The Asian Development Bank (ADB) cut its forecast for Bangladesh's GDP growth in the current 2021-22 fiscal year to 6.8%, from its previous projection of 7.2%, saying the second wave of Covid infections has disrupted the economic recovery.
In the September update of the Asian Development Outlook (ADO) released on Wednesday, the ADB observed that more containment measures were needed to bring down high infection rates that lingered on in the first couple of months of the current fiscal year.
The ADB, however, mentioned that the growth projection reflects a strong recovery supported by strengthening manufacturing, continued expansion in the global economy, the strong inflow of remittances, firming up private consumption and effective government recovery policies.
The Bangladesh government has set a 7.2% economic growth target for the current fiscal year while the World Bank projected the growth rate at 5.1% in its prospect released in June this year.
The ADB's forecast is substantially higher than that of the World Bank and closer to the government's target.
Government policies for saving lives and protecting livelihoods underpinned the recovery process in Bangladesh, making it one of the few countries in the world sustaining commendable economic growth in recent difficult times, said Manmohan Parkash, ADB country director, in a press release from the Dhaka office of the agency.
"Prudent macroeconomic management and efficient implementation of stimulus measures and social protection programmes have helped," he said.
Continued efforts for job creation, quick vaccination, and improving domestic resource mobilisation will further accelerate the recovery process, he continued.
Appreciating recent initiatives in the areas of financial inclusion, and expanding social protection, Parkash further said sustained reforms to increase business competitiveness, foreign investment, export diversification, skills development, and technology adoption will stimulate private sector investments and hasten the economic recovery.
The ADB has found sustained escalation of infection rates in major advanced economies, clipping external demand as the main downside risk to achieving the forecasted growth.
The bank has upgraded the average growth forecast for Developing Asia to 5.4% in September, which was 5.3% in the April outlook.
The average growth projection for the South Asian countries also increased to 7.0% from 6.6%.
The projected growth of Bangladesh is lower than the South Asian average but higher than Developing Asia.
According to the ADB's forecast, the Maldives would achieve the highest 15% growth in South Asia and India would take the second position with 7.5% growth, followed by Bangladesh.
The ADB upgraded forecasts for both the Maldives and India for FY22.
The report also reveals that the economy of Bangladesh grew by 5.5% in FY21 – lower than the 6.8% forecast in ADO 2021 – due to restrictions put in place in early April 2021 to contain the second wave of Covid infections that slowed down economic activities.
Growth in public investment, however, was less than planned because no additional financing of development expenditure was allocated in the fourth quarter.
Even though net foreign direct investment increased by 39%, total private investment stagnated, reflecting that investor confidence was undermined by the prolonged pandemic, the report adds.
Growth in small-scale industries also slowed.
"Given the expected continued expansion in the global economy and maintained government recovery policies, the FY22 growth is expected to strengthen but remain below pre-pandemic levels. Inflation will edge up and the current account deficit will narrow," reveals the ADB report.
The ADB has anticipated a 3.7% growth in agriculture – slightly higher than the current fiscal, driven by the budget priority given to subsidies on seeds, fertiliser, irrigation, and farm mechanisation.
With improved external demand and stronger public and private investment, the industrial sector is expected to grow by 9.5%, substantially higher than 6.12% in the previous fiscal. The service sector is expected to grow by 5.8%, which was 5.61% in FY21.
A favourable agricultural outlook, underutilised capacity, and continued vigilance of the Bangladesh Bank should keep inflationary pressures from the higher global oil and commodity prices in check.
The ADB report says with primacy placed on people's lives and livelihoods during the second wave of Covid-19, the FY22 budget focuses on speeding up the pace of economic recovery by strengthening the healthcare system, increasing agriculture production, and expanding social protection, human capital development, and employment generation while implementing ongoing priority mega projects.
Because of revenue losses incurred by tax concessions and exemptions, and the economic impact of containment measures, the ADB also finds meeting the revenue generation target to be challenging.
"Government spending will rise as the government continues to implement economic stimulus through the budget, increasing the size of financial assistance and accelerating the implementation of priority megaprojects," reveals the report adding, achieving the spending target will also be a challenge because of limited implementation capacity and revenue constraints.
The ADB recommends emphasising vaccinations to keep the remittance inflow growth stable. "Growth in remittance is likely to moderate to 7.0%, reflecting a high base. Providing vaccinations for workers is key to job placement in destination countries and to maintaining robust remittance growth," it says.
New Covid variants lower growth forecast in Developing Asia
The ADB lowered its 2021 economic growth outlook for Developing Asia, amid continuing concerns over the coronavirus pandemic from the 7.3% April projection to 7.1% in September. The growth outlook for 2022 is raised to 5.4% from 5.3%.
New Covid variants, renewed local outbreaks, the reinstatement of various levels of restrictions and lockdowns, and slow and uneven vaccine rollouts are weighing down the region's prospects, reveals the ADB report.
"Developing Asia remains vulnerable to the Covid-19 pandemic, as new variants spark outbreaks, leading to renewed restrictions on mobility in some economies," said ADB Acting Chief Economist Joseph Zveglich, Jr.
"Policy measures should not only focus on containment and vaccination but also on continuing support to firms and households and reorienting sectors in the economy to adapt to a 'new normal' once the pandemic subsides to kick-start the recovery, Joseph added.
Vaccination progress in developing Asia remains uneven and lags behind that of advanced economies. About 28.7% of the region's population had full vaccine protection, compared with 51.8% coverage in the United States and 58.0% in the European Union. The recovery path within the region remains uneven.
ADB expects economic growth of 8.8% in South Asia in 2021, compared to the 9.5% forecast in April for the sub-region.
However, the outlook for 2022 has improved to 7.0% from 6.6%. The projection for India – the sub region's largest economy – is downgraded to 10.0% from 11.0% in 2021, while the outlook for next year has improved to 7.5% from 7.0%.