FE Today Logo

GDP to grow 6.8pc in FY'21, projects ADB

Projection is based on strong manufacturing base, recovery in exports, remittances

FE REPORT | September 16, 2020 00:00:00

Bangladesh's economy is expected to grow at a rate of 6.8 per cent in the current fiscal year, recovering from the severe adverse impact of Covid-19 pandemic, Asian Development Bank (ADB) said on Tuesday.

It, however, apprehended that this growth projection would not be achieved if the pandemic prolongs in Bangladesh or in its export destinations.

"The growth reflects gradual recovery, supported by a strong manufacturing base and strengthening of growth in export destinations," according to the Asian Development Outlook (ADO) 2020 Update, released by the ADB headquarters in Manila on Tuesday.

The country's gross domestic product (GDP) growth forecast is 1.4 percentage points lower than the government's target of 8.2 per cent for the FY2021. Its GDP grew at 5.24 per cent in the last FY, according to a provisional estimate.

However, the ADB has provided a far better outlook on Bangladesh's economy than that of the World Bank, which drew a grim picture for the FY'21. The WB also said the South Asian economy could grow at only 1.0 per cent rate as it is hit hard by the pandemic.

The recent projection by the International Monetary Fund (IMF) on Bangladesh's GDP growth at 5.7 per cent for the FY'21 was also less than that of the ADO 2020 Update.

The ADB in its previous ADO released in April 2020 had forecast Bangladesh's GDP growth at 8.0 per cent for the FY'21, which was later lowered to 7.5 per cent in the ADO Supplement released in June last considering the impact of COVID.

Stating the signs of economic recovery, the latest ADO stressed the need for prudent macroeconomic management and speedy implementation of the government stimulus measures as the key imperatives to ensure the projected economic recovery in Bangladesh.

ADB's Bangladesh Country Director Manmohan Parkash said: "Bangladesh economy has started recovering from the pandemic. Despite significant pressure on the health and pandemic management systems, the government has managed the economy well with appropriate economic stimulus and social protection measures, ensuring basic services and commodities for the poor and vulnerable."

"Recent economic performances in exports and remittances, and government's macroeconomic management including securing foreign funds for economic stimulus and social protection have made this recovery feasible," he added.

The ADO Update said the government's fiscal and monetary stimulus measures are expected to boost public and private investment in FY'21.

It said: "GDP growth is projected at 6.8 per cent in FY2021, revised down from ADO 2020 because COVID-19 and its impacts are lingering longer than expected, and government stimulus packages have had little time to take hold."

"With cautious reopening of the economy since May 2020 and subdued global economic conditions, recovery is expected to be gradual in the first two quarters of FY21. Then a strong manufacturing base will enable more rapid recovery in tandem with projected strengthening of growth in the advanced economies and import demand from them," the Outlook observed.

As factories are gradually accelerating production, growth in exports and imports will revive, it added.

"After the slowdown in March-April 2020, remittance had started to recover, firming private consumption. The restoration of consumer confidence, along with government stimulus packages, will boost private and public investment," the report said.

Mr. Parkash said: "The central bank's expansionary and accommodative monetary policy is expected to aid the projected growth while keeping inflation contained. Strong remittances will stimulate private consumption."

About the sectoral growth, the agriculture sector is projected to rise to 3.5 per cent in FY'21, aided by the government's subsidies for seed, fertilizer, innovation, farm mechanisation, and irrigation, and by central bank refinancing facilities to provide working capital for small and medium-sized farms affected by the pandemic.

Growth in industrial sector is forecasted at 10.3 per cent, assuming improved consumer demand, strong export growth following recovery in major export markets, and expected growth in private investment, it said.

Supported by sustained growth in agriculture and industry, the services sector is expected to grow by 5.5 per cent, the ADB outlook further said.

About the inflation, the ADB has also forecasted a better position for Bangladesh as the country's inflation is expected to moderate at 5.5 per cent. "Inflation is expected to stay at 5.5 per cent in FY'21 reflecting a good crop outlook and favourable international commodity prices."

Consumer caution and underutilized production capacity should mitigate any upward pressure on prices from the government's fiscal and monetary stimulus measures, it added.

The current account deficit might also to be narrowed down to 1.1 per cent of GDP in FY'21 from the current base, according to the ADB Outlook.

Mr. Parkash said: "We are encouraged by the increase in exports and remittances, and hope the recovery will be sustained, which will help in achieving the projected growth rate."

"Early access to vaccine and continued emphasis on health pandemic management can help sustain this recovery," he added.

Mr. Parkash said: "This crisis is an opportunity to undertake further reforms in resource mobilisation, export diversification, employment generation, skills development, as well as social protection; and ADB is working with the government in these areas to provide further support."

Among the challenges, the ADB on remittance flow said the next four worst-affected economies are Tajikistan, where remittances are on track to fall by 27.9 per cent, Bangladesh by 27.8 per cent, Pakistan by 26.8 per cent, and the Kyrgyz Republic by 25.2 per cent.

During the market turmoil in March, most Asian currencies weakened against the US dollar. In the same period, the currencies of Bangladesh, the Philippines, and Vietnam remained relatively stable against the US dollar, the ADB said.

About the monetary policy, the ADB outlook said the main risks to the achievement of monetary goals are uncertainty surrounding the COVID-19, natural calamities, any worsening of nonperforming loans, and unexpected inflationary pressure.

Regarding the revenue generation, the ADB report said while the revenue target is more measured than in previous years, fully achieving it will still be a challenge, considering the impact of COVID-19 on tax revenue.

The ADB said: "As most stimulus will be implemented through this budget, along with large priority projects, government expenditure must rise. Consequently, the budget deficit is likely to be somewhat higher, equal to 6.2 per cent of GDP, requiring greater reliance on external lines of credit, which are ample."

Exports are expected to grow by 8.0 per cent in FY21, with gradual recovery in the first half, accelerating in the second, along with the expected upturn in the global economy, the outlook said.

"Export recovery will be aided by government stimulus measures and exports to improve the business climate, as well as using duty-free trade opportunities extended by China. Potential exists for signing other free or preferential trade agreements."

Imports are expected to grow by 5.0 per cent as the readymade garment industry returns to normal operations and requires substantial imports of input materials, the ADB outlook said.

Meanwhile, the ADO Update on its South Asian outlook on Tuesday projected a recovery sign as the subcontinent will grow at 7.1 per cent rate in FY'21.

It said the Maldives would grow at a highest 10.5 per cent rate in FY'21, India at 8.0 per cent rate, Sri Lanka at 4.1 per cent and Pakistan at 2.0 per cent rate.


Share if you like