Increased public spending on infrastructure coupled with robust private investment, export and remittance are likely to drive Bangladesh’s economy to post a ‘resilient growth’ of 7 per cent in FY19, the World Bank suggests in its latest economic outlook.
The Washington-based lender unveiled the ‘Bangladesh Development Update’ at a press conference at its Dhaka office on Tuesday.
The potential growth figure is higher than the lender’s January forecast of 6.7 per cent growth but lower than ADB’s 7.5 per cent estimate and 7.8 per cent official growth target for FY19. Growth rose as high as 7.86 per cent in FY18.
Adverse weather conditions, regulatory unpredictability and a problematic banking sector are likely to limit the growth prospects, the WB explained.
“Bangladesh has achieved a good growth rate for the last few years. We think that the trend will continue in near future. But for that, the country has to undergo some economic reforms,” commented WB lead economist at Dhaka office Dr Zahid Hussain, while presenting the highlights of the report.
He also suggested taking effective steps to recover huge default bank loans and stressed on completing the mega projects within the stipulated timeframe.
However, both Dr Zahid and former Adviser to the last caretaker government Dr Hossain Zillur Rahman said the issues of whether the growth is sustainable, inclusive or capable of creating quality jobs are more important than the growth figures.
Over the near-term, Bangladesh’s growth is expected to remain resilient, underpinned by strong domestic demand and structural transformation, the WB said.
“The economy has once again shown resilience to the lingering effects of repeated flooding in 2017 and the ongoing accommodation of over 7,00,000 additional Rohingya refugees,” the report said.
But there is no room for complacency, WB said, adding that Bangladesh needs to create more and better jobs by boosting private investment, diversifying exports and building human capital to achieve its growth aspirations.
To maintain the current growth trajectory, it needs to promote entrepreneurship, innovation and structural transformation. Bangladesh should also focus on improving education, skills, nutrition and adaptability to enable its workforce to thrive in an environment of rapidly changing technology and global demands,” said Qimiao Fan, WB Country Director in Bangladesh.
The country also needs to make doing business easier, complete its mega-projects on a fast track, improve financial sector governance and ensure a reliable supply of electricity.
Further, sustaining its export and remittance growth will be important. It also needs to focus on improving infrastructure, urban management, and environmental conservation.
The report stresses the importance of increasing resilience to a possible slowdown in major export markets or a decline in donor support to address the influx of Rohingya refugees.
The country also needs to improve financial sector governance, including banking sector performance, especially the high share of non-performing loans (NPLs), which reached 10.4 per cent of all loans in fiscal year (FY) 2018.
These are concentrated disproportionately in the six state-owned commercial banks that accounted for 48 per cent of total NPLs, while the 40 private commercial banks accounted for 44 per cent of NPLs.
For the first time since FY2011, Bangladesh faces a deficit in the overall balance of payments, putting pressure on the exchange rate and international reserves. This has resulted from a substantial widening of deficits on the trade, services and income accounts.
The report recommends expanding reliable electricity supply to meet the needs of a growing economy. This requires comprehensive reforms in the power sector, including addressing inefficiencies at different stages of power supply and distribution, and reducing dependency on imported fossil fuels, the report said.
The report urges more efficient pricing and use of gas. By prioritizing more efficient plants, Bangladesh can reduce idled gas capacity by 8 per cent and electricity shortages by 15 per cent a year.
Further, the government needs to focus on a smarter pricing of electricity through a cost-based pricing mechanism, better load management, and increased efficiency in electricity generation, the report suggests.
Better load management alone could save $1.65 billion annually in fuel cost. Bangladesh can also benefit from boosting regional trade and strengthening the cross-border electricity transmission network.
Economist at private think tank Policy Research Institute (PRI) and Dr Hossain Zillur Rahman were present at the press conference as panel discussants on the development update.