Economic growth in Bangladesh is set to decelerate during the current fiscal year due to the weakening external demand and domestic supply constraints, says the World Bank.
In its latest global economic outlook released on Thursday, it said Bangladesh’s GDP growth for the FY 2012-13 is not expected to exceed 5.8%, an estimate it made earlier. The projection was much lower than the government’s estimate between 6.3% and 6.8%, but close to the Asian Development Bank’s estimate of 5.7%.
It said the government expenditure is expected to rise due to the elections this year. “That will add to inflation,” it said.
It fears that if a different party comes to power, it might not go ahead with the reforms initiated by the present government.
The Washington-based global lender said, “But growth is projected to pick up modestly to 6.1% in next fiscal year and 6.3% in FY2014- 15, as external demand strengthens gradually, and agricultural output returns to more normal levels.”
In sharp contrast, Finance Minister AMA Muhith has aimed for a target of 7.2% GDP growth for the next fiscal year beginning from July.
Global Economic Prospect: South Asia regional forecast (annual percent change unless indicated otherwise) | Infographics
“Several domestic weaknesses, including infrastructure gaps (electricity, roads) and social unrest are expected to hold back a firmer recovery,” said the WB report.
The similar factor also dragged down the GDP growth to 6.2% in FY2011-12 from 6.7% the previous fiscal year, it said. They however gave credit to the government for Bangladesh’s relatively fast growth during 2010-12, together with international commodity price increases and termed the expansionary macroeconomic policies to be outstanding.
Although exports declined in 2012 in line with the regional trend, imports fell even faster—in part due to a 10% depreciation of the taka relative to the US dollar, compared with the previous year—causing its trade deficit to narrow during the 2012 calendar year, it said.
It said GDP growth in Bangladesh has been around 6% or higher in recent years and its exports have benefited in part from preferential access to European Union and US markets, while domestic demand and its current account position were partly cushioned by remittances.
Remittances to the South Asian region are estimated to have increased by 12.3% in 2012 (the second-highest growth among developing regions) to reach $109bn. This follows growth averaging 14% in the previous two years.
“Robust remittance inflows bolstered current account positions in Bangladesh like Nepal and Pakistan.”
About exports the report said Bangladesh’s export volume growth accelerated as a result of strengthening demand for its garment exports. “However, recent accidents in RMG factory have raised labour safety issues which might affect garment exports.”
“Reforms to subsidy regimes have involved introducing more frequent adjustments to administered fuel and electricity prices, and measures to improve targeting of government benefits to the poorest beneficiaries,” it said.
Fuel and food subsidies typically account for the bulk of subsidies, with subsidies over 3.5% of GDP in Bangladesh.
The momentum of CPI inflation remains strong in Bangladesh—although moderating slightly—suggesting that price pressures continue to remain high.
The report shows that industrial production rose 21.3% after January. Because of the GSP in European Union and the US, the export of Bangladesh increased. On the other hand, a healthy flow of remittance helped achieve a positive balance of payments.
The World Bank forecast put the growth of global economy at 2.2% this year, 3% in 2014 and 3.3% in 2015. For South Asian countries, the growth in 2013 will be 5.2%, it will be 6% in 2014 and 6.4% in 2015.
Owing to a fall in India's GDP growth, slow growth in Bangladesh and Sri Lanka, and the stagnation in growth for Pakistan and Nepal, the growth dipped to 4.8 percent in 2012, the report said. However, with increases in internal demand and a momentum in investment, growth will rise in the coming years.