Despite macroeconomic headwinds, resilient exports and structural reforms are expected to accelerate growth, it said
Published : 11 Apr 2024, 02:24 PM
The Asian Development Bank has forecast a GDP growth rate of 6.1 percent for Bangladesh in the 2023-24 fiscal year.
In its Asian Development Outlook for April, released on Thursday, it noted that growth had slowed to 5.8 percent in FY2023 amid monetary tightening in advanced economies, lowered external demand, and a jump in inflation. But ADB expects the economy to make a slight turnaround in FY 2024.
“Despite macroeconomic headwinds, GDP expansion is expected to accelerate gradually this year and next with resilient exports and the government committed to structural reform. Inflation will gradually moderate, while the current account turns into small surpluses.”
The projection is more optimistic than the 5.6 percent estimate offered by the World Bank in its Bangladesh Development Update on Apr 2.
The ADB expects the garment sector to function as the driving force in export growth, in turn powering export resiliency.
“Despite weaker global demand, exports of Bangladesh’s traditional low-end garments will continue to grow, as exporters use domestic yarn and fabric due to the dollar crisis,” its report stated.
Economic recovery for major importers, lower energy costs, reduced import restrictions and a slow improvement in forex reserves are also likely to contribute to buoying exports.
Private investment is also expected to tick up as the uncertainty surrounding the Jan 7 election fades. Public investment will rise as fast-tracked projects are implemented.
The report also forecasts a moderation of the high inflation rate, averaging out to 8.4 percent in FY2024 and 7.0 percent in FY2025.
Continued monetary tightening, an expected decline in global oil and commodity prices, and a better crop outlook is expected to play a part in slowing price increases. The government’s plans to reduce the volatile exchange rate and eliminate structural subsidies could also ease inflation, the ADB said.
The slowing of inflation is also projected to have knock-on effects such as raising private consumption and investment. However, the growth in public consumption is likely to be moderate due to lower subsidy spending and continuing austerity measures, the report said.
The ADB also projected the current account moving into surplus in FY2024 and FY2024 as the trade deficit narrows and remittances rise.
The ratio of public debt to GDP is forecast to increase from 39.8 percent in FY2023 to 41.4 percent in FY 2024, but is expected to remain relatively stable in the near to medium term.
LDC GRADUATION POSES CHALLENGES: ADB
A point of focus for the report was the challenges Bangladesh may face in its graduation from least-developed country status. It urged the country to enhance its competitiveness to ensure a smooth graduation.
“This milestone in the country’s economic development necessitates careful preparation, as the post-LDC period involves the conclusion or significant reduction of many international support measures received as an LDC,” the report said.
This is due to the loss of policy flexibility and special treatment under the World Trade Organization agreements, particularly the loss of preferential access to export destinations, including duty-free and quota-free schemes.
The graduation poses a particular danger to exports, particularly readymade garments, as more than 70 percent of Bangladesh’s merchandise exports currently enjoys trade preferences. The WTO estimates that post-graduation tariff hikes could cause a 14 percent drop in exports.
The ADB suggests enhancing trade and investment competitiveness to make graduation a smooth and sustainable process. It notes that, without substantial foreign direct investment, the task may be extremely challenging. Currently FDI is less than 1 percent of GDP.
The report identifies “inadequate infrastructure, underdeveloped logistics, cumbersome border processes, an opaque regulatory environment, and a lack of integration between trade and industrial policies” as major barriers to FDI.
However, it notes that the government is taking the necessary steps to address these issues, such as the National Tariff Policy, 2023 to address policy-induced disincentives and to implement reform measures. It also highlighted the Business Investment Climate Improvement Program by the Bangladesh Investment Development Authority and the development of 100 special economic zones.