ADB forecasts 5.2pc GDP growth in FY 2010
Thursday, 24 September 2009
FE Report
The Asian Development Bank (ADB) has forecast a 5.2 per cent growth in the economy of Bangladesh for the fiscal year (FY) 2010, as was projected earlier, given that the impact of the global downturn is being felt broadly.
The forecast for growth in gross domestic product (GDP) depends on some key assumptions, the ADB said in its flagship annual economic publication, Asian Development Outlook (ADO) 2009, which was released Tuesday.
"It is assumed that political stability will prevail, and that the government will be able to move forward in fulfilling its development priorities, sustain its focus on prudent macroeconomic management, and deepen economic reforms," the ADO said.
It also assumed that the measures outlined in the FY2010 budget to accelerate ADP utilisation, including streamlining project approval processes and raising institutional capacities in key line ministries, would be implemented, and that the private sector will invest more in infrastructure through the new PPP (public private partnership) scheme.
The ADB expressed the hope that the government will be able to mobilise adequate external assistance and improve revenue mobilisation, and avoid crowding out the private sector through excessive bank borrowing.
"With the assessment of sector performance remaining unchanged, growth projections for agriculture, industry, and services have been maintained at their ADO 2009 levels," said the ADO.
Agricultural growth is expected to remain strong at 4.1 per cent though this is somewhat less than the FY2009 expansion of 4.6 per cent, reflecting farmers' response to lower farmgate prices.
A pickup in industry to exceed the earlier projections is unlikely, as both external and domestic demands are expected to be sluggish, especially in the first half of FY2010, it revealed.
"Although industrial growth should improve in the second half with the expected strengthening in the global economy and more activity in domestic construction, annual growth is projected at 6.0 per cent in FY2010," it said.
With virtually no gain in industry's performance, agricultural growth slowing, and moderation in domestic demand as growth in inflows of workers' remittances tapers off, expansion in services is expected to continue sliding to 5.5 per cent, it added.
According to the ADO, the fiscal stimulus package of Tk 34.2 billion (about US$500 million) announced in April 2009 to support the sectors affected by the global slump is continued through FY2010, with an additional allocation of Tk50 billion (about $725 million).
The budget has also strengthened existing safety-net programmes and introduced several new programmes, including an enhanced employment generation programme for the hardcore poor.
Besides, the FY2010 revenue target of 11.6 per cent of the country's GDP (compared with 11.2 per cent in FY2009) may prove hard to meet because of the expected continued moderate expansion in imports and subdued economic growth.
While the opportunity to legalise undeclared income should generate additional income for the year, it could potentially act as an incentive to taxpayers for concealing normal income so as to take advantage of the much lower tax rate applied, and could further undermine compliance as taxpayers underpay current tax in anticipation of future amnesties, it said.
The new revenue-enhancing measures in the budget may also take time to yield results, the ADO added.
The large one-off collection by the Bangladesh Telecommunication Regulatory Commission in FY2009, which was paid as a dividend to the Government, will not be repeated this fiscal year, it said.
Because of the substantially higher public expenditure (16.6 per cent of GDP), the overall deficit will rise to 5.0 per cent of GDP from 4.1 per cent in FY2009.
Foreign financing is 2.0 per cent and domestic financing 3.0 per cent of GDP, with over four fifths coming from the banking system, it said, adding the absence of an active secondary bond market limits non-bank investors' interest in this source of non-inflationary financing.
"In the event of shortfalls in revenue and external financing, the Government would either have to borrow more heavily from banks-squeezing private investment and fueling inflation-or cut public spending, which would affect its growth and poverty reduction programmes," said the ADO.
For FY2010, this Update retains the ADO 2009 average inflation projection of 6.5 per cent (slightly lower than FY2009's actual 6.7 per cent as import price increases are expected to be moderate and the projected growth in crop output, though decelerating from FY2009, will remain healthy, it said.
Meanwhile, the Asian Development Bank (ADB) has also forecast economic expansion in developing Asia to come in at 3.9 per cent in 2009, up from 3.4 per cent expected earlier.
In 2010, the growth projection has also been upgraded to 6.4 per cent from 6.0 per cent.
Stronger growth in East Asia and South Asia underpinned the improved prospects, the ADB's flagship annual economic publication revealed.
The ADO, however, said developing Asia is proving to be more resilient to the global downturn than was initially thought.
"Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown," the press release said, quoting ADB Chief Economist Jong-Wha Lee.
Firm action by many governments and central banks, the relatively healthy state of financial systems prior to the global crisis, and the rapid turnaround in the region's larger, less export-dependent economies, all enhanced developing Asia's growth prospects, the ADO said.
Prospects for South Asia improved to 5.6 per cent this year, up from the ADO 2009 forecast of 4.8 per cent as the outlook for five of the eight sub-regional economies were upgraded, it said, adding the sub-region's limited reliance on trade partly shielded it from the adverse effects of the global slump.
The Asian Development Bank (ADB) has forecast a 5.2 per cent growth in the economy of Bangladesh for the fiscal year (FY) 2010, as was projected earlier, given that the impact of the global downturn is being felt broadly.
The forecast for growth in gross domestic product (GDP) depends on some key assumptions, the ADB said in its flagship annual economic publication, Asian Development Outlook (ADO) 2009, which was released Tuesday.
"It is assumed that political stability will prevail, and that the government will be able to move forward in fulfilling its development priorities, sustain its focus on prudent macroeconomic management, and deepen economic reforms," the ADO said.
It also assumed that the measures outlined in the FY2010 budget to accelerate ADP utilisation, including streamlining project approval processes and raising institutional capacities in key line ministries, would be implemented, and that the private sector will invest more in infrastructure through the new PPP (public private partnership) scheme.
The ADB expressed the hope that the government will be able to mobilise adequate external assistance and improve revenue mobilisation, and avoid crowding out the private sector through excessive bank borrowing.
"With the assessment of sector performance remaining unchanged, growth projections for agriculture, industry, and services have been maintained at their ADO 2009 levels," said the ADO.
Agricultural growth is expected to remain strong at 4.1 per cent though this is somewhat less than the FY2009 expansion of 4.6 per cent, reflecting farmers' response to lower farmgate prices.
A pickup in industry to exceed the earlier projections is unlikely, as both external and domestic demands are expected to be sluggish, especially in the first half of FY2010, it revealed.
"Although industrial growth should improve in the second half with the expected strengthening in the global economy and more activity in domestic construction, annual growth is projected at 6.0 per cent in FY2010," it said.
With virtually no gain in industry's performance, agricultural growth slowing, and moderation in domestic demand as growth in inflows of workers' remittances tapers off, expansion in services is expected to continue sliding to 5.5 per cent, it added.
According to the ADO, the fiscal stimulus package of Tk 34.2 billion (about US$500 million) announced in April 2009 to support the sectors affected by the global slump is continued through FY2010, with an additional allocation of Tk50 billion (about $725 million).
The budget has also strengthened existing safety-net programmes and introduced several new programmes, including an enhanced employment generation programme for the hardcore poor.
Besides, the FY2010 revenue target of 11.6 per cent of the country's GDP (compared with 11.2 per cent in FY2009) may prove hard to meet because of the expected continued moderate expansion in imports and subdued economic growth.
While the opportunity to legalise undeclared income should generate additional income for the year, it could potentially act as an incentive to taxpayers for concealing normal income so as to take advantage of the much lower tax rate applied, and could further undermine compliance as taxpayers underpay current tax in anticipation of future amnesties, it said.
The new revenue-enhancing measures in the budget may also take time to yield results, the ADO added.
The large one-off collection by the Bangladesh Telecommunication Regulatory Commission in FY2009, which was paid as a dividend to the Government, will not be repeated this fiscal year, it said.
Because of the substantially higher public expenditure (16.6 per cent of GDP), the overall deficit will rise to 5.0 per cent of GDP from 4.1 per cent in FY2009.
Foreign financing is 2.0 per cent and domestic financing 3.0 per cent of GDP, with over four fifths coming from the banking system, it said, adding the absence of an active secondary bond market limits non-bank investors' interest in this source of non-inflationary financing.
"In the event of shortfalls in revenue and external financing, the Government would either have to borrow more heavily from banks-squeezing private investment and fueling inflation-or cut public spending, which would affect its growth and poverty reduction programmes," said the ADO.
For FY2010, this Update retains the ADO 2009 average inflation projection of 6.5 per cent (slightly lower than FY2009's actual 6.7 per cent as import price increases are expected to be moderate and the projected growth in crop output, though decelerating from FY2009, will remain healthy, it said.
Meanwhile, the Asian Development Bank (ADB) has also forecast economic expansion in developing Asia to come in at 3.9 per cent in 2009, up from 3.4 per cent expected earlier.
In 2010, the growth projection has also been upgraded to 6.4 per cent from 6.0 per cent.
Stronger growth in East Asia and South Asia underpinned the improved prospects, the ADB's flagship annual economic publication revealed.
The ADO, however, said developing Asia is proving to be more resilient to the global downturn than was initially thought.
"Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown," the press release said, quoting ADB Chief Economist Jong-Wha Lee.
Firm action by many governments and central banks, the relatively healthy state of financial systems prior to the global crisis, and the rapid turnaround in the region's larger, less export-dependent economies, all enhanced developing Asia's growth prospects, the ADO said.
Prospects for South Asia improved to 5.6 per cent this year, up from the ADO 2009 forecast of 4.8 per cent as the outlook for five of the eight sub-regional economies were upgraded, it said, adding the sub-region's limited reliance on trade partly shielded it from the adverse effects of the global slump.