Attaining desired economic growth
Political stability main hurdle: WB
6.5pc GDP growth projected
Unresolved political uncertainty can hurt growth prospect by hindering confidence rebuilding, leading to a stagnation of private investment, the WB said in its report, Bangladesh Development Update, released at a press briefing at WBs Dhaka office yesterday.
Political uncertainties linger, resulting in a deceleration in private investment growth that constrained the transmission of the relative macroeconomic stability into higher economic growth, the WB report said.
Speaking on the WB report, planning minister AHM Mustafa Kamal said the WB report does not always make positive comment. The Bank has warned the European Union also, he added.
The WB projected the countrys gross domestic product (GDP) growth in FY16 at 6.5 per cent, driven by manufacturing on the supply side and consumption on the demand side.
However, the WB said 5.5 per cent growth in FY 15 is questionable.
Failure to capture losses due to political disruptions and disconnect with proxy indicatorsprivate credit, revenue of national Board of revenue, and imports, said the WB report.
Lead economist of WBs Dhaka office, Zahid Hussain, made a presentation on the report.
WBs outgoing country director, Johannes Zutt, said that Bangladeshs macro economic situation is stable and the economy has made tremendous progress. On average, 6 per cent GDP growth is very good for the economy of Bangladesh, he noted, saying, I believe Bangladesh will become a higher middle-income country, within the stipulated time.
Speaking on the Padma Bridge, Zutt said the government is implementing the project, which is very important for regional trade, using its own resources. He also emphasised upon regional connectivity, which can boost trade at regional and international levels. Zutt suggested structural changes, for higher growth in Bangladesh.
The report states, Bangladeshs economy is on a stable path, with a positive near-term macroeconomic outlook. The latest Bangladesh Development Update notes good growth, declining inflation, rising reserves, contained fiscal deficit and stable debt, and sound money, and stable public debt.
Explaining that headcount poverty, based on PPP US$ 1.25 per day, is projected to have declined, from 43.5 per cent in 2010, to 38.4 per cent in 2015, the WB recommends sustaining the GDP and remittances growth, creating jobs, containing inflation, and improving the quality of public service delivery, to reduce extreme poverty and boost shared prosperity.
There is downside risk for the economy, regarding both domestic and external factors. International competitiveness on both demand and supply sides show a declining trend, the report said.
The WB noted that growth momentum regained with political stability. FY15 GDP growth is estimated at 6.5 per cent. This could not have accounted for losses due to political disruptions, and there is some disconnect with proxy indicators like private credit, NBR revenue growth, and imports.
According the WB report, the export growth declined to 3.4 per cent. However, remittance growth recovered to 7.7 per cent.
Rise in industrial growth, to 9.6 per cent in FY15, from 8.2 per cent in FY14, propelled growth. Though growth in consumption dominated, the real private investment growth declined. Agriculture growth is slower and the private investment rate is stagnant.
Inflation declined to 6.4 per cent in FY15, from 7.3 per cent in FY14, thanks to declining food inflation.
Despite the current account deficit, balance of payment surplus amounted to about US$ 4.4 billion in FY15, compared to US$ 5.5 billion in FY14, thus sustaining the appreciation pressure on the nominal exchange rate.
Foreign exchange reserve growth continues. Increased trade deficit from US$ 6.8 billion in FY14, to US$ 9.9 billion in FY15, reflects eroding external competitiveness. The period witnessed weak export growth and strong import growth.
Despite the remittance recovery, the current account went into a deficit of US$ 1.65 billion, compared to US$ 1.4 billion surplus in FY14. The Bangladesh Bank interventions perpetuated foreign exchange reserve build-up, exceeding US$ 25 billion by end-June 2015.
Zahid Hussain said monetary management on track with feeble domestic credit growthdeclining inflation, reduced lending rates, stable exchange rate and reserve build-up show that the central banks monetary policy worked well. It reflects weak credit demand from private sector and the government.
Net foreign assets grew by 18.2 per cent, compared with FY15 3.6 per cent target. The banking sector faces challenges, with estimated average earning declining by 7 per cent in FY15, vis--vis 7.5 per cent growth in FY14.
Overall fiscal deficit was contained at 3.6 per cent of GDP, despite the low tax collections due to political disruptions, and a shift towards low-duty commodity import. NBR revenue collection fell short at Tk. 1,208.2 billion in FY15, compared to Tk. 1,497.2 billion target.
Macroeconomic stability is expected to sustain in FY16. However, reducing inflation to 6.2 per cent, during FY16, will be a challenging task, but achievable given a cautious 15.6 per cent broad money growth and stable international prices. External current account deficit is projected at 0.4 per cent of the GDP, but reserve increase may continue. Budget deficit in FY16 is likely to increase to 4.6 per cent of the GDP, as revenue collections fall short of the ambitious revenue targets and exceed expenditure shortfall. Debt is currently at a low risk of distress.
