Fitch revises growth projection for Bangladesh to 6.3% for FY22

The global rating agency Fitch Solutions has revised its growth forecast for Bangladesh to 6.3% from the previous 5.5% for the current 2021-2022 fiscal year  as vaccinations improved economic recovery.

The rating agency sees improvement in private consumption and strong export growth which will accelerate the country's growth momentum, according to its report released on Thursday. 

The revised projection is still low from the government's estimate of 7.2% set for the current budget, but stronger than the government's provisional estimate of 5.5% in FY21.

Fitch's new projection is still lower compared to IMF (International Monetary Fund) and ADB (Asian Development Bank) forecasts but higher than that of the World Bank.

The World Bank in June projected 5.1% growth for Bangladesh in this fiscal year, IMF estimated 7.5% and ADB 6.8%.

"Improved Covid-19 vaccination progress will help to sustain the economic recovery and accordingly, consumer spending."

However, it says that this improvement in the economic outlook will be partially offset by weaker gross fixed capital formation growth as a result of China's withdrawal of funds for some of its Belt and Road projects owing to disagreements with the Bangladeshi government.

"We maintain our expectation for Bangladesh's exports recovery to continue, benefiting also from likely diverted garment orders from Vietnam as a result of the ongoing suspension of many Vietnamese factory operations due to the Covid-19 outbreak."

Fitch has also revised itd forecast of private consumption growth to 8.5% for FY22 from 5.5% previously.

However, it maintained the forecast for government consumption at 6%.

"Covid-19 vaccination progress has accelerated since our last update in July following improved vaccine supply. As of September 21 2021, 14.2% of the population have received at least one dose of a Covid-19 vaccine with 9.4% of the population considered to be fully vaccinated."

This compares with 3.7% and 2.6% respectively at the end of July. India's resumption of Covid-19 vaccine exports to the COVAX scheme and its neighbours including Bangladesh from October 2021 will also further bolster Bangladesh's Covid-19 vaccine supply and support its inoculation drive, said Fitch.

 New daily infections have also eased significantly from the June-August wave of infections and this should also support the rebound in private consumption.

The Covid-19 infection rate declined to 3.24% on Thursday, with the country recording 23 more deaths from the virus in the last 24 hours, according to the health ministry.

This is for the 10th day in a row that the country reported the rate below 5%.

Fitch also revised its forecast for export contribution in growth to 0.8 percentage point in FY22 from 0.3 percentage point. 

"We continue to expect exports to record a strong rebound of 17% as global garment brands rebuild their inventories.

"To be sure, readymade garments account for more than 80% of Bangladesh's exports. Bangladesh may also benefit from diverted orders from Vietnam as a result of factory work suspensions as Vietnam continues to grapple with its Covid-19 outbreak in and around the major municipalities of Hanoi and Ho Chi Minh city. Myanmar being an unattractive garment supply source amid logistical challenges from domestic civil conflict and political turmoil will also put Bangladesh garment factories in a good position to grow their market share."

Bangladesh's export earnings made a strong comeback with a little over 14% growth year-on-year in August this year following a more than 11% slump a month ago, according to data from the Export Promotion Bureau (EPB).

Fitch revised down forecasts for imports growth to 12%, from 18% previously.

"This is due to a weaker rebound in imports as a result of less need for capital goods and raw materials arising from a weaker construction outlook. Food imports will also decline as food supply shortages ease, lowering the import bill."