ADB trims GDP growth for Bangladesh to 6.8%

The Asian Development Bank has trimmed the economic expansion forecast for Bangladesh to 6.8 per cent for FY22, which was projected at 7.2 per cent in its April outlook. The ADB made the projection in its latest Asian Development Outlook (ADO) 2021 update, released on Wednesday.

For FY22, the government set 7.2 per cent GDP growth, while in FY21 it estimated a 5.47 per cent for the FY20.

“GDP growth is projected at 6.8 per cent in FY2022, revised down from the 7.2% forecast in ADO 2021 because containment measures were needed to bring down high infection rates that lingered on in the first months of the year,” the ADO 2021 report said.

“With continued robust growth expected in major country destinations, export earnings should reach pre-pandemic levels. Remittances are also expected to remain strong, firming up private consumption,” the report added.

It also said that improving consumer confidence and government stimulus measures will help boost the country’s private and public investment.

Inflation is expected to slightly edge up to 5.8 per cent and the current account deficit to narrow to 0.6 per cent of GDP in FY 2021-22, the report added.

In line with the forecast, Bangladesh’s exports are expected to expand by 8 per cent in FY2022 on continued robust growth expected in major export destinations.

“Export industries will be aided by flexibility in implementing containment measures, improving incentives for export-oriented activities, and measures taken to improve the business climate,” it added.

Moreover, the potential trade diversion from other countries facing increasing labor costs or political instability could benefit Bangladesh positively, said ADB.

On the other hand, imports are expected to grow by 5 per cent from a high base as the readymade garment industry continues robust growth, its substantial input requirements will expand.

On the supply side, agriculture growth is projected to edge up to 3.7 per cent in FY2022, driven by budget priority given to agriculture for subsidies on seeds, fertilizer, irrigation, and farm mechanization, the Asian lender projected.

With improved external demand and stronger public and private investment, industry is expected to grow by 9.5 per cent. Services will expand by 5.8 per cent on strengthening in agriculture and industry, it added.

Growth in FY 2021-22, however, is still expected to remain below pre-pandemic levels, it said.

The main risk for Bangladesh or major advanced economies, ADB says, has been the re-escalation of coronavirus disease (Covid-19) infection rates, which may reduce domestic and external demand.

“The government’s policies for saving lives while protecting livelihoods underpinned the recovery process in Bangladesh, making it one of the few countries in the world sustaining commendable economic growth in recent difficult times,” said ADB Country Director Manmohan Parkash in a statement.

“Prudent macroeconomic management and efficient implementation of stimulus measures and social protection programs have helped. Continued efforts for job creation, quick vaccination, and improving domestic resource mobilisation will further accelerate the recovery process,” he added.

Parkash appreciated recent government initiatives in the areas of financial inclusion, and expanding social protection, and added that “sustained reforms to increase business competitiveness, foreign investment, export diversification, skills development, and technology adoption will stimulate private sector investments and hasten economic recovery.”

Meanwhile, economist opined that only exports and remittance were not enough to attain the projected GDP growth.

“A 6.8 per cent GDP growth forecast indicates a strong recovery in the economic activities. In the FY21, the government has estimated 5.47 per cent GDP growth, which is also an ambitious one,” Zahid Hussain, former lead economist of World Bank Bangladesh, told The Business Post.

In the ADB’s projection, there is no clear explanation how a 6.8 per cent GDP growth would be attained. Exports and remittance inflows during July-August is not satisfactory, said Zahid.

“Expecting a 6.8 per cent GDP growth only based on the exports and remittance is not realistic one.”

To attain the growth, the government has to focus on increasing investment and stimulating the domestic demands. In doing so, the government will have to improve business climate as well as create employment opportunity, said the economist.

The ADO 2021 report also mentioned that the Bangladesh Bank’s expansionary and accommodative monetary policy is expected to support the projected growth while keeping inflation contained. Strong remittances will stimulate private consumption.

It, however, said that continued implementation of the increased fiscal and monetary stimulus measures is likely to create inflationary pressures.

A good crop outlook, consumer caution and underutilised production capacity should mitigate any upward pressure on prices, it noted.

Domestic administered prices for fuel may cushion the impact of increased crude oil prices, said the report.

ADB has reoriented its programme priorities in Bangladesh emphasising health and social protection, skills and rural development, water and sanitation, and the finance sector since the onset of the Covid-19 pandemic in early 2020.