The economy will remain subdued this fiscal year due to falling remittance and weak domestic demand in the run-up to the national election, the Asian Development Bank said yesterday.
Subsequently, economic growth in fiscal 2013-14 will mostly depend upon exports and domestic absorption, said the Manila-based anti-poverty institution in its quarterly economic update on Bangladesh.
The regional development bank had earlier forecast the growth this fiscal year to be 5.7 percent, lower than the previous year.
The bank said Bangladesh's short and medium-term growth prospects hinge on how the country addresses short and medium-term risks and challenges.
Reviving economic activities and restoring consumer and investor confidence after the national election is the major economic challenge, it said.
The bank also warned that any re-emergence of unrest would directly affect investment, growth and poverty reduction.
The bank said earnings from remittance inflows declined 8.5 percent year-on-year to $6.8 billion during the July–December period last year.
The decline was due mainly to the large fall in Bangladeshi workers getting employed abroad, which dropped 13.8 percent in the same period.
The immediate challenge for the country comes from the garment sector as it desperately strives to meet demands for internationally accepted safety and labour standards.
The successful transition of the garment industry will require investment in enterprises, complementary public investment in infrastructure, and capacity building related to compliance and safety standards, it said.
The ADB said the transition would increase operating costs, which may reduce the industry's traditional price competitiveness.
The anti-poverty institution also praised the government's macroeconomic policies, terming it “broadly prudent”, while calling the fiscal policy stance pragmatic.
It also said the brisk industry sector growth seen in fiscal 2012-13 would slow down due to work stoppages and supply disruptions caused by political unrest and subdued external demand. This decrease in industrial activity will likely take wheels off service sector growth.
Private investment is expected to stagnate due to the 'confidence effect'. The slowdown in private sector credit, decrease in industrial term loans, lower import of capital machinery and rise in excess liquidity in the banking system, point to lower private investment performance in fiscal 2013-14, according to ADB.
Agriculture growth, if normal weather prevails, is expected to increase this fiscal year due to lower base in the previous two years.
Still, it will not be as high as the 5.1 percent seen in fiscal 2010-11 and 5.2 percent in fiscal 2009-10 as marketing of non-crop agricultural products was affected by the disruptions in distribution network.
“Ensuring an efficient output price for farmers is vital for encouraging farmers to increase production and help ensure food security,” said the bank.
The growth in the service sector, which accounts for 53.9 percent of GDP, will moderate because of slower industry sector growth together with output loss due to the pre-election unrest.
The significant fall in first quarter credit growth in the trade sector, a negative growth in transport and communication, sluggish demand in retail and wholesale trade, hotels and restaurants, transport, education, tourism and a fall in operating profits of commercial banks due to prolonged nationwide political shutdowns, will reflect in slower service sector growth in the first half of the year.
The bank said revenue collection by the National Board of Revenue may not be fully achieved as the July–December collection fell short of the budget target.
As a result, attaining the annual export target of $30.5 billion, which is 12.9 percent higher over fiscal 2012-13's, will be a challenge.
The construction sub-sector, which accounts for 9 percent of GDP, has been badly affected by the political unrest, with apartment and plot sales dipping by 60 percent last year. The number of new projects undertaken by real estate developers fell by around 75 percent last year.
Meanwhile, Standard & Poor's Ratings Services said political uncertainties would stay elevated in Bangladesh for some time, which could hurt investor confidence and weaken economic activity.