The gross domestic product (GDP) growth of Bangladesh is expected to decelerate to 5.3% in 2023 amid global economic disruption caused by the Russia-Ukraine war, said the Asian Development Bank (ADB) on Tuesday.
The World Bank also on Tuesday projected Bangladesh's GDP to slow down to 5.2% in their “Bangladesh Development Update April 2023” report.
The government in December revised their own projections to 6.5% from 7.2% following a year of global economic turmoil from the Russia-Ukraine war.
ADB said lower consumption during high inflation and low investment caused by austerity measures will slow down growth in the 2022-2023 fiscal year (FY) in their latest report, “Asian Development Outlook, April 2023” at their Dhaka office on Tuesday.
However, GDP growth is expected to edge up to 6.5% in FY24, which reflects stronger demand for ready-made garments in the US and Europe as growth recovers and domestic energy costs ease.
ADB said that inflation is projected to sharply accelerate to 8.7% in FY23 due to substantial upward adjustments to domestic electricity and fuel prices, rising domestic food prices and pass-through from steep currency depreciation.
Moreover, inflation is expected to come down to 6.6% in FY24 as global prices for oil and other commodities ease.
The authorities have also taken steps to keep domestic food prices stable by boosting agricultural production.
Growth in industries is projected to decelerate to 7.5% because of energy shortages and high inflation.
Moreover, monetary policy continues to be focused toward austerity as the central bank increased its policy repo rate to 6% from January 2023 to restrain inflation, exchange rate pressures and reserve outflow.
To make policy more responsive, institutional changes aimed to establish a market-based, flexible and unified exchange rate regime by the end of FY23.
ADB also said that the slow global growth forecasted for 2023 will hit exports.
Since most export growth in FY22 occurred in the first half on a surge in global garment demand, slower export growth to date in FY23 reflects a marked weakening of income and demand in major export destinations.
On balance, export growth is projected to slow down to 6.8% in FY23 and then recover somewhat in FY24 to 8.2% as demand strengthens.
Imports are volatile in this trade-dependent economy and contracted by 2.2% in the first half of FY23, following a 54.5% expansion in the same period of FY22.
The current account deficit is projected to moderate to the equivalent of 1.6% of GDP in FY23 and is expected to narrow further to 1.2% in FY24.
Remittances are forecasted to increase by 4% to $21.9 billion in FY23 and then by 7.4% to $23.5 billion in FY24 under a fully market-oriented exchange rate.
ADB also stated that the government's fiscal targets in the FY23 budget may not be fully achieved.
Edimon Ginting, country director of the ADB made the opening remarks at the ADB event.
Responding to a question, he said that although the GDP growth in the current financial year is less than that of last year, the number is not bad for Bangladesh.
“The Bangladesh government has managed the recent adversity well. As a precautionary measure, the government has initiated reforms. Every reform has short-term pain, but there are gains in the long term.”
He also said as Bangladesh graduates from LDC status in 2026, both the advantages of low-cost labour and preferential market access may fade.
He said that the country will need further reforms to develop quality human capital by expanding public expenditure to match skills of higher education.
Moreover, widening industry and academic collaboration can play a critical role in such an effort.
ADB stated that Asia's outlook is brighter amid ongoing challenges due to the reopening of China.
The growth in the region is forecasted to be picked up from 4.2% in 2022 to 4.8% in both 2023 and 2024 and the inflation is forecasted to be 4.4% in 2022, 4.2% in 2023 and 3.3% in 2024.
