The World Bank has cut Bangladesh’s gross domestic product (GDP) growth from 5.7 per cent to 4 per cent for the current financial year, due to significant uncertainties around the political and economic outlook following recent political turmoil.
This latest forecast came out in a latest report titled “World Bank South Asia Development Update” published on Thursday. Back in April this year, the global lender had predicted 5.7 per cent GDP growth for Bangladesh against 6.75 per cent government target in FY25 budget.
The report read, “The GDP (gross domestic product) growth of Bangladesh is expected to slow down from 5.2 per cent in FY24 to within the range of 3.2 per cent – 5.2 per cent in FY25, with a mid-point of 4.0 per cent.
“The wide range of the growth projection reflects the lack of available or reliable data in recent months, and significant uncertainties around the political and economic outlook following the recent political turmoil.”
In the short term, political uncertainties are expected to keep investment and industrial growth subdued. Recent floods are expected to set back agricultural production modestly.
In the medium to long term, growth is expected to pick up gradually, benefiting from critical reforms in the financial sector, increased domestic resource mobilisation, improved business climate, and increased trade, the report mentioned.
Meanwhile the Asian Development Bank (ADB) has slashed its economic growth forecast for Bangladesh to 5.1 per cent for FY25, citing political unrest, supply chain disruptions, and recent severe floods in parts of the country.
This marks a significant downgrade from the 6.6 per cent growth the Manila-based lender had projected earlier in April this year. The latest forecast published in its “Asian Development Outlook (ADO) September 2024.”
Besides, the Bangladesh Bank believes that the country’s GDP (gross domestic product) growth for FY25 may witness a decline due to the July-August uprising, floods, and implementation of reform agendas.
Inflation and financial sector
The World Bank stated that headline inflation has fallen to within or below target ranges in most inflation-targeting countries in South Asia, the exception being Bangladesh.
Food price inflation continues to account for half or more of consumer price inflation in most countries in the region. Inflation has remained elevated and above Bangladesh Bank’s target since June 2022.
Headline inflation averaged 9.7 per cent in FY24, driven by a steady depreciation of the currency and increases in domestic prices of gas, electricity, and fuel. For the current financial year, the government has set a 6.5 per cent inflation rate.
Headline inflation surged to 11.7 per cent in July 2024 due to supply chain disruptions and political tensions. However it brought down to 10.49 per cent in August and 9.92 per cent in September.
In response to inflationary pressures, the monetary policy rate has been increased by 2.5 percentage points since July 2023, to 9 per cent in August 2024; however, the rate remains well below inflation, said the report.
But recently the Bangladesh Bank increased the policy rate further to 9.5 per cent. In this context World Bank said, in Bangladesh, despite further increases in the nominal policy rate, persistently high inflation has kept real (net of actual inflation) policy rates negative.
About the banking sector the global lender said, for the banking system as a whole, the nonperforming loan ratio has been about 10 per cent since the first quarter of 2023.
For state owned banks, however, the ratio rose to 27 per cent in June 2024, signaling persistent challenges in the financial sector and among borrowers.
Growth of credit to the private sector has been below the pre-pandemic average (2015– 19). Financial conditions tightened during the social unrest in July and August and remain tight amid heightened uncertainty.
Female labour force
The subtitle of the latest development report is “Women, Jobs, and Growth,” with a recommendation to increase the women labour force.
The World Bank said, female labor force participation in South Asia is among the lowest in the world. For all South Asian countries except Bhutan, female labor force participation rates in 2023 were 5 to 25 percentage points lower than in countries at similar levels of development.
This shortfall in the female labor force is most pronounced after marriage. On average, once married, women in South Asia reduce their participation in the workforce by 12 percentage points, even before they have children.
World Bank Chief Economist for South Asia Franziska Ohnsorge said, “South Asia’s female labour force participation rate of 32 per cent is well below the 54 percent average in emerging markets and developing economies.
“Increasing women’s employment requires action from all stakeholders. Our report recommends a multi-pronged effort where governments, the private sector, communities and households all have a role to play.”
