The Bangladesh economy will grow at 8 percent this fiscal year (2019-2020), which would be the highest in Asia, as per the latest forecast of the Asian Development Bank (ADB). The forecast is 0.2 percentage points lower than the government’s target of achieving GDP growth in the year.
Last fiscal year, Bangladesh pulled off 8.13 percent GDP growth.
ADB projected Bangladesh economy is expected to sustain strong growth supported by buoyant exports, robust private consumption with higher remittances, accommodating monetary policy, ongoing reforms to improve business climate for private investment and public infrastructure investment.
ADB unveiled its Asian Development Outlook 2019 Update at a press conference in its Bangladesh office in Dhaka as part of global launching of the report.
ADB kept the growth projection for Bangladesh unchanged, which it made in its ADO released in April this year, though the projected growth rate was the highest among the 45 countries and islands in the region.
On the supply side, sustained strong growth in industry and agriculture were expected to be the main drivers of the growth in FY20, ADB projected.
On the downside, private investment, which would propel the next level of growth, remained stagnant in 2019. Private investment edged up to 23.4 percent in fiscal 2018-19 from 23.3 percent a year earlier. Public investment expanded from 8 percent to 8.2 percent and total investment contributed 2.8 percentage points to growth.
Apart from that, private sector credit growth slowed to 11.3 percent from 16.9 percent, partly due to a decline in deposit growth.
According to the report, exports were likely to be remained strong at 10 percent for Bangladesh benefiting from trade redirection arising from to US-China trade conflicts despite a weaker global growth. Imports are expected to grow by 9.0 percent in FY2020, though less than forecasted in ADO 2019.
Growth in remittance is likely to slow to 9.0 percent in FY2020 as fewer people will take jobs overseas. While import growth picks up, continued strong expansion in exports will broadly stabilize the trade deficit.
As per the update, agriculture is expected to edge up to 3.8 percent growth in FY20 as government policy improves farm prices, while industry growth is expected to stay high at 12.5 percent with domestic demand continuing to be powered by remittances and the central bank promoting investment in productive pursuits.
Services are expected to grow by 6.4 percent, supported by sustained growth in agriculture and industry.
As remittances will still be sizable, the current account deficit is projected to edge up slightly in FY2020 to equal 1.8% of GDP, while with import payments exceeding export receipts, some pressure on foreign exchange reserves will continue, causing them to fall moderately.
Development expenditure is envisaged to grow by 22.0 percent to expedite the implementation of high-priority projects to enhance growth, while budget deficit is targeted equal to 5.0 percent of GDP, with 53.0 percent financed domestically, the report says.
The Value-Added Tax and Supplementary Duty Act, 2012 came into effect on 1 July 2019 with provision for four rates: 5.0%, 7.5%, 10.0% and 15.0%. The new VAT law is expected to generate additional revenues with more comprehensive coverage, better auditing, and market price accounting.
Other revenue-enhancing measures are expected to help improve revenue mobilization, but various VAT exemptions and tax holidays will likely offset some of these efforts.
There were several challenges the country needs to overcome to sustain the momentum in the medium-to-long-term, it said. Bangladesh required expanded industrial base, a diversified export basket, equitable development in urban and rural areas and a sound financial system, the report said.
The country must speed up reforms to improve the business environment for vibrant private sector development and further develop human capital to meet growing needs from private sector, it said.
In the ADO Update, the ADB revised its previous projection downwards or kept unchanged for most of the countries, except Kazakhstan, Tajikistan, Uzbekistan, Afghanistan, Samoa and Tonga, in the region due to the slowing down of the global trade and weakening of investment, the report said.
It revised GDP growth rate for India down to 7.2 percent from previous projection of 7.3 percent for the FY 20, for China to 6 percent from 6.1 percent.
