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ADB projects 8.0pc growth for FY '19

FE Report | April 04, 2019 00:00:00

The Asian Development Bank (ADB) projected on Wednesday Bangladesh's economic growth at 8.0 per cent for the current fiscal year (FY) with buoyant export earnings and remittance.

The Manila-based lender has revised its growth forecast upward from its earlier 7.5 per cent projection at the Asian Development Outlook (ADO) 2018 Update unveiled last September.

Besides, the growth projection is 0.13 percentage point lower than the government's provisional estimation of 8.13 per cent for FY 2018-19.

The ADB, however, earmarked challenges like reforms in the banking sector, enabling a better business environment, expanding tax base and developing human capital to make economic expansion sustainable.

Senior ADB economist Soon Chan Hong presented the ADO 2019 at its Dhaka office.

ADB country director Manmohan Parkash said, "To sustain this momentum in medium to long terms, Bangladesh requires expanded industrial base, diversified export basket, improved business environment for vibrant private-sector development."

He also called for expanding tax base, better revenue collection for increased resource allocation and human capital development.

It is crucial to reform banking sector to implement the regulations effectively for including more people into the financial market and also to create trust among businessmen, Mr Parkash cited.

The ADB outlook 2019 said public investment would remain strong as the government continues to expedite the implementation of large infrastructure projects and other large projects receiving overseas support.

Private investment is expected to rise, supported by measures to increase private-sector credit, improve the ease of doing business and make hundreds of industrial plots available in special economic zones.

Despite a weaker growth outlook in key exports markets, the report said, earnings from apparel exports are expected higher as new destinations strengthen.

US-China tariff tensions make Bangladesh an attractive alternative source of manufacturing, the ADO added.

About the US-China cold war on trade and its impact on Bangladesh, Mr Hong said, "I don't think Bangladesh will be affected."

"Rather, Bangladesh can tap the benefit from it (trade spat) as some export orders are shifting here," he went on to say.

"Bangladesh has a strong base in its garment, leather and IT industries. It can use these sectors to attract more investments from across the world."

According to the ADB outlook, further expansion in industry here is expected to drive growth in FY '19 as export growth accelerates.

"Growth in agriculture is expected to moderate, considering the high base set last year and the in-services sector is likely to remain unchanged."

However, with global growth continuing to slow, growth in industry is expected to moderate slightly, and expansion in services is likely to follow that trend, the outlook said.

Inflation is expected to ease from 5.8 per cent last year to 5.5 per cent this fiscal, contained by a good harvest and lower global food and oil prices.

About the higher 30.8 per cent revenue growth target this fiscal, the ADB outlook said these high targets will be challenging in light of recent developments.

In the first six months of FY '19, growth in revenue collection by the National Board of Revenue plunged from 20.4 per cent to 6.1 per cent.

The outlook earmarked some downside risks, including failure to boost revenue, could crimp expenditure pledged for implementing priority projects.

"Global oil prices rising above expectations could stoke inflationary pressure. Failure to improve governance, investment climate and infrastructure could undermine other achievements." "Finally, adverse weather is a perennial risk," it mentioned.

The ADB has suggested setting up an asset management company to recover huge non-performing loans (NPLs) in the banking sector.

"State-owned commercial banks and financial institutions have small market shares, but they face major issues such as high NPLs, low profitability, weak governance, widening capital shortfalls."

They also face operational inefficiencies, scant automation, weak credit monitoring and internal risk management, and an ineffective legal framework, the ADB added.

The ADO 2019 laid emphasis on strengthening disaster resilience in Bangladesh as this is one of the worst victims of the risk which sometimes create obstacles to the economic growth.

It ADB also forecast Bangladesh's GDP growth for the next FY '20 8.0 per cent as momentum from the previous year broadly continues.

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