Wednesday, 7 December, 2022

ADB cuts Bangladesh’s growth forecast to 6.6pc

The lender projected a 7.1pc growth for FY 2023 earlier

  • Staff Correspondent
  • 22 September, 2022 12:00 AM
  • Print news

Bangladesh’s economic output may slow down to 6.6 percent in FY 2022-23 due to low domestic consumption, fall in exports and remittance along with sluggish global economy, according to the Asian Development Bank forecast.

This growth projection is much lower than a robust 7.2 percent growth posted in FY 2021-22 after showing the signs of coronavirus pandemic recovery.

The government had an expectation for even a higher growth rate of 7.5 percent for the current fiscal year. In April this year, ADB predicted a 7.1 percent growth.

But in its flagship publication Asian Development Outlook (ADO) physically unveiled at ADB’s Dhaka office on Wednesday, it said that the previous forecast is not likely achievable this fiscal year given the current internal and external economic trends. 

“For FY 2022-23, the GDP growth is projected to moderate to 6.6 percent. Lower consumption expenditure and a weaker external outlook will dampen the growth,” ADB Country Director Edimon Ginting told a press conference. 

“We expect private investment growth to be lower amid global uncertainty and energy shortages. Public investment will also slow down on government austerity measures,” he added.

Besides, the Manila-based lender projected that inflation will rise from 6.2 percent in FY 2022 to 6.7 percent in FY 2023 as price pressures increase due to the upward adjustment of domestic administered prices for all types of fuel and rising global commodity prices.

The current account deficit is expected to narrow from 4.1 percent of GDP in FY 2022 to 3.6 percent of GDP in FY 2023, driven by fall in imports along with increase in remittance inflow. 

The main risk to this growth projection is a slowdown in exports caused by global uncertainty over the prolonged war in Ukraine, it added.

The government is navigating the prolonged external economic uncertainties relatively well and has implemented appropriate policies to reduce the external imbalance, ADB country director said. 

The lender also thinks that 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 mobilisation, deepening the financial market, and enhancing competitiveness to promote the creation of productive jobs in the private sector," Ginting added.  

In the publication, ADB said that Bangladesh's    private sector credit showed a solid growth, increasing 13.7 percent from a year earlier by June 2022, fueling the private investment.

Public investment was robust with continuing 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, Ginting said.

The ADO 2022 Update stated that private investment growth will be lower due to global uncertainty and energy shortages. With slower revenue growth and higher import costs, public investment growth will also be slower as a result of government austerity measures.

Replying to a question, Ginting said that attaining 6.6 percent growth would still be good at this time of difficulties adding that the lending agency would be pleased if the government could surpass that estimation.

When asked whether the government should pursue the expansionary monetary policy or not, the ADB Country Director said during the COVID-19 pandemic, the focus was to support the fiscal and monetary policy.

But the current problem of the economy of Bangladesh is widening external imbalance and for this there is not much need for expansionary policy right at the moment.

Shedding light on some of the macroeconomic issues, Ginting said that the import costs has now declined to $1.5 billion from $3 billion in February due to the government policy while the current foreign currency reserve is sufficient enough to meet the import bills of five months.

Noting that Bangladesh did well in exports despite the hard times of the pandemic, he said that the demand for women's and children's clothing is actually rising.

"There might be a decline in growth, but Bangladesh exports will continue to grow very strongly," he said adding, "I don't see any forex crisis for Bangladesh in the near term."

Asked about the ADB's future investment plan in Bangladesh, the Country Director informed that they have a plan to provide up to $2.5 billion support against different projects every year over the next three-year term while 20 percent of that amount would come as budget support.

He said in order to materialise the government's bid to turn Bangladesh as a upper mid-income country by 2031, the government needs to finance more in human resource development through digitisation, more eligible people are needed to be brought in the tax net, leakage needs to be checked in tax exemptions to support growth while improvement is also needed in the tax administration.

Terming exports and remittances as the two pillars of the country's economy, Ginting opined that there is a room to make improvement in availing more remittances by sending more skilled people abroad.

Besides, he suggested having a much bigger and vibrant private sector. 

Senior Country Specialist Soon Chan Hong presented the highlights of ADO 2022.