Asian Development Bank (ADB) forecasts Bangladesh's economy is poised for improved performance in the current fiscal year compared to FY23 in their report “Asian Development Outlook (ADO) September 2023”.
It is forecasted that the economy of Bangladesh is expected to grow slightly faster in FY2024 with easing inflation and some improvement in export growth.
GDP growth projection in FY2024 is retained at 6.5%, higher than 6.0% in FY2023, due to continued export growth supported by economic recovery in the EU.
This positive outlook is characterized by an anticipated increase in Gross Domestic Product (GDP) growth and a notable reduction in the inflation rate, which has been a major concern during the ongoing FY24.
Remittances and exports increase will give a fresh wind to the dollar flow. Apart from this, positive growth can be seen in the agriculture and industry sectors as well.
However, it's important to note that there are some potential downsides to this growth trajectory.
The expansion in imports is projected to widen the trade deficit. Additionally, there is a significant decrease expected in the growth of the service sector compared to the previous year..
The report states that moderate inflation and an increase in remittances will contribute to reviving private consumption, while the completion of a number of major government infrastructure projects will increase investment.
Private investment, however, may be dampened by the initial higher interest rates following the enhancement in the country’s monetary policy framework.
Inflation is expected to ease from 9.0% in FY2023 to 6.6% in FY2024 with some fall in global non-fuel commodity prices, expected higher agricultural production, and the initial tightening of monetary policy under the new framework.
Report analysis shows that; export growth is projected to slightly accelerate to 9.0% in FY2024. Improved electricity and energy supply and a fully market-oriented exchange rate are expected to support higher growth, especially for non-garment exports, which sharply declined in FY2023.
Imports are expected to rebound and grow at 7.0% with an increase in import demand for intermediates and capital goods.
The trade deficit is forecast to slightly widen to $17.3 billion in FY2024 as the increase in imports surpasses that of exports in nominal terms.
Remittance growth will accelerate to 8.4% as a market-driven exchange rate and cash incentives are expected to encourage increased transfer through official channels.
With increased remittances, the current account deficit is forecast to narrow slightly to 0.5% of GDP in FY2024.
ADB Country Director Edimon Ginting said that the government is managing relatively well against external economic uncertainties while advancing infrastructure development and critical reforms to improve the investment climate.
These key structural reforms include strengthening public financial management, enhancing domestic resource mobilization, improving logistics, and deepening the financial sector, which is critical for private sector development, export diversification and productive job creation in the medium term, he said.
ADB’s report also states that on the supply side, the industry is expected to contribute most to growth.
Agriculture sector growth is projected to increase to 2.9% in FY2024 assuming normal weather and government policy support including distribution of quality seed, fertilizers, and training to farmers.
Growth in the industry sector is expected to rise to 9.3% in FY2024, driven by improvement in power supply and better access to imports.
However, growth in the service sector is expected to be slower at 5.5%, with expected lower growth in real estate and human health and social work activities.
ADB also highlighted the FY2024 budget as ambitious. Its belief is that monetary policy is expected to be tightened in FY2024. And loans to cottage, micro, small, and medium-sized enterprises, and consumers could be charged an additional fee of up to 1 percentage point on top of the above margin to cover supervision costs.
On a positive note, ADB hopes that the new tax law will help enhance domestic resource mobilization by ensuring tax compliance, greater tax return filing under self-assessment, better return process and audit provisions, and international standardization.
In conclusion, the report stated that there are some downside risks to growth. These include the effects of any adverse weather events and further deterioration in the balance of payments situation if global demand is weaker than expected.
