Bangladesh, a country severely affected by the Covid-19 pandemic, will have a "modest economic recovery" in FY2021-22, said a World Bank forecast on Wednesday.
The global lender projected a gross domestic product (GDP) growth of 6.4% in the current fiscal year for Bangladesh. Meanwhile, growth for the next fiscal year was estimated at 6.9%.
Earlier in June, the World Bank had forecast the country's growth at 5.1% for the current fiscal year.
But that figure has been revised and increased by 1.3 percentage points in its latest South Asia Economic Focus titled "Shifting Gears: Digitisation and Services-Led Development".
In Bangladesh, the continued recovery in exports and consumption will help growth rates pick up to 6.4% in FY22 against the government-set target of 7.2%, the World Bank report said.
The economic recovery of the country is expected to gradually accelerate, particularly if the supply of vaccines rises and the economic scarring effects of the pandemic can be contained, the report added.
The government's Covid-19 stimulus programme provided firms with access to working capital and low-cost loans to sustain operations and retain employees, although lending to smaller firms and the informal sector has been limited, the report further said.
However, the World Bank identified structural weaknesses which include low institutional capacity, highly concentrated exports, growing financial sector vulnerabilities, unbalanced urbanisation, and slow improvements in the business environment as major challenges for Bangladesh's further development.
"Bangladesh is also highly vulnerable to the effects of climate change. Expected graduation from the UN's Least Developed Country (LDC) status in 2026 will present opportunities but also challenges, including the eventual loss of preferential access to advanced economy markets," the report read.
The report, due to higher capital expenditure on infrastructure megaprojects, projected Bangladesh's fiscal deficit at over 5.5% of the total GDP.
The global lender also projected the poverty rate to marginally drop to 12.5% in FY21 from last year's 12.9%. The poverty rate is expected to drop further in the next fiscal year.
World Bank Chief Economist for the South Asia Region Hans Timmer, addressing a virtual event on Wednesday, said, "Countries in South Asia have a strong comparative advantage in exporting services, particularly business processes and tourism, whereas they have struggled to break into manufacturing export markets.
"To realise the potential of the services-led development, the region needs to rethink regulations and establish new institutions to support innovation and competitiveness."
Many World Bank member countries are implementing lockdowns for preventing coronavirus from spreading further. The financial sectors of these countries are in a very fragile state, he added.
Stating that inflation is on the rise in many countries, causing suffering to the general people, the World Bank chief economist identified disruptions in the supply chains, and spike in power and energy prices as the prominent factors.
The World Bank Vice President for the South Asia Region Hartwig Schafer echoed Timmer.
He said, "The pandemic has had profound impacts on South Asia's economy. Going forward, much will depend on the speed of vaccination, the possible emergence of new Covid-19 variants, as well as any major slowdown in the momentum of global growth."
As per the report's findings, the South Asian region will grow by 7.1% in FY2021-22 based on rebounding global demand and targeted containment measures helping minimise the economic impacts of the recent waves of the pandemic.
However, it anticipated an uneven recovery from the Covid-19 pandemic across the countries and sectors of the region and forecast 5.4% growth for the next fiscal – a figure 3 percentage points lower than that of pre-pandemic times.
The report said India's economy, South Asia's largest, is expected to grow by 8.3% in the current fiscal, aided by an increase in public investment and incentives to boost manufacturing.
Covid-19 has left long-term scars on the region's economy, the impacts of which can last well into the recovery. Many countries experienced lower investment flows, disruptions in supply chains, and setbacks to human capital accumulation, as well as substantial increases in debt levels. The pandemic is estimated to have caused 48 to 59 million people to become or remain poor in 2021 in South Asia.
As countries build back, they have a chance to rethink their long-term development models. With the emergence of new digital technologies, South Asia has an opportunity to shift gears from a traditional manufacturing-led growth model and capitalise on the potential of its services sector.
The World Bank has predicted 22.3% GDP growth, highest in South Asia, for the Maldives in the current fiscal year, thanks to tourism rebound in the country.
The Maldives is seeing optimistic results with recovery trends as tourists from around the world have started visiting the popular destinations there. The country's largest industry – tourism – directly and indirectly, accounts for two-thirds of its GDP.
According to the World Bank report, visitor arrivals to the country recovered to over 60% of the pre-pandemic level by March.
However, the country's economy was also among those that were hit the hardest by the pandemic. As per the World Bank data, the Maldives' GDP growth rate dipped down to a -33.6% in 2020 from the 7% growth observed in 2019. This happened because of Covid-19 pandemic ravaging the tourism industry, the key revenue generator for the Maldives.