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The Financial Express

Export slowdown, domestic demand fall weigh heavy

ADB cuts growth forecast to 6.6pc

Cites global and local shocks to economy


| Updated: September 22, 2022 11:36:47


ADB cuts growth forecast to 6.6pc

Bangladesh may see lower GDP growth at 6.6 per cent in the current fiscal year for some global and local shocks to the economy, the Asian Development Bank says in its latest forecast.

The ADB projection on gross domestic product (GDP) growth for FY2022-23 is 0.5-percentage-point down the 7.1 per cent forecast in its Asian Development Outlook (ADO) released in April, as the world continues to be troubled by war and conflicts.

The downgraded 6.6-percent growth projection for Bangladesh is shown in the ADO Update, released Wednesday in Dhaka.

"Although Bangladesh's GDP growth is forecast lower than the earlier projection, still the 6.6-percent rate is much better amid the current global scenario," ADB Country Director in Bangladesh Edimon Ginting told journalists.

"If Bangladesh could achieve more than our projected economic growth, we will be happy like you," the country chief of the Asian development financier said.

In the updated ADO the ADB says: "The moderately lower growth forecast reflects slower domestic demand and weaker export prospects due to slower growth in advanced economies."

The Bank, however, says a main risk to this growth projection is a slowdown in exports caused by global uncertainty over the prolonged war in Ukraine.

Country Director Mr Ginting said: "We expect private-investment growth to be lower amid global uncertainty and energy shortages. Public investment will also slow down on government austerity measures."

He also anticipates that Bangladesh Bank may further tighten monetary policy to contain inflation and reduce the volatility of the taka.

Inflation is projected to accelerate to 6.7 per cent in the current FY2023 from 6.2 per cent in FY2022 due to the rise in global food and fuel prices driven mainly by the impact of the Russian invasion of Ukraine, he says.

"With a relatively higher projected increase in expenditure compared to revenue, the budget deficit is expected to increase to 5.5 per cent of GDP in FY2023."

Meanwhile, the ADB has painted a rosy picture for the current-account balance as it says the deficit is expected to narrow from 4.1 per cent of GDP in FY2022 to 3.6 per cent in FY2023 as imports slacken and remittances increase.

Mr Ginting shows the current turbulent times as a good time to accelerate reforms in Bangladesh that would improve the country's growth prospects in the medium term.

"These reforms include improving domestic resource mobilization, deepening the financial market, and enhancing competitiveness to promote the creation of productive jobs in the private sector that will be helpful to economic enhancement," he told the press.

And uncertainties on the international energy market provide a good momentum to accelerate reforms to achieve the country's climate-change goals and expand domestic renewable energy supply to reduce dependence on fossil fuels.

Asked about the current-account balance, the ADB CD said: "The expansionary monitory policy of the central bank before and during the Covid period was okay. But now the country's economy has been affected."

So the austerity measures of the government are a good decision.

"Bangladesh's good news is 80 per cent as it imports more intermediate goods and capital machinery. Its bad news is 20 per cent as global fuel price is high."

Mr Ginting suggests three things to watch in the future: the trend of current-account imbalance, foreign- exchange reserve situation and export earnings.

When asked about Bangladesh' forex-reserve outlook, the ADB country chief said: "I do not think the country's reserves will be in crisis as its remittance income and export earnings are still showing a rosy picture.

"I have talked with the clothing-industry people. They said that Bangladesh produces basic items whose demand has not been dampened in the global market. They (RMG owners) said they have concentrated on women and child dresses whose demands are still high."

About the moderate GDP-growth forecast, he said: "Bangladesh's growth collapsed to only 3.4 per cent in FY2020. It came back remarkably in the subsequent year in FY2021 with a rousing 6.9-percent growth. And the country is still maintaining the higher growth over the years. It means it has the capacity to achieve higher growth even during the global turbulence."

Meanwhile, ADB's Senior Country Specialist Soon Chan Hong in his presentation said agriculture growth is projected to decline due to the unusually dry monsoon season, which has adversely affected Aman-rice planting.

"Floods in the northeastern region during the early monsoon damaged infrastructure, affected economic opportunities, and all other aspects of life. Industry growth is expected to be lower due to lower demand from major export destinations and disruptions to power and energy supply," he added.

The ADB Outlook says export growth is projected to slow to 8.1 per cent in FY2023, from the unusually large expansion in the previous fiscal year, on lower growth in major trading partners.

"Higher prices and the limited supply of primary energy and electricity may upset timely production and the fulfillment of overseas orders for garments and other export products."

"Imports are expected to grow by only 10.0 per cent after FY2022's unusually high growth as demand decreases for intermediates for export-oriented industries. Slower economic growth and uncertainty will depress domestic demand for consumer goods and capital equipment."

The ADO update says the trade deficit is forecast to widen to $37.5 billion (7.3 per cent of GDP) in the current FY2023 on faster growth in imports than exports.

"Remittances will rebound and are forecast to increase by 9.5 per cent. Inflows will be buoyed by the 253-percent growth in Bangladeshis going abroad for employment in FY2022."

Despite a wider trade deficit, the current-account deficit is forecast narrowing slightly to 3.6 per cent of GDP in FY2023 due to increased remittances.

To reply on ADB's financial support, Country Director Mr Ginting said the Bank has already provided $2.5 billion in loans and $7.23 million in grants to Bangladesh to address the socioeconomic impacts of the coronavirus disease (COVID-19) pandemic and support a rapid recovery.

For the period of 2023 to 2025, the ADB is expected to provide more than $2.5 billion per year on average as it programmed about $9.5 billion for Bangladesh.

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