External, domestic risks loom large over economy

External and domestic risks are increasingly posing threats to the Bangladesh economy, a World Bank report said yesterday.

On the domestic front, public insecurity, political uncertainty and tightening of supply side constraints can hurt growth prospects.

China's economic slowdown, the fall in global commodity prices, the elusive increase in US interest rates and increased geopolitical tension in Middle East, Ukraine or Africa may affect Bangladesh's growth potential.

The observations were made in a report titled Bangladesh Development Update, which was unveiled yesterday at the WB headquarters in Dhaka.

Zahid Hussain, lead economist of WB's Dhaka office, presented the findings of the report.

Prolonged slower growth in the advanced and emerging markets and the Trans-Pacific Partnership agreement may also adversely impact garments exports and widen trade deficit.

The country is also facing financial sector vulnerability that includes an increase in non-performing loans, and problematic corporate governance in banking.

The widening trade deficit from $6.8 billion in fiscal 2013-14 to $9.9 billion in fiscal 2014-15 reflects eroding external competitiveness, according to the report. It said the period witnessed weak export growth and strong import growth.

Despite remittance recovery, the current account went into a deficit of $1.65 billion last year from $1.4 billion in the surplus a year earlier.

Amid this situation, the WB said Bangladesh's policymakers should plan to tackle macro slippages such as the large current account deficit, exchange rate volatility and rising inflation. The WB also suggested the government prioritise the completion of ongoing reform initiatives so that the risks can be mitigated.

The Washington-based multilateral lender projected the country's gross domestic product growth to be 6.5 percent in fiscal 2015-16 and termed the outlook stable.

But it questioned the preliminary growth figure for fiscal 2014-15.

GDP growth came to 6.5 percent last fiscal year, according to the Bangladesh Bureau of Statistics, but the WB said the figure could not have accounted for losses due to political disruptions.

Furthermore, there is some disconnect with proxy indicators like private credit, revenue growth and imports in BBS's growth estimate.

The report found growth momentum has regained with political stability. But structural impediments, for which the economic growth is hampered, are yet to be addressed.

“Uncertain politics is a problem, but it is not the main one. Investment-friendly environment is the main issue,” Hussain said.

“Whatever initiatives Bangladesh has so far taken to improve the transportation system, ports and special economic zones are yet to be implemented. So, investors are not getting confidence.”

He said public spending has increased without resulting in a noticeable bridging of the infrastructure deficit. The report also noted that prices rise faster than they fall in Bangladesh.

Prices increase promptly whenever international prices increase, but take longer to decrease after international price falls, it said.