World Bank cuts Bangladesh’s growth forecast to 5.2% for FY23

Infographic: TBS

The World Bank has forecast a 5.2% growth for Bangladesh's gross domestic product (GDP) in the current fiscal year – down from the 7.2% growth in the previous year.

"In Bangladesh, growth is expected to slow to 5.2 percent in FY2022/23 due to rising inflation and its negative impact on household incomes and firms' input costs, as well as energy shortages, import restrictions, and monetary policy tightening," the World Bank said in its latest edition of Global Economic Prospects released on Tuesday.

"This is down from 7.2 percent growth in the previous year, but is expected to pick up again and return towards its potential pace in FY2023/24," the report added.

Bangladesh was hard hit by spillovers from the changing global environment. The country was priced out of global energy markets and unable to meet the energy needs of households and businesses, the World Bank said.

According to the Washington-based lender, dwindling international reserves and rising sovereign spreads increase the risk of more economies falling into crisis. The deficit could have been even larger had it not been for robust growth in demand for Bangladeshi ready-made garments and a growing share of the global market.

"The government responded to high global energy prices with blackouts and factory closures to reduce energy consumption, stopped purchasing vehicles, and made it harder to purchase luxury goods, among other measures to preserve international reserves," it added.

It further said that rising energy costs and supply constraints saw industrial production contract in September from its peak in March. The rising cost of imports about doubled the trade deficit since 2019.

Export bans on food, also increasingly prevalent, could have unintended consequences and exacerbate increases in global food prices, the World Bank said, adding that  Afghanistan, Bangladesh, India, and Pakistan implemented export restrictions on food in 2022 including in rice, wheat, and sugar.

The report estimates that current climate trends will see rice, vegetables, and wheat yields decline by 5-6% by 2050 in Bangladesh compared to a no-climate change scenario. Extreme weather can also complicate the implementation of macroeconomic policies.

South Asia continues to be adversely affected by spillovers from the invasion of Ukraine, rising global interest rates, and weakening growth in key trading partners, the World Bank report said, adding that regional growth is estimated to have slowed to 6.1% in 2022 and is projected to slow further to 5.5% in 2023 – below previous projections on global spillovers – before picking up to 5.8% in 2024.

"Risks to the outlook continue to be tilted to the downside, including further pressure from tightening global financial conditions; higher-than-projected inflation leading to lower real incomes and spending; and the re-emergence of financial sector stress,"it added.

Growth in India is projected to slow to 6.9% in FY23 - 0.6% point downward revision since June, as the global economy and rising uncertainty will weigh on export and investment growth, World Bank said, highlighting that India is expected to be the fastest growing economy of the seven largest developing economies.

In the report, the World Bank said that Pakis¬tan's economic growth will slow further to 2% during the current year – down by two percentage points from its June 2022 estimate – because of the devastating floods and slowdown in global growth rate.

The World Bank said that global growth is expected to decelerate sharply to 1.7% in 2023 – the third weakest pace of growth in nearly three decades, overshadowed only by the global recessions caused by the pandemic and the global financial crisis.

"This is 1.3 percentage points below previous forecasts, reflecting synchronous policy tightening aimed at containing very high inflation, worsening financial conditions, and continued disruptions from the Russian Federation's invasion of Ukraine.  The United States, the euro area, and China are all undergoing a period of pronounced weakness, and the resulting spillovers are exacerbating other headwinds faced by emerging market and developing economies (EMDEs)," it stated.

According to the global lender, a combination of slow growth, tightening financial conditions, and heavy indebtedness is likely to weaken investment and trigger corporate defaults.

"Further negative shocks – such as higher inflation, even tighter policy, financial stress, deeper weakness in major economies, or rising geopolitical tensions – could push the global economy into recession.  In the near term, urgent global efforts are needed to mitigate the risks of global recession and debt distress in EMDEs. Given limited policy space, it is critical that national policy makers ensure that any fiscal support is focused on vulnerable groups, that inflation expectations remain well anchored, and that financial systems continue to be resilient," the report said.

It remarked that policies are also needed to support a major increase in EMDE investment, which can help reverse the slowdown in long-term growth exacerbated by the overlapping shocks of the pandemic, the invasion of Ukraine, and the rapid tightening of global monetary policy.

"This will require new financing from the international community and from the repurposing of existing spending, such as inefficient agricultural and fuel subsidies," the World Bank said.

Executive Director of the Centre for Policy Dialogue Dr Fahmida Khatun said production was being disrupted due to a global gas and fuel crisis, while cost of production was increasing due to rise in the cost of materials. 

"The major driving forces of the global economy, the United States, the European Union and China, are facing various crises. Instead of going towards growth, there is a danger that the GDP size of many countries will decrease.

"Due to the increase in the price of goods, our domestic demand is decreasing due to the decrease in people's income. This affects investment, production and employment. Realising this, the government has also reduced the growth target," she said.

She added that even if there was a growth of more than 5% in the midst of all these crises, it would be a great achievement. 

Instead of looking at growth, however, she urged government and policy makers to give utmost importance to the welfare of workers and poor, and marginalised people.