Bangladesh's economy faces downgrades for the past political upheaval that prompts the World Bank to lower its growth forecast to 4.0 per cent for the current fiscal year, but sees a silver lining on the horizons.
The global development financier has downgraded Bangladesh's growth forecast by 0.4-percentage points from its April projections, as the unrest and ultimate changeover came thereafter.
The Washington-based lender has also given bad signals for consumers as the inflation is likely to be higher in the future while the South Asian economic output is projected to be rosy amid a lower trend in the consumer price index.
"The inflation in Bangladesh is higher unlike other economies in SA and the GDP growth is much lower than the average 6.4 per cent of the SA economic growth average," the WB says in its South Asian Development Update, unveiled Thursday.
The World Bank notes that widespread student-led protests in Bangladesh caused significant economic disruptions, including a decline in industrial and services-sector activities, export shipments, and remittance inflows.
The Bank, however, finds a rebound process with the dust having settled after the political storms. It says Bangladesh's economy has stabilised and remittance inflows increased after the takeover by interim government.
Meanwhile, the lender forecasts a bit higher economic growth for the next FY2026, with the GDP growth rising to 5.5 per cent in the coming year.
Franziska Ohnsorge, World Bank Chief Economist for South Asia, briefed journalists virtually while rolling out the SA Development Update report on the day, with a special focus on inexorable inflation in Bangladesh.
"Headline inflation has fallen to within or below target ranges in most inflation-targeting countries in South Asia, the exception being Bangladesh. Food-price inflation continues to account for half or more of consumer price inflation in most countries in the region," the WB says.
For the inflation outlook, the WB has given bad news for Bangladesh as it says although the headline inflation is expected to moderate further in most SA nations during 2024-26 from its 2023 levels, Bangladesh and the Maldives are exception as there were disruptions from unrest (Bangladesh) and the removal of price subsidies resulting from fiscal reforms (Maldives) that are expected to raise inflation in 2025.
About the gross domestic product (GDP) growth in South Asia, the WB says it is projected to reach 6.2 per cent in 2025-26, again higher than in other Emerging Market and Developing Economy (EMDE) states.
"For five South Asian countries, forecasts have been upgraded from six months ago; only the forecasts for Bangladesh and Maldives have been downgraded. The widespread upgrades reflect robust growth in private consumption in India, and stronger tourism or hydropower exports in Bhutan, Nepal, and Sri Lanka than previously projected," it adds.
About foreign-exchange reserves, a major macroeconomic parameters, the WB says Bangladesh's foreign -exchange-reserve levels have declined since early 2024 as a result of persistent current- account deficits in Bangladesh and the Maldives.
In Bangladesh, gross reserves at the end of June covered 3.3 months of prospective imports after a disbursement under the IMF arrangement, it notes.
Bangladesh has taken several reforms in financial and other sectors but the policy uncertainty could delay the implementation of planned reforms, the World Bank cautions.
Industrial policies aimed at boosting domestic technological development and employment-such as technology-transfer caps, sectoral-equity caps, and stringent controls on expatriate skilled workers-have hindered private investment in the country by preventing a reallocation of credit and labour toward more productive firms, the Development Update report reads.
About the outlook, the WB development update says output growth is expected to slow from 5.2 per cent in FY2023-24 to within the range of 3.2-5.2 per cent (with a mid-point of 4.0 per cent) in FY2025.
"The wide range of the growth projection reflects the lack of available or reliable data in recent months, and significant uncertainties around the political and economic outlook following the recent political turmoil.
"In the short term, political uncertainties are expected to keep investment and industrial growth subdued. Recent floods are expected to set back agricultural production modestly," the Washington-based lender forecasts on the downside risks.
On an optimistic note, it says in the medium to long term, Bangladesh's economic growth is expected to pick up gradually, benefiting from critical reforms in the financial sector, increased domestic resource mobilization, improved business climate, and increased trade.
The economic growth in SA is expected to increase to 6.4 per cent this year, exceeding earlier projections and keeping the region on track to be the fastest growing in the world.
Unlocking untapped potential by increasing women's participation in the labour force and opening further to global trade and investment could help the region grow even faster and achieve its development goals, recommends the WB development update report, a twice-yearly regional outlook.
Bhutan's economy is expected to grow by 7.2 per cent in FY2025, while in India to 7.0 per cent, the Maldives to 4.7 per cent, Nepal to 5.1 per cent, Pakistan to lift growth to 2.8 percent, and Sri Lanka to grow at 3.5 percent in 2025.
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