ADB trims Bangladesh's growth forecast to 5.1% as economic hopes dampen
The revision comes as political unrest in July and August, combined with recent floods, dampened economic activities
The Asian Development Bank (ADB) has trimmed its growth outlook for Bangladesh, forecasting the economy to expand by 5.1% in the current fiscal 2024-25, down from its April projection of 6.6%.
The revision comes as political unrest in July and August, combined with recent floods, dampened economic activities.
The ADB also warns that the 12-month average inflation in Bangladesh is expected to accelerate further to 10.1% in FY25 with supply-side disruption and higher import costs due to currency depreciation.
The report titled "Asian Development Outlook (ADO) September 2024," released today (25 September), states that the forecast is highly uncertain as significant downside risks muddy the macroeconomic outlook.
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These risks arise from evolving political uncertainties, an insecure law-and-order situation, data gaps and integrity, the challenge in achieving fiscal objectives, and financial sector vulnerabilities, it says.
The Manila-based multilateral lender also says, "Restoring and sustaining macroeconomic stability depends on accelerated reforms to raise revenue for a better fiscal balance, stabilise the finance sector through better interest and exchange rate regimes, and diversify the economy."
Earlier in April, the ADB projected that Bangladesh's real GDP would grow by 6.6% in FY25. The forecast was closely aligned with the target set by the ousted Awami League government in its proposed budget for the fiscal year, which aimed for a growth rate of 6.75%.
However, the ADB's latest forecast falls below the World Bank's June projection of 5.7% growth for the same period.
The ADB estimates GDP growth at 5.8% for FY24, down from the 6.1% projected in the ADO April 2024, but consistent with the growth rate in FY23.
Inflation to rise to 10.1% in FY25
The ADB's inflation forecast marks a 3.1 percentage point increase from the April estimates of 7%. In FY24, inflation was recorded at 9.7%, largely fuelled by soaring food prices.
However, inflationary pressures are expected to moderate in the second half of the fiscal year as tight monetary and fiscal policies lower domestic demand, the ADB adds.
External position to remain weak in FY25
The ADB report highlights that the current account deficit in Bangladesh is forecasted to equal 1.3% of GDP, a little changed from FY24.
It says, "Imports will likely grow at a slightly faster pace than in FY24 while export growth continues to slow, but high remittance inflows should narrow the current account deficit marginally in FY25.
"Tighter policies and low foreign exchange reserves will limit import growth, and supply disruption in the first quarter will constrain export growth."
Pressure on foreign exchange reserves is likely to remain in the near term. However, the report mentions that continued alignment of the exchange rate through further widening of the currency band, monetary policy tightening, import compression measures, robust remittance inflows, and foreign investment, should lead to a build-up of reserves over the medium term.
