WB trims Bangladesh growth forecast

The World Bank has cut its economic growth forecast for Bangladesh by 0.2 percentage points to 7.2 percent for the current fiscal year, but the country is still poised to clock in the highest growth in South Asia.

The Washington-based multilateral lender, however, kept the growth outlook unchanged at 7.3 percent for the next fiscal year, according to its semi-annual Global Economic Prospects, which was released yesterday.

The growth forecast -- which are revisions of the projections made in June last year -- still puts Bangladesh as one of the fastest growing nations in the world.

“A solid macroeconomic framework, political stability, implementation of planned public infrastructure projects and ongoing reforms to improve the business environment underlie this projection.”

Bangladesh, the third-largest economy in the region, fared better than India and Pakistan, with growth officially estimated at 8.15 percent in fiscal 2018-19.

A moderation in domestic demand was more than offset by a pickup in exports, partly as a result of trade diversion following bilateral tariff increases between China and the US.

According to the report, following its weakest performance since the global financial crisis, the world economy is poised for a modest rebound this year -- if everything goes just right. Hanging over this lethargic recovery are two other trends that raise questions about the course of economic growth: the unprecedented run-up in debt worldwide and the prolonged deceleration of productivity growth, which needs to pick up to bolster standards of living and poverty eradication.

Global growth is set to rise by 2.5 percent this year, a small uptick from 2.4 percent in 2019, as trade and investment gradually recover. Advanced economies are expected to slow as a group to 1.4 percent from 1.6 percent, mainly reflecting lingering weakness in manufacturing.

Emerging market and developing economies will see growth accelerate to 4.1 percent from 3.5 percent last year.

However, the pickup is anticipated to come largely from a small number of large emerging economies shaking off economic doldrums or stabilising after recession or turbulence.

For many other economies, growth is on track to decelerate as exports and investment remain weak, the report said.

Bangladesh’s exports showed signs of softening in recent months, after a substantial increase in exports to major trade partners in the last fiscal year. While regional exports softened in aggregate, Bangladesh’s export growth accelerated, partly reflecting trade diversion amid trade tensions between major economies, according to the report.

Bangladesh’s export earnings fell 5.84 percent year-on-year to $19.3 billion in the first six months of the fiscal year, according to data from the Export Promotion Bureau.

Regional economic activity is expected to benefit from policy accommodation (India, Sri Lanka), improvement in business confidence and support from infrastructure investments (Afghanistan, Bangladesh and Pakistan), the WB said.

Another aspect of the disappointing pace of global growth is the broad-based slowdown in productivity growth over the last ten years.

Growth in productivity, which is output per worker, is essential to raising living standards and achieving development goals.

In Bangladesh, post-crisis productivity growth benefited from improved macroeconomic and political stability, which supported both public and private fixed investment.

As a result, productivity growth in Bangladesh was robust during 2013-18 at 5.1 percent, slightly above the pre-crisis average of 4.7 percent and in the top decile of emerging and developing economies.

According to the report, demand faltered amid credit tightening, reflecting structurally high non-performing assets in countries such as Bangladesh, India and Pakistan.

South Asia’s growth outlook has deteriorated considerably over the past six months. Private consumption and investment weakened sharply amid challenges in the financial sector, which hampered confidence.

Risks to the growth outlook remain tilted to the downside and relate primarily to the financial sector vulnerabilities, geopolitical tensions and lack of progress on reforms.

Although recent tensions between India and Pakistan have abated, a re-escalation would damage confidence and weigh on investment in the region.

Non-performing assets in the financial sector remain high amid weakening regional growth. Further deterioration of balance sheets of banks and corporates would threaten the funding of productive investments.

Failure to close the infrastructure gaps would hold back output and employment.

Announced initiatives such as the recapitalisation and consolidation of public sector banks and measures to foster foreign direct investment inflows are expected to support activity. Insufficient progress in implementing the reforms would set back growth in the region.

According to the report, lack of progress in reforms to improve tax collection could result in more acute revenue shortfalls in Bangladesh and Sri Lanka and put further pressure on elevated fiscal deficits in Pakistan.

“This is could have negative consequences for infrastructure investment and hence for projected growth as well as for the fiscal space available to respond to a future cyclical downturn.”

World Bank forecasts are frequently updated based on new information and changing circumstances.