ADB foresees Bangladesh GDP growing by 6.9pc in FY2018

Foreseen rate remains unchanged from the AOD prediction for FY2017

The Asian Development Bank (ADB) forecasts the Bangladesh GDP to grow by 6.9 per cent in FY2018, according to the Asian Development Outlook (ADO) 2017 released yesterday.

The foreseen rate remains unchanged from the AOD prediction for FY2017, but falls slightly below the preliminary official estimate for the period because of weak domestic demand.

Private consumption is likely to stay at the current level as income growth has lost pace in agriculture and wage employment and also as remittances continued to fall. Private investment will rise moderately with the prevailing political stability and the authorities delivering economic reform and better infrastructure.

The decline in remittances will slow down and is unlikely to reverse in the near term. Some pickup in export growth is expected, and there is potential for an upside surprise if consumer confidence improves.

The government is implementing several transport and energy infrastructure projects to leverage private investment: upgrade of rural roads in the southwest, expansion of the Elenga-Hatikumrul-Rangpur highway in the northwest to four lanes for better connectivity with Bhutan and India, and the construction and upgrade of electricity transmission lines to prevent power So, interruptions.

The Bangladesh Investment Development Authority, set up in 2016, is carrying reforms to improve the business climate, including the expected launch of a one-stop business service centre by December 2017.

The AOD report said agriculture growth was expected be 2.6 per cent lower in FY2018 because of a higher base effect and prolonged flooding that hindered the planting of monsoon crops. Industrial growth was expected to be moderate to 10.2 per cent, as falling remittances restrained domestic demand.

Services growth will ease to 6.0 per cent because of slower growth in agriculture and industry.

The ADB thinks that inflation is expected to be higher at 6 per cent in FY2018, but below the 6.3 per cent projected in ADO 2017. Crops lost to the floods at the turn of the fiscal year may put further pressure on rice prices, to be partly offset by expected higher imports. Gas prices were raised in March 2017 with little immediate impact on inflation.

However, further increases seem likely as prices remain below international levels and because the revenue will be needed to pay for the expected operation of a liquefied natural gas gasification terminal in 2018 and the planned awarding of gas exploration contracts.

A likely rise in electricity prices and taka depreciation may add to price pressures. Nevertheless, the expected moderation in global food prices and weak domestic demand should keep inflation in check.

In its monetary policy statement for the first half of FY2018, the central bank has prioritised price stability while supporting growth and job creation.

Policy support will continue for micro, small and medium-sized enterprises, with renewed emphasis on employment-focused manufacturing and services and on expanding the availability of low-interest agricultural loans. The central bank is cooperating with capital regulators to encourage startup financing for entrepreneurs in Bangladesh.

The FY2018 budget aims to raise revenue to the equivalent of 13.0 per cent of the GDP, a marked boost from 11.2 per cent in the previous year.

The Targeted public spending is also—at 18.0 per cent of GDP—much higher than that in FY2017, with the deficit again planned at 5.0 per cent of GDP.

The project revenues are to grow by 31.8 per cent, implying high buoyancy at 2.3 times of the projected nominal GDP growth of 13.7 per cent and outpacing the spending growth at 26.2 per cent. Recurrent spending is to grow moderately by 16.3 per cent, but the annual development programme is slated to grow by 38.5 per cent to accelerate the implementation of some large-scale infrastructure

projects.

The implementation of a new value added tax scheduled for July 2017, after a delay of one year, was deferred again. The second deferment prompted the authorities to retain tax measures adopted in the previous year to help sustain such revenue and to adopt other measures to enhance revenue collection.

However, attaining the high revenue target will remain a major challenge, and some adjustments to expenditures may be required to meet the deficit objective.

Exports are projected to return to a higher growth and rise by 6.0 per cent in FY2018. This projection is underpinned by favourable growth in major markets, a shift in market share towards emerging countries that are projected to see faster growth, a reduction in corporate tax from 20.0 per cent to 12.0 per cent for the garments industry, expanded export incentives to cover new items, government efforts to improve transport logistics, cargo handling at ports and customs procedures.

The import bill is expected to be higher by 10.0 per cent in FY2018. Aided by duty reduction from 28.0 per cent to 2.0 per cent for rice, food grain imports are set to pick up to offset shortfalls in domestic production.

Petroleum imports will rise to run rental power plants with the rising demand for electricity. Imports of machinery and raw materials for infrastructure and liquefied natural gas projects will increase the import bill.

Remittance inflows will decline again in FY2018, albeit at a much slower rate of 3.0 per cent, with fiscal consolidation being moderate among Middle Eastern oil producers. The government is trying to

encourage migrant workers to send remittances through official channels by cutting high bank fees for fund transfers, promoting the sale of bonds with higher yields and offering attractive loans to home buyers.

A higher trade deficit is expected to push the current account deficit to 1.5 per cent of the GDP in FY2018.

The forecasts assume that domestic revenues will rise in line with budget targets, which must be met to implement the public investment programme and that absorptive capacity has improved towards effectively spending a large increase in external financing.

With a view to the upcoming national polls in 2018, the forecasts further assume that the implementation of policy reform and completion of ongoing power and transport projects are vital to revive private investment as well as to maintai political stability.

ADB foresees Bangladesh GDP growing by 6.9pc in FY2018

Foreseen rate remains unchanged from the AOD prediction for FY2017

The Asian Development Bank (ADB) forecasts the Bangladesh GDP to grow by 6.9 per cent in FY2018, according to the Asian Development Outlook (ADO) 2017 released yesterday. The foreseen rate remains unchanged from the AOD prediction for FY2017, but falls slightly below the preliminary official estimate for the period because of weak domestic demand. Private consumption is likely to stay at the current level as income growth has lost pace in agriculture and wage employment and also as remittances continued to fall. Private investment will rise moderately with the prevailing political stability and the authorities delivering economic reform and better infrastructure. The decline in remittances will slow down and is unlikely to reverse in the near term. Some pickup in export growth is expected, and there is potential for an upside surprise if consumer confidence improves. The government is implementing several transport and energy infrastructure projects to leverage private investment: upgrade of rural roads in the southwest, expansion of the Elenga-Hatikumrul-Rangpur highway in the northwest to four lanes for better connectivity with Bhutan and India, and the construction and upgrade of electricity transmission lines to prevent power So, interruptions. The Bangladesh Investment Development Authority, set up in 2016, is carrying reforms to improve the business climate, including the expected launch of a one-stop business service centre by December 2017. The AOD report said agriculture growth was expected be 2.6 per cent lower in FY2018 because of a higher base effect and prolonged flooding that hindered the planting of monsoon crops. Industrial growth was expected to be moderate to 10.2 per cent, as falling remittances restrained domestic demand. Services growth will ease to 6.0 per cent because of slower growth in agriculture and industry. The ADB thinks that inflation is expected to be higher at 6 per cent in FY2018, but below the 6.3 per cent projected in ADO 2017. Crops lost to the floods at the turn of the fiscal year may put further pressure on rice prices, to be partly offset by expected higher imports. Gas prices were raised in March 2017 with little immediate impact on inflation. However, further increases seem likely as prices remain below international levels and because the revenue will be needed to pay for the expected operation of a liquefied natural gas gasification terminal in 2018 and the planned awarding of gas exploration contracts. A likely rise in electricity prices and taka depreciation may add to price pressures. Nevertheless, the expected moderation in global food prices and weak domestic demand should keep inflation in check. In its monetary policy statement for the first half of FY2018, the central bank has prioritised price stability while supporting growth and job creation. Policy support will continue for micro, small and medium-sized enterprises, with renewed emphasis on employment-focused manufacturing and services and on expanding the availability of low-interest agricultural loans. The central bank is cooperating with capital regulators to encourage startup financing for entrepreneurs in Bangladesh. The FY2018 budget aims to raise revenue to the equivalent of 13.0 per cent of the GDP, a marked boost from 11.2 per cent in the previous year. The Targeted public spending is alsoat 18.0 per cent of GDPmuch higher than that in FY2017, with the deficit again planned at 5.0 per cent of GDP. The project revenues are to grow by 31.8 per cent, implying high buoyancy at 2.3 times of the projected nominal GDP growth of 13.7 per cent and outpacing the spending growth at 26.2 per cent. Recurrent spending is to grow moderately by 16.3 per cent, but the annual development programme is slated to grow by 38.5 per cent to accelerate the implementation of some large-scale infrastructure projects. The implementation of a new value added tax scheduled for July 2017, after a delay of one year, was deferred again. The second deferment prompted the authorities to retain tax measures adopted in the previous year to help sustain such revenue and to adopt other measures to enhance revenue collection. However, attaining the high revenue target will remain a major challenge, and some adjustments to expenditures may be required to meet the deficit objective. Exports are projected to return to a higher growth and rise by 6.0 per cent in FY2018. This projection is underpinned by favourable growth in major markets, a shift in market share towards emerging countries that are projected to see faster growth, a reduction in corporate tax from 20.0 per cent to 12.0 per cent for the garments industry, expanded export incentives to cover new items, government efforts to improve transport logistics, cargo handling at ports and customs procedures. The import bill is expected to be higher by 10.0 per cent in FY2018. Aided by duty reduction from 28.0 per cent to 2.0 per cent for rice, food grain imports are set to pick up to offset shortfalls in domestic production. Petroleum imports will rise to run rental power plants with the rising demand for electricity. Imports of machinery and raw materials for infrastructure and liquefied natural gas projects will increase the import bill. Remittance inflows will decline again in FY2018, albeit at a much slower rate of 3.0 per cent, with fiscal consolidation being moderate among Middle Eastern oil producers. The government is trying to encourage migrant workers to send remittances through official channels by cutting high bank fees for fund transfers, promoting the sale of bonds with higher yields and offering attractive loans to home buyers. A higher trade deficit is expected to push the current account deficit to 1.5 per cent of the GDP in FY2018. The forecasts assume that domestic revenues will rise in line with budget targets, which must be met to implement the public investment programme and that absorptive capacity has improved towards effectively spending a large increase in external financing. With a view to the upcoming national polls in 2018, the forecasts further assume that the implementation of policy reform and completion of ongoing power and transport projects are vital to revive private investment as well as to maintai political stability.