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Bangladesh economy robust: ADB

Global slowdown has little impact


Published : 21 Sep 2022 10:27 PM

Bangladesh economy continues to grow despite global economic slowdown and it remains robust compared to that of other countries in the region, says Asian Development Bank (ADB).

Bangladesh’s gross domestic product (GDP) is expected to grow by 6.6 percent in fiscal year (FY) 2023, according to the latest ADB report.

The projection was revealed in the latest ADB report, titled “Asian Development Outlook (ADO), 2022 update", released on Wednesday.

“The government is navigating the prolonged external economic uncertainties relatively well and has implemented appropriate policies to reduce the external imbalance, said Country Director Edimon Ginting. 

“But turbulent times like these are also a good time to accelerate reforms that would improve the country’s growth prospects in the medium term. These reforms include improving domestic resource mobilization, deepening the financial market, and enhancing competitiveness to promote the creation of productive jobs in the private sector,” he said. 

Uncertainties in the international energy market provide a good momentum to accelerate reforms to achieve the country’s climate change goals and expand domestic renewable energy supply to reduce dependence on fossil fuels, he added. 

According to the Asian Development Outlook (ADO) 2022, the GDP growth of Bangladesh is estimated to be 7.2 percent in the fiscal year 2022, up slightly from 6.9 percent in the fiscal year 2021. 

A broad-based recovery in economic activities fueled this growth with rapidly rising external and domestic demand. 

Exports grew sharply on strong pent-up demand from major export destinations. 

Private and public consumption was a major contributor to growth in FY2022 with a robust level of workers’ remittances. 

Private sector credit showed solid growth, increasing 13.7 percent from a year earlier by June 2022, fueling private investment. 

Public investment was robust with nonstop implementation of large infrastructure projects. 

Monetary policies pursued by Bangladesh Bank were expansionary, which also played a key role in the continued strength of the economy.

Higher global oil, gas, and commodity prices resulted in an increase in inflation to 6.2 percent in the fiscal year 2022 from 5.6 percent a year earlier. 

The fiscal deficit widened to 5.1 percent of GDP, slightly above the customary target, driven by higher spending for subsidies and current social protection cash transfers and lower than targeted revenue collection. 

The current account deficit widened to 4.1 percent of GDP in FY2022 mainly due to higher trade deficit and lower remittances. 

The ADO, 2022 Update states that the moderately lower growth forecast reflects slower domestic demand and weaker export prospects due to slower growth in advanced economies. 

Inflation is projected to rise from 6.2 percent in FY2022 to 6.7 percent in FY2023. The current account deficit is expected to narrow from 4.1 percent of GDP in FY2022 to 3.6 percent of GDP in FY2023 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 war in Ukraine.

The private investment growth will be lower due to global uncertainty and energy crunch. With slower revenue growth and higher import costs, public investment growth will also suffer as a result of government austerity measures. 

Inflation is likely to accelerate from 6.2 percent in FY2022 to 6.7 percent in FY2023 as price pressures increase due to the upward adjustment of domestic administered prices for all types of fuel and rising global commodity prices. 

Agriculture growth is projected to decline due to the unusually dry monsoon season, which has adversely affected Aman paddy farming. 

Floods in the northeastern region during the early monsoon damaged infrastructure, affected economic opportunities, and all other aspects of life. 

Growth in industrial sector is likely to be lower due to lower demand from major export destinations and disruptions in power and energy supply. 

Bangladesh Bank is likely to further tighten monetary policy to contain inflation and reduce the volatility of taka.

With a relatively higher projected increase in expenditure compared to revenue, the budget deficit is likely to increase to 5.5 percent of GDP in FY2023. 

ADB has already provided $2.5 billion in loans and $7.23 million in grants to Bangladesh to address the socioeconomic impacts of the coronavirus (COVID-19) pandemic and support a rapid recovery. For the period 2023–2025, ADB has programmed about $9.5 billion for Bangladesh.