Bangladesh has outshone neighbours in crisis-time economic performance and may see higher growth at 6.9 per cent in the current fiscal, says the Asian Development Bank, although it cautions about rising inflation and widening of current-account deficit.
Inflation is likely to increase to 6.0 per cent in the current fiscal year (FY) 2021-22 from 5.6 per cent in the last FY2021, it forecasts.
The current-account deficit is likely to widen from 0.9 per cent of gross domestic product (GDP) in FY2021 to 2.7 per cent in FY2022 on the back of increase in imports and a decline in remittance growth, says the ADB in its flagship Asian Development Outlook (ADO) report 2022, published Wednesday in Dhaka.
About such buoyant GDP-growth projection in the current fiscal ADB's senior country specialist Soon Chan Hong said the GDP is projected to continue to grow strongly at 6.9 per cent in FY2022 on stepped-up budget spending, a strong expansion in exports and a slight improvement in agricultural output.
The Manila-based lender in its ADO 2022 also forecasts a better GDP-growth output for the next FY2023 when Bangladesh may grow at a 7.1-percent rate.
ADB's growth projection is much higher than World Bank's latest forecast made in January this year.
The WB in its 'Global Economic Prospects' report said Bangladesh's economy was expected to grow by 6.4 per cent in the current FY2022, while 6.9 per cent in the next fiscal (FY2023).
Meanwhile, Bangladesh government has taken a target for the economy to grow at a higher rate of 7.2 per cent in the current FY2022 and 7.5 per cent in the upcoming FY.
Explaining dynamics of growth, ADB Country Director in Bangladesh Edimon Ginting said they were expecting that Bangladesh's private investment would be rising further with improvement in investor confidence.
"Public investment is also expected to grow with government's large-investment projects to meet huge unmet infrastructure needs of the country," he added.
Asked about Sri Lanka's economic crisis and Bangladesh's upcoming LDC graduation, the ADB country director said that Bangladesh might not fall into that type (SL) of crisis in the near future as its economy is on strong fundamentals now.
When asked about the lessons from the recent debacle in the Lankan economy, Mr Ginting said that for a country it is very much necessary to perceive the importance of maintaining macroeconomic stability, taking correct policies, having a prudent government and a sound macroeconomic management.
Bangladesh, he feels, would not fall into foreign-debt trap either, nor in middle-income trap, since there are "engines of growth".
"But the export products should be diversified beyond RMG while further growth should be enjoyed in other places beyond the capital. Besides, its internal resources mobilization shall be enhanced to keep a strong resources support," he said about the dos for sustenance.
He noted that after the end of conflict in Sri Lanka, the growth did not continue to such extent there, but, on the other hand, growth continued in Bangladesh. "The challenge is how to handle it when it becomes a crisis."
To a question about the role of Bangladesh Bank in the current global economic situation, the ADB executive said that the central bank can continue to accommodate monetary policy to support growth and thus strike a balance in controlling inflation and supporting growth.
The main risk to this growth projection is higher prices for oil imports, and the loss of export sales beyond those built in the present forecasts, mainly due to the Russian invasion of Ukraine, he said.
"The ongoing socioeconomic recovery needs to be accelerated by enhancing domestic resource mobilization, incentivizing the private sector to create products and services, promoting modern green technologies, and fostering knowledge and innovation," he suggested.
In its ADO report the ADB says growth forecast reflects rebounds in external trade and recovery in domestic economic activities fuelled by implementation of stimulus packages and increased remittance.
The current-account deficit is likely to widen from 0.9 per cent of GDP in FY2021 to 2.7 per cent of GDP in FY2022 on increase in imports and decline in remittance growth.
The ADB country chief spelt out climate responsibilities in pursuing development. "Building climate-resilient infrastructure and services, introducing carbon tax on fossil fuels, and promoting green investments will help to further advance the current policy initiatives for managing climate change for inclusive and sustainable green growth."
The ADB notes that Bangladesh's GDP growth recovered to 6.9 per cent in the last FY2021, up significantly from 3.4 per cent in fiscal year 2020.
"Growth performance of Bangladesh is quite remarkable in 2021 compared with other South Asian countries…despite starting from a higher base. Except Bangladesh, all other South Asian economies contracted in 2020," the ADO report reads.
Its strong rebound was supported by recovery in external trade, swift and effective implementation of supportive fiscal and monetary stimulus measures to tackle the Covid-19 pandemic and a sharp increase in remittances.
The ADB Country Director mentioned that stimulus measures amounting to about 5.4 percent of GDP were announced and swiftly implemented by the government.
"Private consumption was also major contributor to growth in FY2021, supported by a sharp increase in workers' remittances to boost domestic income," he said.
To sustain this higher-growth trajectory over the medium and long term and make it more inclusive and sustainable at the same time, he also suggested giving efforts to boost competitiveness, generate employment.
The ADO 2022 forecasts that private investment will get stronger, reflecting a solid growth in private- sector credits and imports of industrial raw materials and capital goods. With large available funding, public investment will increase to support the implementation of priority large infrastructure projects. Growth in private consumption, however, may be affected by a decline in remittances.
Mr Ginting suggested increasing public investment in education, health, and social protection while the impacts of climate change need to be tackled expeditiously.
When asked about the current level of investment-to-GDP ratio, the country director said there is a need to increase that to support higher growth.
He opined that Bangladesh is still on the lower side to attract FDI while domestic investment is also equally important.
"Deeper capital and bond markets are also needed," Ginting said, adding that if the countrywide special economic zones could be operationalised properly, then there could be wider avenues of growth for Bangladesh.
Replying to another question about the low tax-GDP ratio, he said the tax expenditure needs to be streamlined in Bangladesh alongside aligning tax system further with the economy.
kabirhumayan10@gamil.com