CT Online Desk:
Bangladesh will clock the sixth highest economic growth in Asia in the current financial year although it will be much lower than its average in recent times and the target set by the government as pressures on the economy linger. According to the World Bank's Global Economic Prospects report released yesterday, the country's gross domestic product expansion is forecast to flow to 5.6 percent in 2023-24, unchanged from its October update. If the forecast translates into reality, this would be the lowest GDP growth in more than a decade if the Covid-hit 2019-2020 is excluded. In FY20, it plunged to a 30-year low of 3.4 percent owing to massive disruptions caused by the countrywide lockdown imposed to limit the spread of the deadly virus.
The government has decided to revise its GDP growth goal downwards to 6.5 percent for FY24 from the 7.5 percent initially set since the factors that caused the economic growth to decelerate to 6 percent in 2022-23 such as import restrictions and higher material and energy costs, as well as external and financial pressures, persist. A higher GDP growth is not our objective this fiscal year. Our aim is to contain inflation and increase the foreign currency reserves," said a finance ministry official. The economic growth is expected to rise in the next financial year as inflationary pressure recedes, the WB said.
In Asia, which comprises 48 nations covering the Pacific, East Asia, Central Asia, the Middle East and South Asia, only five countries will be ahead of Bangladesh in FY24 when it comes to GDP growth: Cambodia, Mongolia, Palau, the Philippines, and India. Cambodia is forecast to grow at 5.8 percent, Mongolia at 6.2 percent, Palau at 12.4 percent, the Philippines at 5.8 percent, and India at 6.3 percent.
Bangladesh's lower-than-expected GDP growth comes at a time when the world economy is also going through a slowdown. In fact, the global economy is set to rack up a sorry record by the end of 2024 —the slowest half-decade of GDP growth in 30 years. Global growth is projected to slow for the third year in a row—from 2.6 percent last year to 2.4 percent in 2024, almost three-quarters of a percentage point below the average of the 2010s. Developing economies are projected to grow just 3.9 percent, more than one percentage point below the average of the previous decade.
"Without a major course correction, the 2020s will go down as a decade of wasted opportunity," said Indermit Gill, chief economist and senior vice president of the WB, in a press release. The Washington-based lender says inflation is likely to remain elevated in Bangladesh, weighing on private consumption. Headline inflation averaged 9.02 percent in FY23 – the highest in more than a decade -- and stood at 9.49 percent in November and shows no sign of cooling off. It said as foreign exchange reserves are likely to stay low, import restrictions are expected to continue and impede private investment.
This means Bangladesh will continue to face macroeconomic challenges caused by a sharp decline in the forex reserves in the past two years. On Monday, the reserves stood at $20.38 billion, which was $40.7 billion in August 2021. Public investment is envisaged to remain resilient. According to the WB, the global economy is in a better place than it was a year ago: the risk of a global recession has receded, largely because of the strength of the US economy.
"But mounting geopolitical tensions could create fresh near-term hazards for the world economy." Meanwhile, the medium-term outlook has darkened many developing economies amid slowing growth in most major economies, sluggish global trade, and the tightest financial conditions in decades. Headline consumer price inflation increased in 2023, mainly driven by rising food prices and currency depreciation, resulting in tighter monetary policy. The balance of payments deteriorated, along with a decline in foreign exchange reserves.
Financial sector vulnerabilities rose, as non-performing and other stressed loans increased. Because the South Asia region is relatively less open to trade, spillovers from weaker-than-projected growth in China would be smaller than in other EMDE (emerging market and developing economy) regions. However, in countries where China is a major trading partner or key source of foreign investment, a sharper-than-expected slowdown in the second-biggest economy in the world could undermine growth.
"Additionally, in Bangladesh, slower-than-anticipated growth in its export destinations, particularly in the European Union, could pose a risk to growth prospects," the WB said. China is Bangladesh's largest trading partner while the EU accounted for more than 46 percent of the country's export receipts in FY23, Bangladesh Bank data showed. The WB report was prepared before Bangladesh's parliamentary elections that took place on January 7.
It said in a number of South Asian economies (Bangladesh, Bhutan, India, the Maldives, and Pakistan), parliamentary or national assembly elections are scheduled or planned in 2024. "The heightened uncertainty around these elections could dampen activity in the private sector, including foreign investment. If combined with political or social unrest and elevated violence, this could further disrupt and weaken economic growth. "In addition, particularly in countries with weak fiscal positions, an increase in spending prior to these elections could exacerbate macro-fiscal vulnerabilities. "However, the implementation of policies to reduce uncertainty and strengthen growth potential after elections could lead to an improvement in prospect," the WB said.
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