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ADB SEES 5.6% GDP GROWTH FOR BANGLADESH IN CURRENT FISCAL YR
ADB SEES 5.6% GDP GROWTH FOR BANGLADESH IN CURRENT FISCAL YR
DHAKA, Apr 01, 2009 (AsiaPulse via COMTEX) -- Bangladesh's economy is expected to grow at a slower pace of 5.6 per cent in the current fiscal year as the global financial crisis starts to weigh on exports, remittances and government revenues, the Asian Development Bank (ADB) said in its latest forecast.
The prognosis came in the donor agency's Asian Development Outlook 2009 (ADO 2009) released Tuesday where the ADB projected a further decline in GDP growth to 5.2 per cent in the next fiscal year as the effects of the global slowdown continue to weigh on the economy.
ADB country director Paul J Heytens at a press briefing on the occasion said Bangladesh was largely unaffected by the first-round fallout of the global economic crisis, mainly because of the limited exposure of the financial system to international markets.
However, the country is vulnerable to the second round of impacts of the global slowdown that could come through reduced export earnings, remittances, which are the main drivers of economic growth in Bangladesh.
Migrant workers are now returning from abroad in larger numbers and recent data suggest a sloth in the number of workers leaving Bangladesh for jobs overseas, he said.
The funding agency's country chief also finds a growing nervousness among the country's leading export industries as overseas shipments have also begun to slow.
These developments will have immediate implications for the country's economic growth, employment and poverty situation, and will pose a major challenge for macroeconomic management, Heytens said, as his agency released the latest state of major indicators of Bangladesh's economic health along with a pack of prescriptions.
In its economic outlook, the ADB said improved crop harvests will boost agricultural growth from 3.6 per cent in FY 2008 to 4.0 per cent in FY 2009 and to 4.1 per cent in FY 2010, but this upturn will be offset by slower export growth which will see industry output fall to 6.6 per cent in the current fiscal year and 6.0 per cent in FY 2010, down from 6.9 percent in FY 2008.
It said services sector growth will also slow to 6.0 percent this year, from 6.7 per cent in FY 2008, as exports ease and consumer spending declines due to lower incomes and a pullback in remittances.
A further decline to 5.5 per cent is forecast for next year.
Export growth alone is projected to fall from 15.7 per cent in FY 2008 to 14.0 per cent in FY 2009 and 13.0 per cent the next year.
With the global financial crisis spreading beyond the credit markets to the real economy, a slowdown in remittances is inevitable, the ADB report said.
This year remittances are expected to grow 20.0 percent after a 32.4 per cent rise in FY 2008. In FY 2010, growth will slip further to 15.0 per cent.
The report notes that government revenues have begun to ease in recent months, and a crisis-induced slowdown in private-sector activity could further impact on the revenue collection. In addition, cuts in customs duties agreed for the FY 2009 budget, and lower international commodity prices, will weigh on import receipts.
At the same time, the downward trend in global commodity prices will result in an easing of import payment growth from 25.6 per cent in FY 2008 to 18.0 per cent this year and 17.0 percent in FY 2010.
The upside of the slump in commodity prices is that inflation for FY 2009 is now projected at 7.0 per cent, significantly lower than the earlier estimate of 9.0 per cent.
A favorable domestic supply environment will also ease price pressures this year, the report says.
Next year, the inflation rate is expected to fall further to 6.5 per cent.
The donor agency suggests that new government should raise infrastructure investment and improve the enabling environment for private-sector activity, in order to enhance prospects for rapid growth and job creation. This, in turn, will require improved implementation of the annual development program (ADP) as well as strengthened revenue mobilization.
Bangladesh will need to address power and gas shortages to boost its growth prospects, and that must include steps to encourage more private investment, the ADB said in recommending the remedial measures.
The current global financial turmoil means fresh foreign investment in the sector will be more difficult to mobilize and so the Government must provide more from its own resources and tap external donor assistance.
It will need significant new investment in roads, ports, and urban infrastructure and services, which will require improved implementation of its development-spending program and strengthened revenue mobilization.
In its report, the ADB noted that in 2008 food security emerged as a major development challenge, and there is a clear need to boost agricultural productivity to both maintain affordable food prices and provide fiscally sustainable incentives to farmers.
The ADO says Bangladesh needs to substantially raise investment, which has followed a downtrend in recent years, in order to enhance growth and job creation and thereby reduce poverty. Public investment must be raised, primarily by accelerating ADP implementation, but efforts to raise private-sector participation in infrastructure investment should also be made.
In a special advice for the new regime it says the government needs to pay attention to improving institutional capacities in its various agencies, both to implement reforms and strengthen development administration. Over the medium term, with climate change posing a major threat to growth, tackling such concerns needs to be integrated into economic development plans and activities.
The emerging shortages in gas and power supplies (over four fifths of power is generated from gas) need to be urgently addressed. Unless early remedial measures are adopted, power cuts and irregular electricity supplies will hamper domestic production and hold back medium-term growth prospects.
In the longer term, the lack of gas supplies would severely limit power generation and, therefore, new investment in manufacturing activities, the ADB said.
(UNB)