The second wave of the pandemic may slow down economic recovery in Bangladesh and trim GDP growth by at least 1 percentage point in the current fiscal year, the Asian Development Bank said on Wednesday.
The development agency lowered its growth projection to the range of 5.5-6% from its earlier forecast of 6.8%. The latest forecast of the ADB is still more optimistic in contrast with two other global lenders – the World Bank and the International Monetary Fund.
The World Bank expects Bangladesh's GDP growth to pick up by 3.6% this fiscal year, while IMF projected 5% growth.
Bangladesh's GDP growth is expected to edge up further to 7.2% in fiscal 2022 as both exports and imports rise under sustained global recovery, the ADB said.
The government, meanwhile, proposed a revised budget for the current fiscal year estimating growth at 6.1% and anticipating that the figure will increase to 7.2% in the next fiscal year.
The ADB published its flagship report Asian Development Outlook 2021 globally, while its Dhaka office published an update on Bangladesh, taking into account the second wave of the pandemic and its potential impact on the economy.
The report highlighted that continuing strong remittance inflows in Bangladesh will underpin growth in private consumption, and private investment will accelerate on favorable global economic conditions and efforts to improve the business climate while higher public investment in large projects will also boost growth.
The economy was showing signs of recovery with higher remittances, exports and other indicators, but the recent surge in Covid-19 and the lockdowns are likely to trim GDP growth projection by at least one percentage point, said ADB Country Director Manmohan Parkash at a briefing in Dhaka.
The rollout of vaccine in February 2021, together with the improved global economic conditions and trade, and employment, helped the economic recovery.
The measures, including lockdown and travel restrictions, taken to control the spread of infection will adversely affect livelihoods and will slow down economic recovery, Parkash said, adding that the impact of the second wave in export-destination countries could also undermine the recovery.
In the report, the ADB initially projected Bangladesh's economic growth based on data available up to March 31, but impacts of the second wave had not been considered in the outlook.
According to the report, the growth is expected to pick up this fiscal year with stimulus package implementation and recovery in global growth and world trade. Continued healthy remittance inflows will likely to keep domestic demand buoyant and underpin solid growth in private consumption, the report said.
Private investment is expected to go up as moderate growth in private sector credit improves confidence. Similarly, growth in agriculture, services and industry is expected to continue.
The report identified some risks as well. The outlook is subject to downside risks and resurgence in Covid-19 cases, and delays in availability of vaccines, both globally and domestically, could undermine the economic growth.
"The economy is now going through the second wave and the future growth will depend on how effectively it is managed," Parkash said.
He said Bangladesh economy had withstood the impacts of the first wave of the pandemic with timely and effective stimulus measures, ensuring basic services and commodities for the poor and vulnerable.
"The ongoing pandemic is an opportunity to undertake further reforms in social protection and health sector, improving competitiveness of the private sector, reducing cost of doing business, diversifying exports, and developing skills".
Parkash recommended expanding social safety net, enhancing investments, creating employment, ensuring mass vaccination and improving the health sector for achieving the Eighth Five Year Plan goals.
Under sustained global recovery and effective Covid-19 management, GDP growth is expected to get a boost to 7.2% in fiscal 2022, the report said.
Parkash also said Bangladesh might get $940 million loan from the ADB to procure Covid-19 vaccines.
Chan Hong said unemployment surged from 2.1% in March 2020 to 22.4% in July that year but dropped sharply again to 3.8% in September with stimulus package implementation and the broad resumption of economic activity.
He said growth in agriculture is expected to accelerate to 3.5% in this fiscal year, with continued government support that includes an increase in agriculture subsidies. The summer rice crop is already showing promise, thanks to favorable weather, timely inputs, and improved access to finance.
Growth in industry is expected to accelerate to 9.9% as economic conditions turn favorable, as evidenced by medium-sized and large manufacturers reversing production volume contraction by 16.4% in the fourth quarter of the fiscal year 2020 with 6.8% growth in the first quarter of the current fiscal.
Growth in services is expected to accelerate to 5.6%, building on a 15.5% increase in bank credit to trade and commerce from the first quarter of the current fiscal year and an 11.9% rise in consumer finance in the same period.
Finance minister also optimistic:
Finance Minister AHM Mustafa Kamal said, "Bangladesh's economic growth will be the highest in South East Asia if we meet the Asian Development Bank forecast.
"Usually the ADB forecast is close to the growth we achieve. Our target was higher though," the minister said on Wednesday.
The government is going to set a growth target of 6.1% in the revised budget, though the original target was 8.2% for the current fiscal year.
Bangladesh to achieve growth lower than the average in South Asia
South Asian countries would grow by 9.5% on average in 2021, which will help recover the region contracted in the last year by 6%.
The economic recovery will be led by India that is projected to grow at the rate of 11% following 8% contraction in 2020.
The projected growth of Bangladesh is far behind India and also behind the Asian average.
The Maldives will grow at 13% in 2021 and 14% in 2022, but it will reach only 88% of 2019 GDP, due to a 32% contraction in 2020.
The economy of Nepal is expected to grow at 3.1% this year, while Pakistan at 2% and Sri Lanka at 4.1%. Bhutan would observe 3.4% negative growth in the current year.