ADB also sees economy in the lurch

December 7, 2008

The Asian Development Bank on Friday joined the World Bank to forecasting the difficult days ahead for Bangladesh’s economy in the wake of global financial meltdown. The bank has lowered the projected GDP growth to around 6 percent from 6.5 percent for the ongoing fiscal year. In the preceding year it was 6.2 percent. Finance adviser AB Mirza Azizul Islam and leaders of Bangladesh Economic Association have rejected forecasts of a slowdown in the growth of the economy.
“The global financial crisis will put a mild brake on Bangladesh’s economic growth rate for fiscal 2009, although continued strength in its agriculture and industries sectors will limit the downslide,” the bank quoted its Quarterly Economic Update, Bangladesh for September as saying.

“With dampened global demand expected to weigh on exports and remittances, GDP growth in the current fiscal year is now projected to come in within a range of 5.5 to 6 percent,” the quarterly update forecasted.

The report felt the need to boost the economy’s productive capacity over the longer term, to keep the country on a strong growth path.

The report also made a set of suggestions.

“Public investment must be increased by accelerating implementation of the annual development programme,” it said.

Measures to ease the impact of climate change must also be integrated into economic development plans and activities.

The incoming government must accelerate economic reforms to enhance growth, create jobs, and sustain progress in poverty reduction, the update added.

The World Bank’s Dhaka bureau chief economist Vinaya Swaroop at a workshop on Nov. 26 had predicted tough times for the incoming elected government as the economy may shrink in the wake of the global crisis.

“The negative impact of the global financial crisis will affect Bangladesh’s economy in the near future,” Swaroop had said.

Export earnings and remittances are likely to shrink which, in turn, will mean a decline in GDP growth from 5.4 percent to 4.8 percent, according to him.

The quarterly economic update of the ADB said production of rice and wheat is targeted at 33.3 million tonnes and one million tonnes respectively, up 15 percent from actual output in FY2008.

“Favourable weather conditions, more land under cultivation, wider use of high-yielding seeds and various government support programmes will boost output in the current fiscal year,” it observed.

“The poultry sub-sector seems to have recouped losses caused by the outbreak of avian flu, while fisheries sub-sector is also expected to grow strongly in response to rising demand and improved competitiveness.”

The unfolding financial crisis will cause a modest slowdown in demand and as a result industrial growth for the year is now seen coming in between 6.7 to 7.2 percent against the 7.9 percent projected previously, the report said.

Supported by further growth in readymade garment output, industry has performed relatively well so far this fiscal. In FY2008, industrial output expanded 6.9 percent.

“To sustain the relatively strong growth rate, steps will need to be taken urgently to address shortages in power and gas supplies,” the report suggested.

Stemming from the global crisis, the service sector is likely to see some mild pressure from a slowdown in exports and domestic demand, as the sector is now expected to grow 5.7 to 6.2 percent, down from 6.8 projected previously.

In FY2008, the sector grew 6.7 percent, the update said.

In the coming months, the inflation trend will depend on several factors, including possible pressures resulting from higher spending in the run up to the forthcoming national election, it continued.

“Inflation is likely to remain within the previous projection of about 9.0 percent for FY2009, with an earlier surge in commodity prices offset by a recent pullback.”

The inflation rate grew 10.2 percent year-on-year in Sept. 2008 from 10.0 percent in June, before easing back to 7.3 in Oct. because of a fall in food and other commodity prices, it added.

The sharp decline in international commodity and intermediate goods prices should reduce domestic prices, but if importers adopt a cautious approach in opening letters of credit, supply shortages could occur, generating further upward price pressure, the ADB update said.

ADB also sees economy in the lurch

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