StanChart forecasts 7.2pc GDP growth

Bangladesh's economic growth will rebound to 7.2 per cent in the current fiscal year, riding on domestic consumption, global recovery, steady flow of remittance and rising exports, said Standard Chartered yesterday.

The forecast is in line with the government projection for gross domestic product (GDP) and higher than that of the World Bank and the Asian Development Bank.

"Bangladesh's economy will grow by 7 per cent to 7.2 per cent in the current fiscal year," said Saurav Anand, economist for South Asia at Standard Chartered.

"If we don't have any more wave of coronavirus infections, we will probably see a GDP growth that is higher than 7 per cent."

He reasoned that the economies where Bangladesh ships most of its exports and the countries that account for a majority of remittance for the country are also doing well. Anand hopes the government's fiscal and monetary policies would remain supportive of growth.

"Bangladesh's debt-to-GDP ratio is one of the lowest across the globe. And this provides a lot of room for the government to push for growth."

He reiterated the bank's estimate that Bangladesh would become a $500-billion economy by the fiscal year of 2025-26, and per capita income would rise to $3,000.

He spoke at the virtual Global Research Briefing Bangladesh 2021 organised by the bank.

The multinational bank said Bangladesh's taka has been the best-performing among the emerging market currencies and will continue to outshine them thanks to robust remittance flow and healthy foreign exchange reserves.

The local currency will remain the strongest currency in the region despite the strengthening of the US dollar and the rising crude oil prices.

Divya Devesh, head of foreign currency research at Standard Chartered for Asean and South Asia, said: "Recently, we have seen some amount of appreciation of the US dollar against the taka."

"But if you look at the taka's performance versus other emerging market currencies, you will see that the taka outperformed them last month."

"The taka is still the best-performing currency across emerging market economies in Asia."

One of the main drivers for the higher USD-taka exchange rate is the commodity prices, particularly oil prices. Brent crude oil rallied since August, rising from about $65 a barrel to about $80 a barrel now.

Devesh said Bangladesh enjoyed a very important buffer compared to other emerging economies in Asia as well as South Asia. One of them is remittance, although it slowed in recent months from a very strong level last year.

"That has been quite supportive to the taka. We think this will remain the case for the remainder of 2021 and next year," Devesh said.

He described the central bank's foreign currency position as very healthy, thanks to a sharp increase in reserves in the last 18 months.

"That actually puts the central bank in a very strong position to manage the foreign currency market."

Standard Chartered has a neutral outlook on the taka and forecasts that the dollar will trade at Tk 86 towards the end of December.

"We continue to think that the taka will outperform the most currencies in the emerging markets in Asia," Devesh said.

Eric Robertsen, global head of research and chief strategist of Standard Chartered, said the economic recovery in Asia and globally would continue although it had been extremely uneven.

The recovery in global trade is the key highlight of the global revival.

"More specially, the recovery in the exports in the emerging markets has been one of the best we have ever seen."

From the lows of early 2020, the recovery in exports took only two quarters to return to the pre-pandemic level. A similar recovery after the global financial crisis in 2007-08 took two years.

The speed of the recovery has been much faster. This is because emerging markets are trading more with each other than ever before, accounting for nearly 50 per cent of their total trade."

"It is no longer just about the US or China," Robertsen said.

According to the researcher, a pickup in demand has created a short-term inflationary surge, exacerbated by the rise in prices of crude oil, copper and natural gas. 

"In 2022, I think the supply chain will reopen as the economies continue to come out of lockdowns, and that should remove some of the inflationary pressures."

"The US dollar should ultimately weaken in the medium to long term, and that should remain a source of support to the emerging markets." 

On the monetary side, import-dependent Bangladesh is feeling a bit of pressure because of the rising commodity prices.

"Non-food inflation is likely to be higher," Anand said.

Standard Chartered forecasts 5.6 per cent inflation in the current fiscal year, higher than the central bank's target of 5.3 per cent.

With rising commodity prices, rebound in demand and constraints facing the supply side and liquidity remains high, inflation will shoot up, the economist said.

He said the private sector investment was coming back in keeping with the accelerating coronavirus vaccination programme, driving up the credit demand. 

The liquidity build-up would see correction as the central bank is selling US dollars. Once the private sector credit growth picks up, the excess liquidity correction will take place automatically.

In Bangladesh, private sector credit growth is still 8.5 per cent.

Anand said the credit growth would pick up once the vaccination rate crosses a particular threshold and businesses feel more confident.

Globally, the ratio of non-performing loans would go up once the moratorium support is rolled back, he said.

Muhit Rahman, head of financial markets of StanChart Bangladesh, said clients had been talking about investments and expansion projects for the last two months.

"In the last one and a half years, clients did not talk to us about investments."

The credit growth would pick up in March-April, he said, adding that garment, textile, and steel manufacturers were talking about expansion projects. 

With the reserves hovering around $48 billion, the country is in a very comfortable position, Rahman said. "Overall, we are very optimistic about the economy."

Bitopi Das Chowdhury, head of corporate affairs, brand and marketing of StanChart Bangladesh, said: "The credit growth is picking up in the personal banking as well."

Earlier, Planning Minister MA Mannan attended a virtual event where  around 300 of the bank's clients joined in via video conferencing.

The  minister said: "The people of Bangladesh, the government and the  business community have once again demonstrated tremendous resilience to  ensure that while our shared development journey might have slowed, it  has not been halted."

"We remain as committed as ever in  fostering a business-friendly climate so that we can continue our  journey of inclusive progress and prosperity," he said, according to a  press release of the bank.

Naser Ezaz Bijoy, chief executive  officer of Standard Chartered Bangladesh, said the government had  navigated the internal and external challenges of the pandemic  remarkably well.

"The resilience of Bangladesh economy gives us  cause for optimism. As the vaccination drive continues, the economy is  set to accelerate."

There are significant opportunities for  productivity gains through technology adoption and technology  inclusiveness through mobile-based solutions and the information  technology-enabled service sector, he said.