Home ›› 14 Apr 2022 ›› Front
Bangladesh’s public debt remains sustainable, so this country’s economy will not fall into a crisis similar to Sri Lanka, the World Bank said on Wednesday.
Hans Timmer, the agency’s Chief Economist for the South Asia Region, made the remark while discussing a report titled “Bangladesh Development Update – Recovery and Resilience amid Global Uncertainty.”
He added that Bangladesh’s foreign debt is only 17 per cent of its GDP, which is at a comfortable level, so Bangladesh is not in a position like Sri Lanka.
Meanwhile, World Bank-IMF Debt Sustainability Analysis (DSA) in March 2022 had assessed that Bangladesh remains at low risk of external and public debt distress.
The report added, “Bangladesh remains at a low risk of debt distress. Estimated public debt rose to 32.1 per cent of GDP in FY21, from 31.7 per cent in FY20. External debt amounted to 12.2 per cent of GDP, just over one-third of the total debt stock.
“External debt is predominantly owed to multilateral creditors, although their share in overall external debt has been declining in recent years with increased borrowing from bilateral creditors to finance large infrastructure projects.”
GDP forecast
In the medium term, Bangladesh’s GDP growth is expected to remain strong, hitting 6.2 per cent in FY22 and 6.7 per cent in FY23. The headline inflation rose to 6.2 per cent in February 2022, driven by a rise in both food and non-food prices.
In Bangladesh, a rebound of manufacturing and service sector activities led to strong growth in FY21 and in the first half of FY22.
“The war in Ukraine and associated sanctions may lead to a higher current account deficit and rising inflation as global commodity prices surge,” the report reads.
“Following a strong economic recovery from the pandemic, estimated poverty declined to 11.9 percent in FY21 from 12.5 percent in FY20, as per the international poverty rate,” said Mercy Tembon, World Bank Country Director for Bangladesh and Bhutan.
“Going forward, close monitoring of inflation and the potential impacts of the war in Ukraine will be important for the country’s sustainable and inclusive growth. The World Bank stands ready to help Bangladesh address structural reforms to support recovery and strengthen resilience to future shocks,” she added.
This update is a companion piece to the latest “South Asia Economic Focus - Reshaping Norms: A New Way Forward,” which notes that the growth in South Asia, already uneven and fragile, will be slower than previously projected, mostly due to the impacts of the war in Ukraine.
GDP projection for South Asia
The report projects that the region’s economies would grow by 6.6 per cent in 2022 and by 6.3 percent in 2023. The 2022 forecast has been revised downward by 1 percentage point compared to the January projection.
India showed the highest GDP growth of 8 per cent for FY22 and 7.1 per cent for FY23 in the region. Besides, Sri Lanka’s growth will be the lowest 2.4 per cent for the current fiscal year.
The World Bank did not have a forecast for the next fiscal year for the defaulter country.
Countries in South Asia are already grappling with rising commodity prices, supply bottlenecks, and vulnerabilities in financial sectors. The war in Ukraine will amplify these challenges, further contributing to inflation, and deteriorating current account balances, read the World Bank report.
“South Asia has faced multiple shocks in the past two years, including the scarring effects of the Covid-19 pandemic. High oil and food prices caused by the war in Ukraine will have a strong negative impact on peoples’ real incomes,” said Hartwig Schafer, World Bank Vice President for
South Asia.
“Given these challenges, governments need to carefully plan monetary and fiscal policies to counter external shocks and protect the vulnerable, while laying the foundation for green, resilient and inclusive growth,” he added.
The war and its impact on fuel prices can provide the region with much-needed impetus to reduce reliance on fuel imports and transition to a green, resilient and inclusive growth trajectory.
The report recommends that countries steer away from inefficient fuel subsidies that tend to benefit wealthier households and deplete public resources.
