Bangladesh economy to grow 6.9pc this year: ADB

The Asian Development Bank has made conservative projections for economic growth and inflation for the current fiscal year, compared to government estimates, due to declining remittance and an upward adjustment of some utility bills.

Bangladesh's economy is expected to grow 6.9 percent, coupled with inflation at 6.1 percent, according to the Asian Development Outlook (ADO), published by ADB yesterday.

However, the government predicted GDP growth at 7.2 percent and inflation at 5.9 percent for this fiscal year.

Finance Minister AMA Muhith on Wednesday said the economy may even grow at 7.5 percent. Last fiscal year, GDP growth stood at 7.1 percent and inflation at 5.92 percent.

“GDP growth is expected to moderate in FY2017 as domestic demand rises more slowly and the slide in workers' remittances deepens,” Jyotsana Varma, principal country specialist of ADB, said at a press meet in Dhaka.

ADB Deputy Country Director Cai Li said Bangladesh has been achieving good GDP growth for the last one decade and it has to be maintained.

Slower export growth caused by weaker consumer demand in the euro area and the United Kingdom is expected in part because the currencies of these destination markets have depreciated against the dollar, said the report.

Increases in wages and continued access to credit will help to sustain private consumption. Private investment will rise only slightly as investors turn cautious ahead of national elections in 2018, the report added.

Public investment is expected to strengthen through fiscal expansion as the authorities speed up their implementation of infrastructure projects, according to the forecast.

Agriculture is expected to slow further to 2.4 percent growth in FY2017, mainly because of limits on area expansion and productivity improvement, according to the ADO.

Forecasting a rise in inflation in the current fiscal year, the ADB said it moderated from October to December 2016 as the arrival of winter vegetables and the aman rice crop lowered food prices.

Nonfood inflation also slowed in this period, reflecting favorable international prices.

“Inflation is expected to rebound in the second half of FY2017. However, with likely higher global prices for oil and other commodities, upward adjustments to natural gas and electricity prices as the government continues to align prices with production costs, and further implementation of salary hikes introduced in FY2016 for government staff and private educational institutions to adjust for inflation and improve living standards.”

The ADO said in the first half of the fiscal year, exports growth was slow but the growth is expected to strengthen in the second half on higher projected growth in the industrial economies. But exports for the full year are expected to slow to 6 percent from 8.9 percent in FY2016.

“Export forecasts assume that policy uncertainty in the US, United Kingdom, and euro area is resolved in ways not inimical to expansion in global trade lows and that the garment industry continues to improve worker safety and welfare,” the ADO said.

Remittance inflows are in declining trend this year as economic tightening continued in the Gulf Cooperation Council economies and newly constrained inflows from the US and the United Kingdom appeared to reflect political uncertainties there, according to ADB.

As oil prices fell in international markets, many countries including India lowered the fuel price, but Bangladesh did not do so.

In this regard, ADB said as a net oil importer, Bangladesh continues to enjoy windfall gains from low global oil prices. The authorities are expected to cut retail fuel prices in FY2017 but leave enough cushion for the Bangladesh Petroleum Corporation to earn an operating profit and recoup past losses.

“Since the beginning of low global oil prices in 2014, the government has cut prices only once -- in FY2016 -- as policy focused on eliminating large subsidies.”

On the ambitious revenue target for the current fiscal year, the ADO said the budget assumes 36.8 percent growth in revenue, attained by raising the ratio of revenue to GDP to 12.4 percent from 9.9 percent in the previous year.

Achieving this high target will be a challenge, considering that collection in the first 4 months grew by only 17.1 percent. Revenue from customs duties will be lower with rate cuts on several items.

The collection of direct taxes could also fall short of its target in light of sluggish trends in income tax receipts from commercial banks.