The Asian Development Bank (ADB) has lowered its growth forecast of Bangladesh’s gross domestic product (GDP) from 7.1 per cent to 6.6 per cent for the current financial year (2022-23) due to lower consumption, expenditure, private investment, energy shortage and weaker export.
The forecast came in its September update report of the Asian Development Outlook (ADO) 2022, which was released at a press conference held at ADB’s regional office in Dhaka on Wednesday.
The Manila-based regional lender had forecasted 7.1 per cent of GDP growth for FY23 in its April forecast. In the latest report, ADB projected inflation to rise from 6.2 per cent in FY22 to 6.7 per cent in FY23.
The Bangladesh government has set a target of 7.5 per cent of GDP growth and 5.5 per cent of inflation in the national budget for the current fiscal year.
Inflation is projected to accelerate to 6.7 per cent in FY23 due to the rise in global food and fuel prices driven mainly by the impact of the Russian invasion of Ukraine, said ADB Country Director Edimon Ginting.
He said that Bangladesh’s economy registered a robust GDP growth of 7.2 per cent in FY22. While economic growth is expected to moderate slightly to 6.6 per cent this year, it remains very robust compared with other countries in the region.
According to the report, average GDP growth will be 6.5 per cent in South Asia, 5 per cent in South East Asia and 4.2 per cent in East Asia regions. Compared to all the regions, Bangladesh’s growth will be higher than China, Indonesia, Malaysia, Singapore and Thailand this fiscal.
It said the current problem of Bangladesh’s economy is external imbalance. However, the current account deficit is expected to narrow from 4.1 per cent of GDP in FY22 to 3.6 per cent in FY23 as imports slacken and remittances increase.
The main risk to this growth projection is a slowdown in exports caused by global uncertainty over the prolonged Russia-Ukraine war.
The government is navigating the prolonged external economic uncertainties relatively well and has implemented appropriate policies to reduce the external imbalance, said Ginting.
Responding to a question, he said Bangladesh has a significant reserve to meet the import payment demand for five months and there should not be any forex crisis in the near future to continue exports and remittance earnings.
He also said Bangladesh Bank’s decision to introduce a floating exchange rate is correct. The volatility started reducing this week after the rate’s introduction last week. “Perhaps it will continue.”
The ADO 2022 states that private investment growth will be lower due to global uncertainty and energy shortages. With slower revenue growth and higher import costs, public investment growth will also be slower as a result of the government’s austerity measures.
While the economy is on the right track, ADB said, Bangladesh needs to rapidly diversify its exports to rise from a lower-middle to an upper-middle-income country. Agricultural processing and pharmacy are showing new potential in this regard. Besides, the export of skilled manpower should be increased.
The report also said that digital entrepreneurship can become an engine of growth. Singapore offers the global best environment for digital entrepreneurs, but most developing Asian economies must improve digital entrepreneurship environments.
But sound institutions remain vital for entrepreneurs. Institutions such as property rights protection benefit entrepreneurs by mitigating risk and uncertainty. Analysis of 230,000 individuals in 15 economies confirms a positive link between an economy’s institutional environment and the productivity of its entrepreneurs.
ADB has provided $2.5 billion in loans and $7.23 million in grants to Bangladesh to address the socioeconomic impacts of the Covid-19 pandemic and support a rapid recovery. For the period 2023–2025, ADB has programmed about $9.5 billion for Bangladesh, said the report.