Economic growth to keep up momentum: WB

Bangladesh's economic growth will keep up its momentum this fiscal year despite pressure on the budget from a salary hike for government employees and spending on infrastructure, the World Bank said.

Increased infrastructure spending and public sector wage hikes in Bangladesh are expected to keep growth high at 6.8 percent over the medium term, but will widen the fiscal deficit, said the WB's Global Economic Prospects 2016 released yesterday.

The WB report forecasts that GDP growth will be 6.5 percent against the government's target of 7 percent in the current fiscal year. Growth will be 6.7 percent and 6.8 percent in the following two fiscal years, it said.

The hike in public sector wages will affect the GDP in two ways, said Zahid Hussain, lead economist at the WB's Dhaka office. One of the major sectors on which GDP is calculated is public administration, and government officials' income is reflected in public administration.

On the other hand, the employees will spend their increased salary on consumption, which will also have a positive impact on GDP growth.

The new pay scale was introduced in January last year, while it was made effective from July 1. Some 12 lakh government employees have been drawing their salaries as per the new pay scale with arrears.

In addition, when the teachers under the MPO and other officials related to the national pay scale are counted, the basic salaries of an additional nine lakh people have gone up.

The 5.2 lakh pensioners also got a hike in their pay cheques this fiscal year.

The government has made effective only the hike in basic salaries this fiscal year; the allowances will be raised next fiscal year.

An additional Tk 15,904 crore will be required to bear the increase in basic salaries this fiscal year; an additional Tk 23,828 crore will be needed next year to cover the allowances, according to the finance ministry.

Bangladesh has also started implementing a number of big infrastructure projects, including the Padma bridge and metro-rail, said Hussain.

The government plans to implement a good number of projects in the power and road sectors, he added. Under a $2 billion Indian line of credit, a number of projects will be implemented in the road and railway sectors.

If these projects are implemented properly, economic growth will accelerate in the medium-term, according to Hussain.

An amendment to the labour laws in September that strengthens workers' rights and workplace safety should assist export performance, particularly in light of the ongoing US review of Bangladesh trade status under its generalised system of preferences, the WB report said.

As political tension in Bangladesh has abated, exports have rebounded strongly, supporting activity, according to the report. The easing of political tensions or uncertainty should bolster private consumption, it said.