ADB forecasts BD growth down at 6.9pc in FY18

FE Report | Wednesday, 27 September 2017

The Asian Development Bank (ADB) scaled down Bangladesh's economic growth to 6.9 per cent from the government-projected 7.4 per cent in the current fiscal.
Slower income growth in agriculture and wage employment and also sluggish improvement in remittances are cited as reasons for the lower economic growth forecast by the Asian development financier.

"The growth forecast for Bangladesh in FY2018 is maintained at 6.9 per cent, slightly below the official estimate for the previous fiscal year, as income growth in agriculture and wage employment slows and as improvement in worker remittances remains slow," the Bank said in its Asian Development Outlook (ADO) 2017 update, released Tuesday.
The ADB noted that the country's estimated Gross Domestic Product (GDP) growth in FY2017, which ended on June 30, exceeded last forecasts banking on robust manufacturing and services and on revived agriculture.
In the last FY, Bangladesh's GDP expanded at an estimated 7.24 per cent rate.
The ADO 2017 update says Bangladesh's inflation is expected to be higher at 6.0 per cent in the financial year (FY) 2017-18, but below the 6.3 per cent projected in ADO 2017.
"Crops lost to the floods at the turn of the fiscal year may put further pressure on rice prices, to be partly offset by expected higher imports. Gas prices were raised in March 2017 with little immediate impact on inflation."
However, further increases seem likely as prices remain below international levels, and because revenue will be needed to pay for the expected operation of a liquefied natural gas gasification terminal in 2018 and the planned awarding of gas-exploration contracts, the ADB said in its observations on the country's economic health.
Although a likely rise in electricity prices and taka depreciation may add to price pressures, expected moderation in global food prices and weak domestic demand should keep inflation in check, the Manila-based lender said.
About investment situation, the ADO update predicts private investment will rise moderately with prevailing political stability and the authorities delivering economic reform and better infrastructure.
"The decline in remittances will slow and is unlikely to reverse in the near term. Some pickup in export growth is expected, and there is potential for an upside surprise if consumer confidence improves," the ADB report outlined.
It pointed out that remittances declined by 14.5 per cent to $12.8 billion in FY2017, though the number of jobs held by Bangladeshi workers abroad rose by 32.2 per cent.
"Persistently weak oil prices kept wages depressed in the Gulf, host to over 80 per cent of Bangladeshi migrant workers. The rising cost of living in the Gulf left workers with less to remit, and weaker host country currencies further discouraged remittances. Finally, workers found it costlier to send money home because of higher bank fees and requirements introduced to counter money laundering and terror financing."
Agriculture growth is expected lower at 2.6 per cent in FY2018 because of a higher base effect and prolonged flooding that hindered planting for the monsoon crop.
"Industry growth will be a moderate 10.2 per cent as falling remittances restrain domestic demand. Services growth will ease to 6.0 per cent because of slower growth in agriculture and industry," the report said.
The ADB said the authorities project revenues to grow by 31.8 per cent, implying high buoyancy at 2.3 times of projected nominal GDP growth of 13.7 per cent, and outpacing spending growth at 26.2 per cent.
However, attaining the high revenue target will remain a major challenge, the ADB outlook update says, suggesting some adjustments to expenditures to meet the deficit objective.
"Exports are projected to return to a higher growth and rise by 6.0 per cent in FY2018, underpinned by favorable growth in major markets, a shift in market share toward emerging countries that are projected to see faster growth, a reduction in the corporate tax from 20.0 per cent to 12.0 per cent for the garment industry, expanded export incentives to cover new items, and government efforts to improve transport logistics, cargo handling at ports, and customs procedures.
"The import bill is expected to be higher by 10.0 per cent in FY2018. Aided by duty reduction from 28.0 per cent to 2.0 per cent for rice, food grain imports are set to pick up to offset shortfalls in domestic production," it said.
ADB report says petroleum imports will rise to run rental power plants as demand for electricity increases. Imports of machinery and raw materials for infrastructure and liquefied natural gas projects will increase the import bill.
A higher trade deficit is expected to push the current-account deficit to 1.5 per cent of GDP in FY2018, it said.
Forecasts assume that domestic revenues rise in line with budget targets, which must be met to implement the public investment programme, and that absorptive capacity improves toward effectively spending a large increase in external financing, the outlook said, based on exhaustive analysis of the country's economic indicators.
"They further assume the implementation of policy reform and the completion of ongoing power and transport projects vital to reviving private investment, as well as the maintenance of political stability as national elections approach in 2018."
About the Developing Asia at large, the ADB ADO 2017 outlook forecast that its growth will expand by 5.9 per cent in 2017 and 5.8 per cent in 2018, a slight upgrade from projections in the Asian Development Outlook 2017.
Growth prospects for Developing Asia are looking up, bolstered by a revival in world trade and strong momentum in China.
The ADB outlook finds rebounds in international food and fuel prices gentler than expected, helping to contain consumer price pressures.

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