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World Bank makes grim economic forecast

Growth to dive below 3.0pc in FY20, 2.0pc in next FY

FE Report | April 13, 2020 00:00:00

Bangladesh's economic growth will be between 2.0 and 3.0 per cent in the current fiscal in the aftermath of coronavirus pandemic, the World Bank has forecast.

The WB has made the forecast on Bangladesh's economic growth in its report on "South Asia Economic Focus Spring 2020: A Cursed Blessing of Public Banks". The report was released on Sunday.

The government has a GDP (gross domestic product) growth projection at 8.2 per cent for the fiscal 2019-20.

The growth rate will get even worse during fiscal year 2020-21, dipping as low as 1.9 per cent, the Bank said

But Finance Minister AHM Mustafa Kamal dismissed the bank's forecast, saying it is not possible to make growth rate projection without having some data and facts.

The GDP cannot crashland since the economy is on a strong footing except for export growth during the first eight and a half months to March 15, he told the FE.

The global economy, no doubt, is in bad shape, but it does not mean Bangladesh's economy will crash to the level the WB projects, the minister said.

The WB, in its report, said: "The growth is projected to decelerate driven by COVID-19 disruptions and the already weak performance of exports and private investment in the first half of the year."

The report said the national shutdown is likely to impact private consumption, the main engine of growth.

While remittances were robust in the first half of the year, they are likely to decline, reducing household consumption, it added.

The report noted: "The uncertainties related to COVID-19 are likely to further dampen private investment. A shortage of intermediate inputs is expected to lower industrial production, while staff shortages could adversely impact all sectors."

The bank has also drawn a grim picture in fiscal management as it said the lower revenue collection and higher recurrent spending are likely to increase the fiscal deficit to 7.7 per cent of GDP in FY2020.

As the government ramps up spending in response to the COVID-19 outbreak, the fiscal deficit is projected to increase, it explained.

"While growth is expected to recover over the medium term, downside risks remain, particularly from a domestic outbreak of COVID-19 and fragilities in the financial sector," it added.

The Washington-based lender also forecast a higher inflation and pressure on the current account balance due to expansionary monetary and fiscal policies, and higher food prices with a decline in exports and remittances.

It said the Bangladesh's poverty is expected to increase substantially in the absence of mitigation measures in the coming days.

"About 1 in 4 households currently living in poverty are engaged in informal activities in the non-farm service and construction sectors, which have been significantly affected by closures and disruptions," it added.

The decline in national and global demand for manufactured goods, particularly in the garment sector, is expected to create unemployment and deepen poverty, it said.

The negative impact of COVID-19 on poverty rates is expected to be higher in urban centres, while the number of additional poor will be higher in rural areas, the report added.

The bank said a decrease in international remittances is expected to have a smaller short-term impact on the poverty rate, as migrants tend to come from better-off households.

The WB report identified other challenges such as concerns over the stability of the financial sector, stagnant tax administration reforms, expanded subsidy programmes, and donor fatigue for the Rohingya response.

It said increased deficit financing from domestic banks is expected to put upward pressure on interest rates and may further constrain credit to the private sector.

Other ongoing priorities remain, including strengthening fragile banks, accelerating reforms in business regulation, addressing exchange rate overvaluation and deepening fiscal reforms, the WB report said.

Executive director of the Policy Research Institute Dr. Ahsan H Mansur termed the WB's report more realistic as the impact of the coronavirus has already started taking a toll on the national economy.

Many people are already jobless, and many people will slip back into poverty, he added.

Mercy Tembon, World Bank's country director, told the FE: "The economic impact of Covid-19 has been sudden and severe - not just in Bangladesh, but around the world."

"Movement restrictions in Europe, the United States, and the Middle East immediately impacted orders for ready-made garments from Bangladesh. At the same time, overseas workers are facing unprecedented challenges, and we expect this will negatively affect remittance inflows," she said.

The World Bank prepares its forecasts independently using international and national data, observed trends, and global risk factors.

She argued the strength of the recovery from Covid-19 will depend on the policies and programmes implemented.

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