World Bank Acting Country Director Robert J. Saum presenting Bangladesh Development Update 2019 in the city on Thursday — FE photo
The World Bank (WB) forecast on Thursday a conservative 7.3 per cent growth of Bangladesh's economy for the current fiscal year (FY) 2018-19.
The GDP (gross domestic product) growth rate is 0.83 percentage points lower than the government's provisional estimation of 8.13 per cent, it forecast.
About the lower growth forecast, WB lead economist Dr Zahid Hussain said they had analysed growth-related available data and statistics.
"Then we have our certain method through which we make the GDP growth forecast. And our outcome was 7.3 per cent expected growth this year."
About GDP growth, Mr Hussain said: "Bangladesh economy has been doing well over the years. Its potential is much higher than the current performance."
He made the observations while unveiling the 'Bangladesh Development Update 2019: Towards Regulatory Predictability' at his office in Dhaka.
According to the WB report, Bangladesh is the fifth fastest-growing economy in the world.
Ethiopia, Rwanda, Bhutan and India top the list respectively while Bangladesh shares the position with Ghana, Djibouti and Ivory Coast.
The WB said Bangladesh's growth outlook remains strong and stable.
Meanwhile, the WB opposed the government's move on the latest bailout package for bank loan defaulters, saying this could encourage good borrowers to be new defaulters.
"If the rescheduling rate for non-performing loans (NPLs) becomes lower than the normal credit rate, regular loan payment by other borrowers could be affected," said Dr Hussain.
Finance Minister AHM Mustafa Kamal recently said banks would charge defaulters a 9.0 per cent simple interest rate over a 12-year period.
The banks would also charge 2.0 per cent down payment of the total credit with intent to bail them out of the bad debt burden, he added.
About NPLs at commercial banks, Dr Hussain said directed lending, poor risk management and weak corporate governance lead to a rise in defaulted loans.
"NPL is like a contagious disease… If the regulations are not imposed properly, it has possibility to spread even to good borrowers."
"If the government allows defaulters to reschedule bad loans one after another occasion, this practice of rescheduling and write-offs will result in further stress on the banks," the economist said.
"NPL usually increases when businessmen as well as the country face natural disaster or any other catastrophe. But there have been no such incidents over the years…"
According to the WB update, the Bangladesh Bank (BB) approved loan rescheduling of Tk 191 billion in 2017 and Tk 200 billion in 2018.
"NPLs are increasing despite wholesale loan rescheduling," it stated.
Sound macroeconomic policies like keeping budget deficit below 5.0 per cent of GDP and resilient domestic demand have led to growth in manufacturing and construction industries on the supply side.
On the demand side, it said, growth is led by private consumption and exports.
Mr Hussain said weak private investment, private-sector credit growth, decline in capital machinery import rate, lower revenue, poor human capital development and lower employment rate risk sustained economic growth.
The WB suggested that Bangladesh's regulatory system underscores a technical regulatory oversight body to oversee, lead and report on regulatory reforms.
It said Bangladesh requires huge investments in human capital and innovations and addressing infrastructure gap to become an upper middle-income country by 2031 and achieve high-income country status by 2041.
WB acting country director for Bangladesh Bob Saum, among others, were present at the event.
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