GDP growth in FY23 to stay below pre-pandemic level: ADB

The Asian Development Bank (ADB) has projected a 6. 9% growth of Gross Domestic Product (GDP) for Bangladesh in the current fiscal year 2021-22 below the government's target of 7.2%, caused by external shocks.

In its flagship report titled "Asian Development Outlook (ADO) 2022", released on Wednesday, the Manila-based lender said, by maintaining 6.9% economic growth for two consecutive fiscals, the economy will grow by 7.1% in the fiscal year 2022-23.

However, the Bangladesh government is very keen to set a 7.5% growth target for the next fiscal year. However, according to the ADB, the growth will remain below pre-pandemic levels as the growth in industrialised economies is expected to slow on disruptions from the Ukraine-Russia war.

The report projected 6% inflation in the current fiscal – 5.6% slightly higher than the previous fiscal's inflation and, expected to ease to 5.9% in the next fiscal.

The ADB projected a 7% collective growth for South Asian economies in 2022 with the sub-region's largest economy India expected to grow by 7.5% in the current fiscal.

The economy of the region would grow by 7.4% in the next year, when the Indian economy would grow by 8%.

ADB said developing Asia's economies are predicted to grow by 5.2% this year and 5.3% in 2023, thanks to a robust recovery in domestic demand and continued expansion in exports.

"However, uncertainties stemming from the Russian invasion of Ukraine, the continuation of the Covid-19 pandemic, and tightening by the United States Federal Reserve pose risks to the outlook," the report added.

"Economies in developing Asia are starting to find their footing as they slowly emerge from the worst of the pandemic," said ADB Chief Economist Albert Park.

However, geopolitical uncertainty and new Covid-19 outbreaks and virus variants could derail this momentum.

"Governments in the region will need to remain vigilant and prepared to take steps to counter these risks. That includes making sure as many people as possible are fully vaccinated. Monetary authorities should also continue to monitor their inflation situation closely and not fall behind the curve," Park said.

The Dhaka office of the ADB released the Bangladesh chapter of the report on Wednesday through a virtual event.

Edimon Ginting, country director of the ADB said at the event, GDP growth of Bangladesh recovered to 6.9% in fiscal year 2021, significantly up from 3.4% in the fiscal year 2020. He termed the growth performance of Bangladesh as "quite remarkable" compared to other South Asian countries.

He also said that the strong rebound was supported by a recovery in external trade, swift and effective implementation of supportive fiscal and monetary stimulus measures to tackle the Covid-19 pandemic and a sharp increase in remittances.

He stressed on boosting competitiveness, employment, and private sector development to sustain a higher growth trajectory over the medium and long term and making it more inclusive and sustainable.

He also recommended efforts to reduce regulatory bottlenecks and develop critical infrastructures to improve the efficiency of the domestic value chain.
"Inclusive growth will require increased spending on education, health, and social protection," he added.

The report projected that private investment will get stronger, reflecting solid growth in private sector credit and imports of industrial raw materials and capital goods. Growth in private consumption, however, may be affected by a decline in remittances through official channels.

Inflation will go down in the next fiscal:

The report said, the inflation rate steadily increased from 5.4% in July 2021 to 6.1% in December 2021, pushed by rising global prices of food and commodities, especially oil.

"Inflation will edge up in FY2023 to a forecast average of 6.0% due to rising global food and fuel prices," the report states and added that diesel and kerosene prices in the domestic market rose by 23.1% in November last year.

Further upward pressure on inflation will come from increased fiscal and monetary stimulus measures totalling $22.1 billion which is 5.4% of GDP.

The inflation rate in FY2023 is forecasted to go down to 5.9% on softer global food and fuel prices.

Export growth will not sustain:
 

30.3% growth of exports achieved in the first seven months will not sustain, claimed the report. However, because of the higher export base in the year-earlier period and a slight decrease in exports due to the Russian invasion of Ukraine, overall export growth in the current fiscal is projected at 26.2%.

Export growth in FY2023 is projected to decline to 8.1% on slower global growth and demand, as well as the high export base.

The unofficial channel to impact remittance flow:

Remittances fell by 19.9% in the first 7 months of the current fiscal, reflecting an unusually large 34.9% increase year-on-year. This is mainly due to the increased use of unofficial channels for transfers with the resumption of international travel despite the 2% cash incentive offered by the government since FY2020.

Remittances are projected to fall to $21.8 billion in FY2022, down 12.0% from FY2021.

Performance of South Asian countries:

Overall growth in South Asia is projected to slow to 7% in 2022 before picking up to 7.4% in 2023. Growth in India is forecast at 7.5% this year and 8% in 2023, driven by strong investment growth over the forecast horizon.

Pakistan's growth is forecasted to 4% in 2022 on weaker domestic demand from monetary tightening and fiscal consolidation before picking up to 4.5% in 2023.

Growth is expected to accelerate in Bhutan and Nepal while after a vigorous rebound in 2021, growth in Maldives will slow but remain strong, supported by the recovery in global tourism.

Weaker growth is expected in Sri Lanka as consumption and investment remain muted due to monetary policy tightening, supply shortages and inflationary pressures.

Only Maldives and India in the region are projected to grow higher than Bangladesh.

"If the current growth trends continue, Bangladesh will easily navigate through the post-LDC challenges," said the ADB country director.

"It will also make Bangladesh less susceptible to fall into the debt trap and the middle income trap," he added.