The economy of Bangladesh is on the right track to sustained growth while it is also going stronger and now moving towards a higher growth trajectory, said the Asian Development Bank (ADB).
The lending agency, in its latest Asian Development Outlook 2022 which was released today, also said private investment in Bangladesh will get stronger, reflecting a solid growth in private sector credit and imports of industrial raw materials and capital goods.
It said with large available funding, public investment will increase to support the implementation of priority large infrastructure projects. Growth in private consumption, however, may be affected by a decline in remittances.
The ADB said Bangladesh’s gross domestic product (GDP) is expected to grow by 6.9 percent in the current fiscal year (FY22) and subsequently will grow at 7.1 percent in FY23.
“Bangladesh economy is now going stronger and is now moving towards a higher growth trajectory,” said ADB Country Director for Bangladesh Edimon Ginting while addressing the virtual launching of the ADO 2022 today.
He said growth in Bangladesh will be close to south Asian average growth of 7.0 percent in 2022 and 7.4 percent in 2023. “Among larger south Asian economies, Bangladesh will closely follow India in terms of strong growth performance next year,”
ADB senior country specialist Soon Chan Hong made a power-point presentation on the ADO 2022.
The Manila-based lending agency said growth forecast reflects rebound in external trade and recovery in domestic economic activities fueled by implementation of stimulus packages and increased remittance. Inflation is expected to increase to 6.0 percent in FY2022 from 5.6 percent in 2021.
It said the current account deficit is likely to widen from 0.9 percent of GDP in FY 2021 to 2.7 percent of GDP in FY2022 on increase in imports and decline in remittance growth. The main risk to this growth projection is higher prices for oil and imports, and the loss of export sales beyond those built in the present forecasts, mainly due to the Russian invasion of Ukraine.
“The ongoing socio-economic recovery needs to be accelerated by enhancing domestic resource mobilization, incentivizing the private sector to create products and services, promoting modern green technologies, and fostering knowledge and innovation,” said Country Director Edimon Ginting.
“Building climate resilient infrastructure and services, introducing carbon tax on fossil fuels, and promoting green investments will help to further advance the current policy initiatives for managing climate change for inclusive and sustainable green growth,” Ginting added.
He said the GDP growth of Bangladesh recovered to 6.9 percent in fiscal year 2021, up significantly from 3.4 percent in fiscal year 2020. “Growth performance of Bangladesh is quite remarkable in 2021 compared with other south Asian countries as Bangladesh, despite starting from a higher base. Except Bangladesh, all other south Asian economies contracted in 2020,”
He noted that the strong rebound was supported by recovery in external trade, swift and effective implementation of supportive fiscal and monetary stimulus measures to tackle the COVID-19 pandemic and a sharp increase in remittances.
The ADB Country Director said stimulus measures amounting to about 5.4 percent of GDP were announced and swiftly implemented by the government. “Private consumption was a also major contributor to growth in FY2021, supported by a sharp increase in workers’ remittances to boost domestic income,”
To sustain this higher growth trajectory over the medium and long term and making it more inclusive and sustainable at the same time, the ADB Country Director also suggested for giving efforts to boost competitiveness, generating employment.
He also advocated for increasing spending on education, health,and social protection while the impacts of climate change need to be tackled expeditiously.
When asked about the current level of investment ratio to GDP, the country director said there is a need to increase that to support higher growth.
He opined that Bangladesh is still on the lower side to attract more FDI while domestic investment is also equally important. “Deeper capital and bond market are also needed,” Ginting said adding that if the countrywide special economic zones could be operationalized properly, then there could be wider avenues of growth for Bangladesh.
Replying to another question about the low tax ratio to GDP, the country director said that the tax expenditure needs to be streamlined in Bangladesh side by side the tax system should be more aligned with the economy.
When asked about the lessons from the recent debacle in the Sri Lankan economy, Ginting said that for a country it is very much necessary to perceive the importance of maintaining macroeconomic stability, taking correct policies, having a prudent government and a sound macroeconomic management.
He said after the end of conflict in Sri Lanka, the growth did not continue to such extent there, but on the other hand, growth continued in Bangladesh. “The challenge is how to handle it when it becomes a crisis,”
Answering to a question about the role of Bangladesh Bank in the current global economic situation, Genting said that the central bank can continue to accommodate monetary policy to support growth and thus strike a balance in controlling inflation and supporting growth.
Replying to another question, he said that Bangladesh would not fall into the foreign debt trap and middle income trap since there are engines of growth. But, for that he reasoned that the export products should be diversified beyond RMG while further growth should be enjoyed in other places beyond the capital.
About the impact of ongoing Russia-Ukraine war on Bangladesh, Soon Chan Hong said although the direct impact of war is “limited” to Bangladesh, but the indirect impact would be higher.
He said if the war prolongs, the European market would be impacted side by side there will be increase in the oil, gas and commodity prices.
The ADO 2022 also noted inflation is expected to reach 6.0 percent in FY2022 from 5.6 percent in FY2021 as price pressures are increasing from upward adjustment in domestic administered fuel prices, rising global food and fuel prices, and implementation of stimulus measures.
It pointed out that managing climate change is critical to ensure inclusive and environmentally sustainable growth. As part of developing national adaptation plan by the government, a climate risk-informed master plan should be drawn up for each sector and development unit.
Capacity for better accessing and utilizing climate risk analysis needs to be mainstreamed in public financial management decisions across government. Enabling policies are necessary for green investments, the development and adoption of green technologies, and for greening of existing industries, it suggested.
ADB has already provided $2.2 billion in loans and $7.23 million in grants for managing socio-economic impacts of the COVID-19 pandemic and supporting quick recovery. ADB has programmed $8.0 billion firm and $5.4 billion standby project assistance for Bangladesh during 2022-2024.