Emon Ahmed Bangladesh’s economy will grow by 8% this fiscal year (2019-2020), which according to the latest forecasts of the Asian Development Bank (ADB) would be the highest in Asia. The estimate is 0.2 percentage points lower than the government’s target of GDP growth in the year.
Bangladesh's GDP growth last year was 8.13%.
The expected AfDB economy in Bangladesh should support healthy growth, supported by dynamic exports, robust private consumption with higher transfers, accommodative monetary policies, ongoing reforms to improve the business environment for private investment and investment in public infrastructure.
The AfDB presented its update to the Asia Development Outlook 2019 by a press conference in its Dhaka office as part of the global publication of the report.
The AfDB left the growth forecasts for Bangladesh unchanged, as published in the OAD in April this year, although the expected growth is the highest of the 45 countries and islands in the region.
On the negative side, private investment, which would stimulate the next level of growth, stagnated in 2019. Private investment rose slightly in the financial year, 2018-2019 to 23.4% compared to 23.3% in the previous year. Public investment increased from 8% to 8.2%, and total investment contributed 2.8% to growth.
Contrary to that, private sector credit growth slowed down from 16.9% to 11.3%, partly due to a drop in deposit growth.
According to the report, exports to Bangladesh expected to remain steady at 10%, benefiting from trade rebalancing due to trade disputes between the United States and China despite weaker global growth. Imports expected to increase by 9.0% in FY2020, albeit less than expected in ADO 2019.
Remittance growth expected to slow to 9.0% in 2020, as fewer people will be working abroad. If import growth recovers, robust and steady expansion of exports will generally stabilise the trade deficit.
Agriculture expected to grow 3.8% in fiscal 2010, as government policies improve agricultural prices, while industrial growth expected to remain high at 12.5. Remittances still fuel % domestic demand, and the central bank prefers to invest in productive activities.
Service growth expected to grow by 6.4%, supported by continued growth in agriculture and industry.
As remittances remain high, the current account deficit expected to widen slightly to 1.8% of GDP by 2020, while import payments will exceed export receipts and continue to exert some pressure on moderate currency reserves.
Development expenditure expected to increase by 22% to accelerate the implementation of high-priority growth-enhancing projects. In comparison, the budget deficit expected to reach 5.0% of GDP, of which 53% will nationally be financed, the relationship says.
The 2012 VAT and Additional Duties Act entered into force on 1 July 2019 with four rates: 5.0%, 7.5%, 10.0% and 15.0%. The new VAT Act expected to generate additional revenue with more coverage, better control and market prices.
Other revenues enhancing measures expected to help mobilise revenue, but different VAT and tax exemptions should compensate for some of these efforts.
According to the report, the country faces several challenges in the medium and long term. Bangladesh needs an extensive industrial base, a diversified export basket, equitable development in urban and rural areas and a healthy financial system, the report says.
The country needs to accelerate reforms to improve the business environment for dynamic private sector development and need to develop human capital to meet the growing needs of the private sector.
Photo by Carlos Muza on Unsplash
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