The Asian Development Bank (ADB) projected Thursday Bangladesh’s economic growth at 6.4 per cent in the current fiscal, backtracking from its earlier conservative estimate.
Eight months ago in January last, the ADB in its Asian Development Outlook (ADO) 2014 said Bangladesh’s gross domestic product (GDP) would grow at 6.2 per cent in the current financial year (FY) 2014-15.
“Exports and remittances are expected to perform better than projected earlier. Moreover, the government is seen stepping up project implementation and private investment will likely pick up on post-election political stability,” said the ADO 2014 Update, released Thursday in Dhaka.
The development update said Thursday despite widespread political disturbances ahead of national elections in January 2014, GDP growth in FY2014 (ended June 30 2014) was estimated at 6.1 per cent, 0.5 percentage point higher than projected in ADO 2014.
“Most of the macro-economic indicators in Bangladesh are performing better. Although the export and remittance were performing bad in the previous months, those are expected to rebound in the second half of the current fiscal,” said Mohammad Zahid Hossain, principal country economist of the ADB Dhaka office said when he was analysing the ADO Update.
He, however, suggested the government to raise investment, boost power generation and more revenue earnings for the expanded public expenditure to shift the economy to a higher growth trajectory.
Mr Hossain said exports are likely to swell as progress has been made in improving safety standards and workers’ rights in the Bangladesh garment industry under the National Tripartite Plan of Action that was established following two large industrial disasters.
When asked, the ADB’s principal economist said the 6.0 per cent GDP growth is not bad for Bangladesh although it has potentials to achieve more than 7.0 per cent growth. “The government should work to utilise the potentials.”
The ADB development update said the central bank’s cautious monetary policy, decision to raise fuel and electricity prices to cut subsidies, keeping current expenditures within the budget target to safeguard spending on infrastructure and human resources development, attaining targeted budget revenue and foreign financing, strengthening project implementation and political stability will be maintained, and weather condition will be favourable for attaining the target.
“Industry growth is expected to improve to 9.2 per cent on higher exports and stronger domestic demand supported by a rise in remittances. The central bank’s priority in channelling more credit to small and medium-sized enterprises and to agro-industries should contribute to higher production,” it said.
The ADB report said agricultural growth should edge up to 3.5 per cent with continued policy support, as should services output to 5.9 per cent with higher growth in industry and agriculture, a pickup in external trade, and a rise in domestic demand.
It said: “To attract foreign and domestic investors, create jobs, and spur growth, the government plans to set up five economic zones capable of providing one-stop service. The introduction of alternative dispute resolution for income tax, value-added tax, and customs duties should reduce the administrative burden and cost of paying taxes.”
The ADB update said: “Efforts under way to automate the administration of the judicial system will shorten delays in enforcing contracts, and similar efforts for the processing of exports and imports will speed trade across borders. These measures are expected to improve the business environment.”
Mr Hossain said inflation in the current fiscal in Bangladesh is also projected at a lower rate of 6.5 per cent.
“Price pressures are expected to soften with easing of supply constraints, a better crop outlook, a supportive monetary policy, and a large public stock of food grains. Lower food prices on the international market and stable oil prices will also contribute,” he said.
The ADB ADO 2014 Update said several downside risks could upset projections. “Inability to mobilise sufficient revenue and foreign financing would affect Annual Development Programme implementation and might fuel inflation if replaced by pricier bank borrowing.”
“Renewed political unrest could dampen investor confidence and impede economic activity. Unfavourable weather is a perennial risk,” he added.
About the last fiscal’s economic performance, the ADO Update Thursday said growth in investment contributed, as stronger public investment rose to 7.3 per cent of GDP in FY2014 from 6.6 per cent a year ago, offsetting a decline in private investment to 21.4 per cent from 21.8 per cent.
“Net exports markedly bolstered GDP growth, as expansion in export volume was stronger than that of imports. Consumption grew only moderately on weaker worker remittances,” it said.
Private investment is held down by infrastructure and skills deficits, and by a continued weak investment climate, the Update added.
The Update added that political unrest ahead of the January 2014 national elections further dampened investor confidence. “Public investment remains below budgeted targets because of weak implementation capacity in line agencies. Despite advantages of location and abundant low-cost labour, foreign direct investment remains low.”
About the sub-regional growth forecast for 2014, the ADB Update said it is edged up slightly to 5.4 per cent in 2014. The improvement reflects strengthening in Bangladesh of export growth and in Pakistan of higher remittances, it added.
Growth in South Asia will pick up to 6.1 per cent in 2015, 0.3 percentage points faster than previously forecast.
Growth forecasts for Pakistan and Bangladesh are also edged up in 2015, but efforts to improve the climate for private investment are the keys in both cases.
When asked about the Chinese initiative to set up the Asian Infrastructure Investment Bank, Country Director of the ADB Bangladesh Resident Mission Mr Kazuhiko Higuchi said he is not ready to comment on this issue at this moment.
Courtesy: The Financial Express