A latest World Bank reappraisal of Bangladesh's economic condition lowers growth projection to 4.1 per cent for the current fiscal, discounting 1.6-percentage points from its fairly higher previous rating, citing multiple adversities.
Earlier in June 2024, the Washington-based global lender forecast the gross domestic product (GDP) growth of Bangladesh at 5.7 per cent, says a WB report on the latest assessment.
Amid heightened political uncertainty-stemming from the July-August turmoil leading to regime change-- investment and industrial activity are anticipated to remain subdued in the near term which might lower the country's economic growth to 4.1 per cent in FY2025, according to the WB Global Economic Prospects (GEP) report released on Thursday night.
The Bank, however, has drawn a better picture for the Bangladesh economy in the forthcoming FY2026 as the growth is projected to pick up to 5.4 per cent, assuming broad political stability, successful reforms in the financial sector, an improved business climate, and increased trade.
"Easing inflation is expected to boost private consumption in the coming months," the World Bank report predicts.
Bangladesh Bureau of Statistics (BBS) has already painted a disquieting picture for the economy as it said the GDP growth slowed to just 1.8 per cent in the first quarter (July-September) of the current fiscal year (FY) 2024-25, the slowest pace in 15 quarters or nearly in four years.
The GDP growth three years and nine months ago (15 quarters) in Q2FY2021, the worst time for the coronovirus impact, was recorded lowest at 0.93 per cent.
A month before, Bangladesh government revised its GDP-growth projection for FY2025 downward to 5.2 per cent from its initial estimate of 6.75 per cent.
"The political turmoil in mid-2024 and defoliated investors' confidence are the key reasons for the lower growth forecast," the Bank's GEP report reads.
About the wayward inflation, the WB report says inflation is expected to remain above the target for FY2025, partly reflecting the adverse consequences of earlier political upheavals.
The Bangladesh government set a target to hold inflation in the current fiscal in check at 6.5 per cent.
Supply constraints, energy shortages and import restrictions weakened industrial activity and led to increased price pressures, the World Bank notes in its report.
"High inflation reduced the purchasing power of households, slowing services growth," the report adds about its domino effect.
Focusing on the South Asian Region (SAR), the WB says the economic growth is expected to rise to 6.2 per cent in 2025 and 2026, supported by the projected firm growth in India, though it will remain below the long-term average over 2000-19.
Excluding India, growth in SAR is expected to strengthen to 4.0 per cent this year and to 4.3 per cent in 2026.
The forecast for this year is slightly lower than in June 2024, mainly because of a downgrade for Bangladesh amid policy uncertainty, despite upward revisions for several other countries driven by recent improvements in activity, the GEP report mentions.
India is projected to maintain the fastest growth among the world's largest economies, at 6.7 per cent in both FY2026 and FY2027, according to the WB.
Per-capita-income growth in South Asia is forecast to remain resilient at 5.2 per cent a year, on average, in 2025-26.
However, in Bangladesh, Pakistan, and Sri Lanka, per-capita-income growth is expected to be weaker in 2025-26 than in the decade preceding the pandemic, implying a slower pace of poverty reduction and, in some countries, a projected slowdown in income catch-up to economies with higher income levels, the Washington-based lender says.
Even after India is excluded from the aggregate, the region is expected to see an increase in per-capita-income growth, from 2.5 per cent in 2024 to 3.0 per cent in 2026, with poverty set to decline further over the forecast period.
Region-wide fiscal deficits, particularly when India is put aside, are forecast to be stable, mainly reflecting the impact of fiscal adjustments offset by expected increases in interest payments in Pakistan and infrastructure investment in Bangladesh, the WB reports.
Youth unemployment remains elevated in the SAR, having risen since the pre-pandemic decade in many countries, including Bangladesh, Bhutan, Pakistan, and Sri Lanka, and is generally much higher than for other age groups.
High youth unemployment is partly associated with increased emigration, especially among skilled workers, because of limited employment opportunities, as seen in Bhutan.
In the SAR domain, spillovers from weaker-than-expected growth outside the region would be smaller than those in other regions owing to lower trade openness and limited infrastructure and connectivity.
Nevertheless, says the WB, slower-than-projected growth in major trading partners and the resulting weaker demand could dampen activity, particularly in countries with strong economic ties with Europe and the United States, including Bangladesh, Pakistan, and Sri Lanka.
For example, countries in Europe account for about a half of total goods exports in Bangladesh.
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