The Asian Development Bank (ADB) has forecasted Bangladesh's downward economic growth at 5.8 per cent in the current fiscal 2013-14, less by 1.20 percentage points from the government projection of 7.2 per cent.
The Asian Development Outlook (ADO) 2013 Update, released in ADB's headquarters in Manila said Wednesday that the gross domestic product (GDP) growth will dip in the current fiscal due to weaker exports, investments and domestic demands.
"Political uncertainty prompts consumers and investors to adopt a more cautious approach to spending," Mohammad Zahid Hossain, Principal Economists of ADB's Dhaka office said while analysing the outlook.
Bangladesh government has set the target of achieving 7.2 per cent GDP growth in the current financial year (FY) 2014.
The ADB's latest 5.8 per cent economic growth forecast is also 0.2 percentage points lower than its earlier forecast of 6.0 per cent in the ADO 2013 in April.
Meanwhile, the ADB in its last forecast in April this year projected 5.7 per cent economic growth of Bangladesh for the last FY2013 which has outpaced to 6.03 per cent, according to the estimation of the Bangladesh Bureau of Statistics (BBS).
In its ADO update the ADB further said despite higher remittances, growth in demand for private consumption is expected to weaken as households adopt a cautious
approach to spending because of political uncertainties ahead of parliamentary elections expected by early 2014, depressing production in industries oriented to domestic markets.
The ADB has given bad news for the country's industrial sector as its update said industrial growth is expected to slow down to 8.2 per cent in FY2014 compared to that of 9.0 per cent achieved last fiscal, reflecting slack demand externally and domestically.
It has, however, projected higher agriculture growth in current FY2014 expecting a good weather.
The agriculture is expected to expand at the rate of 3.3 per cent in the FY2014 which is higher than 2.2 per cent achieved in last FY2013.
The update outlook has also projected a slower growth in the service sector to 5.5 per cent from the 5.7 per cent, achieved in last FY2013 due to street agitations in Bangladesh.
"Private investment was restrained by political uncertainty ahead of national election expected by early 2014 and by continued shortage of power and gas, as demand continued to outpace supply. Public investment, though growing, remains low because of capacity constraints in line agencies," the ADB said.
It said despite the country's advantageous geographical location and cheap labour, inflows of foreign direct investment is modest by cross-country comparison.
ADB's principal economist Mr Hossain said Bangladesh has good prospect but it has to improve its infrastructure, business climate and easy regulatory frameworks.
Since the country's urbanisation is expanding, the services would have to be improved to develop the people's livelihood as well as the macro-economy, he added.
The ADO update has also projected the inflation at 7.5 per cent in the current fiscal, higher than its projection of 7.0 per cent both at last development outlook and from the government's monetary policy statement.
"Price pressure stems from expected increase in domestic fuel and electricity prices, likely supply disruption because of national strikes, budget provisions for higher public sector wages, and as expected wage increase in the garment industry once wage board recommendation are made," the outlook said.
Imports are expected to revive and grow by 10 per cent in FY2014, albeit on the year's low base, the ADB said.
Export growth is projected to slow down to 7.0 per cent on a expected weaker expansion in garment exports because of unfavourable buyer reaction in the aftermath of fatal factory fires last November and January and the horrific factory collapse in April this year, it further said.
Remittance growth is expected to decelerate to 8.0 per cent in the current fiscal, following the trend of slow growth witnessed in the second half of FY2013, the ADB outlook said.
The tax revenue income target growth of 19.9 per cent could be difficult unless discretionary measures are adopted, it said adding, a possible complication is tax collection suffering under disruption caused by political unrest.
The ADB said although the public investment target has increased caution will be exercised in utilising the large unallocated item equalling 7.0 per cent of revenue, to ensure that is not misspent on low-priority projects and activities.
The overall deficit is expected to stay within 4.6 per cent of GDP, the ADB outlook projected.
The ADB has forecasted some downside risks in its ADO update 2013.
"Revenue collection and foreign financing could fall short and political pressure might scuttle planned increase in fuel and electricity prices. Such shortfall could undermine fiscal management and induce higher bank borrowing that would break monetary discipline," the ADB said.
Moreover, frequent strikes could seriously disrupt economic activity, it said.
ADB country director in Bangladesh Ms Teresa Kho said in order to grow more rapidly, Bangladesh needs to attach higher priority to enhancing its business climate, improve infrastructure and trade logistics, and address skills shortage.
"Urban congestion is becoming a major development challenge, stretching too thin cities' capacity to provide services. Bangladesh needs to shore up investment on an accelerated basis, and diversify its sources of growth," she added
GSP suspension to negatively impact BD economy
BBS adds: The Asian Development Bank (ADB) said suspension of the Generalised System of Preferences (GSP) will have a negative impact on Bangladesh's economy, suppressing its exports.
"US suspension of GSP is also likely to suppress exports, though garments are not covered by the scheme," said Mohammad Zahid Hossain, Principal Economist of ADB's Bangladesh Resident Mission.
Highlighting key findings of the Asian Development Outlook 2013 Update at a press conference at ADB office here, Hossain said labour unrest and a less competitive exchange rate may also curtail sales.
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