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The Asian Development Bank (ADB) has trimmed Bangladesh’s gross domestic product (GDP) growth projection to 5.3 per cent for FY23 from its previous forecast of 6.6 per cent.
The ABD lowered the forecast considering the external and internal economic shocks, soaring inflation, and slower export growth as well as the Russian invasion of Ukraine.
The regional lender made the projection in “Asian Development Outlook (ADO) April 2023”, released by ADB Country Director for Bangladesh Edimon Ginting at his office in Dhaka on Tuesday.
“Growth will slow markedly this year in line with worsening global economic conditions following the Russian invasion of Ukraine but will likely edge up next year on recovering growth in trade partners,” said the ADB report.
GDP growth is projected to slow to 5.3 per cent in FY2023 and then edge back up to 6.5 per cent in FY2024, it added.
Public investment will be affected by austerity measures that prioritise the implementation of large investment projects due to lower revenue and declining foreign exchange reserves. Private investment is expected to be lower because of energy shortages and higher production costs, said the regional lender.
Net exports will add to growth as imports decline under restrictions and importers struggle to open letters of credit, it added.
Inflation is expected to accelerate from 6.2 per cent in FY2022 to 8.7 per cent in FY2023 as price pressures increase due to the upward adjustment of domestic-administered prices for fuel oil, gas, and electricity, and higher global commodity prices, according to the report.
Key challenges to economy
The private investment growth will be lower because of energy shortages and higher production costs. With a shortfall in revenue collection, austerity measures, and depleting foreign exchange reserves, public investment growth will also be slower, according to the report.
This is also a high time for enhancing resilience against the global energy market volatility by creating an enabling environment for rapid expansion of domestic renewable energy supply to reduce dependence on fossil fuels in line with the country’s climate agenda.
Besides, as Bangladesh graduates from LDC status in 2026, both the advantages of low-cost labour and preferential market access may fade. Widening industry and academia collaboration can play a critical role to achieve LDC smoothly, the report says.
The fiscal deficit is expected to increase to 5.6 per cent of GDP in FY2023 due to a higher relative shortfall in revenue despite austerity measures curbing spending.
Positive signs in economy
The report says GDP growth is expected to edge up to 6.5 per cent in FY2024. This reflects stronger demand for ready-made garments in the US and Europe as growth recovers and domestic energy costs ease. The contribution from private consumption is expected to be buoyed by higher remittances as more workers go abroad for jobs. Private investment is expected to rise as consumer and investor confidence improves.
Growth in the industry is expected to accelerate with higher earnings from apparel and other exports in line with gradual improvement in global demand and continued government policy support. Accommodative monetary policy is expected to support economic activities while containing inflation.
Inflation is expected to moderate to 6.6 per cent in the fiscal year 2024 as global prices for oil and other commodities ease.
Bangladesh’s GDP growth will regain a better position in FY23 compared to Bhutan (4.6 per cent), Nepal (4.1 per cent), Pakistan (0.6 per cent), and Srilanka (-3.0 per cent).
But GDP of India will grow by 6.4 per cent and Maldives by 7.1 per cent in FY23.
Way forwards
The ADB country director said accelerating key reforms during this difficult time would help the country sustain higher growth in the medium term. These reforms include strengthening public financial management and domestic resource mobilisation, deepening the financial sector, and enhancing competitiveness to promote the creation of productive jobs in the private sector.
He hoped that the findings from this review could be used to design key reforms to facilitate improvement in the investment climate, particularly for Foreign Direct Investment (FDI), which remains at a low level compared to competitors.
“ADB will support the government in implementing necessary reforms to achieve the country’s goals in climate change mitigation and adaptation,” he also said.
In its 50-year partnership with Bangladesh, ADB has mobilised over $50 billion in loans and grants, including co-financing, to improve infrastructure and public services for the country’s people. ADB’s current sovereign portfolio in Bangladesh has 50 projects worth about $11.9 billion.
Edimon Ginting said, “Bangladesh has to reform trade policy for smooth LDC graduation. Besides, the logistics system should be strengthened to attract more investment in Bangladesh.”
“Bangladesh needs to focus on agro and other processing industries, pharmaceuticals, ICT, and human resource development in terms of export diversification,” he also said.
