The Asian Development Bank (ADB) has revised its growth forecast for Bangladesh downwards to 5.5-6 per cent for 2020-2021 fiscal year from its earlier projection of 6.8 per cent, citing that the 2nd wave of coronavirus may slow down the economic recovery.
The new forecast has been made in ADB’s flagship publication Asian Development Outlook (ADO) that the lender’s Dhaka office unveiled through a virtual press briefing on Wednesday.“The economy was showing signs of recovery with higher remittances, exports and other indicators, but the recent surge in pandemic and the lockdown are likely to trim our GDP growth projection of 6.8 per cent for fiscal year of 2020-2021 by at least one percentage point,” said ADB Country Director Manmohan Parkash.
“The GDP growth rate may be in the range of 5.5 to 6 per cent, which is also quite enviable in the circumstances,” he added.
Despite headwinds from the Covid-19 pandemic, Bangladesh’s GDP growth is forecast higher in FY2021 and FY2022 in line with a projected global economic rebound, the Manila-based lender said.
ADB Senior Economist at Bangladesh Resident Mission Soon Chan Hong made a Power-Point presentation on the ADO.
Exports and remittances are expected to post a healthy growth. Public investment in large projects will boost the growth. Similarly, the growth in agriculture, services and industry is expected to continue.
The revenue collection may also be higher than last year. Inflation is expected to be manageable. Broad money growth is likely to reach the annual target of 15 per cent.The overall growth in imports is expected to be modest and the trade deficit is forecast to narrow marginally as the recovery in exports outpaces imports. The current account balance is expected to cross into a small surplus.
The growth in revenue, however, is expected to be modest. Public expenditure is targeted to grow more than the growth in revenue leading to a slightly higher deficit -- about 6 per cent, says the latest ADO.
“The government managed the first wave of Covid-19 in 2020 well as the stimulus measures and economic policies have largely been effective,” Parkash said.
“The ongoing pandemic is an opportunity to undertake further reforms in social protection and health sector, improving competitiveness of the private sector, reducing cost of doing business, diversifying exports and developing skills,” he said.
“Expanding social safety nets, enhancing investments, creating employment, ensuring mass vaccination and improving the health sector are critical actions for achieving the Eighth Five-year Plan goals,” Parkash added.
Future economic growth will depend on recovery in domestic economic activities fuelled mainly by implementation of stimulus packages, strong inflow of remittances and rebound in global trade amid projected growth in major export destinations.
Current account balance is expected to cross into surplus of 0.7 per cent of GDP in FY2021, contributed by remittance growth. The main risk to this growth projection is further surge of Covid-19 cases and delayed availability and supply of vaccines both globally and domestically.
The ADO 2021 says that continued strong remittance inflow is likely to support domestic demand with growth in private consumption. Remittances from workers overseas increased by 35.1 per cent in the first nine months of FY2021 due to the 2 per cent cash incentive offered by the government and reduced documentation requirements.
The private investment is expected to pick up as moderate growth in private sector credit improves confidence. Higher public investment is forecast as the government expands capital spending.
Inflation is expected to reach 5.8 per cent in FY2021 from 5.7 per cent in FY2020 as price pressures are increasing from higher public expenditures to implement stimulus measures and a rise in global food and fuel prices due to pickup in global economic activity.
The ADO 2021 points out that a move towards universal health care is critical to ensure inclusive and sustainable development. Health care in Bangladesh can improve with more public funding and effective administration.
A contributory public social health insurance scheme can help achieve universal health care. To enhance inclusion and high enrolment, participation should be mandated for all with subsidies targeted to lower-income people.
Substantial strengthening of domestic resource mobilisation will be needed to mobilise increased funding for health care. ADB has already provided $650 million in loans and $7.23 million in grants for managing socio-economic impacts of the Covid-19 pandemic and supporting quick recovery.
ADB is also processing two programme loans of $500 million each and a $940 million loan for the government’s Covid-19 vaccination programme.
For 2021-2023, ADB has programmed $5.9 billion firm and $5.2 billion standby project assistance for Bangladesh.