a shift in public spending away from essential investment – social priorities and infrastructure – toward higher current spending.
With increased access to non-official foreign finance, non-residents are holding larger amounts of both foreign-currency and local-currency debt, making some countries – particularly those with domestic policy weaknesses – vulnerable to shifts in market sentiment and reversal of capital flows, it said.
In this context, and with growth still vigorous, strengthening policies and reducing vulnerability to external shocks is paramount. This would mean, for many of these countries, boosting fiscal positions with stronger revenues (including by increasing the revenue base), as well as limiting current public spending and rationalising it toward more social and education spending.
IMF recommends strengthening fiscal frameworks to foster medium-term planning and preserve debt sustainability, as well as deepening structural transformation and diversification.
Building greater monetary policy independence and strengthening the monetary policy framework and credibility would also allow exchange rates to become more flexible to adjust to external shocks and limit their potential adverse effects on the economy, it said.
