WB revises up FY21 growth forecast, but still far below govt estimate

The World Bank has upgraded Bangladesh's growth forecast in the current fiscal year to 3.6%, up by 2 percentage points from its previous projection of 1.6% in January, but the figure is still substantially lower than the government's revised target of 6.1%.

The global lender, in its flagship publication "Global Economic Prospects", also anticipated that the gross domestic product (GDP) of Bangladesh will grow by 5.1% in the next fiscal year, which is also lower than the budgetary target of 7.2%.

Terming the World Bank's forecast as an "optimistic" one, economists and analysts say it will be very difficult for the economy to grow at the projected level.

But, Finance Minister AHM Mustafa Kamal found some inconsistencies in the World Bank's forecast and expressed his confidence to achieve growth at the budgetary target level.

The World Bank said the global economy is expected to expand by 5.6% in 2021, the fastest post-recession pace in 80 years, largely on strong rebounds from a few major economies like the USA, Euro areas and BRICS countries comprising Brazil, Russia, India, China and South Africa.

The growth of Bangladesh economy will be lower than the South Asian average of 6.8%. The South Asian economy will revive after 5.4% negative growth in the last fiscal year mainly on the back of 8.3% growth of India following 7.3% negative growth in 2020.

Bangladesh will achieve the third-highest growth in the region, following Maldives 17.1% and India. The economy of Bhutan will contract by 1.8%.

The World Bank identified the lower pace of vaccination behind the slower recovery in the upcoming years in Bangladesh and some other South Asian countries.

"Although nearly all countries in the region have begun vaccinations, progress has been slow, and the region's largest economies - Bangladesh, India, and Pakistan - have vaccinated only a small fraction of their populations," read the report.

Bhutan and Maldives, however, have managed to vaccinate more than half of their populations.

Bangladesh has been placed sixth among eight countries of the subcontinent ensuring vaccination for 6% of its population. The Maldives ranks top with 85.9% vaccinations of its population, while Bhutan stands second with 62.5% of vaccination. Vaccine producer India ensured vaccination for 14.2% of the population.

The second wave of Covid-19 would prolong the recovery of the economic growth in Bangladesh and some other countries, said the report, explaining the recent rise in Covid-19 cases accompanied by rising restrictions to stamp out the new surge. Mobility around places of work and retail has again dropped below pre-pandemic levels.

"In Bangladesh, the recovery is expected to be gradual as private consumption, the main engine of growth, is supported by normalising activity, moderate inflation, and rising readymade garment exports," read the report.

Bangladesh observed a 5.24% economic growth in the last fiscal year, according to the Bangladesh Bureau of Statistics, but the World Bank estimated that the growth in the FY20 was only 2.4%.

Bangladesh would lose about 8.1% of regular output in the next fiscal year despite some growth.

The Maldives would lose the highest 20.1% of its regular output in the next fiscal year in South Asia, followed by Bhutan 12.3%, Nepal 10.5% and India 9.3%. The average output loss in the region would stand at 8.8%, while Pakistan would lose the lowest 5.2% of regular output.

After a meeting of the cabinet committee on government procurement on Wednesday, finance minister AHM Mustafa told reporters, "First, we have to see whether the World Bank's forecasts have matched the reality so far. Even if there are some small deviations, we never saw their figures align with reality."

He also said the government will be able to achieve the projection made in the fiscal 2021-22, and this fiscal year's growth will be 6.1%.

 "We believe growth will even exceed 6.1% considering the positive macroeconomic trend towards the end of the financial year, in May-June. It will be the highest in South Asia.

 "It is only a matter of days before you can see whether we have achieved it or not," he added.

Economist Dr Zahid Hussain told The Business Standard that the World Bank projected gradual recovery and it depends on the economic activities, mainly on vaccination.

He said the global economy, especially developed countries will meet massive growth and consumption to reach close to the pre-pandemic level. Bangladesh economy will be beneficiary from the global demand ensuring improvement in the health situation after vaccination.

Bangladesh's economy is facing uncertainty and its recovery is also unpredictable because of poor Covid-19 management and frequent closers of the economy, he added.

The economist also disagrees with the World Bank's assumption regarding an increase in domestic demand.

He said a large number of people fell below the poverty line owing to job losses. "How the aggregate demand will increase in the absence of job recovery and the purchasing power of the people be retrieved?" he questioned.

The Asian Development Bank (ADB) and IMF respectively projected 6.8% and 5% growth in the current fiscal year.

ADB and IMF's growth projection for FY22 is respectively 7.2% and 7.5%, which is also higher than that of WB's growth projection in the next fiscal year.

The World Bank found that significant stress in the domestic financial sector remains a significant downside risk in the region, including Bangladesh.

The report read nonperforming loans as a share of total loans were already elevated prior to the pandemic in Bangladesh, contributing to a precipitous slowdown in credit growth.

"Although previous efforts to clean up bank balance sheets yielded some gains in bringing down NPLs, temporary forbearance measures extended in 2020 may have concealed a more severe deterioration in balance sheets experienced during the pandemic," said the report.

Going forward, asset quality and bank profitability may worsen as temporary forbearance measures are removed or renewed outbreaks damage balance sheets, undermining credit and investment growth in the economy.

Strong global recovery

The World Bank expected that the global economy to expand by 5.6% in 2021, the fastest post-recession pace in 80 years, largely on strong rebounds from a few major economies.

However, many emerging markets and developing economies continue to struggle with the pandemic and its aftermath, according to the report.

Despite the recovery, global output will be about 2% below pre-pandemic projections by the end of this year. Per capita income losses will not be unwound by 2022 for about two-thirds of emerging markets and developing economies.

Among major economies, US growth is projected to reach 6.8% this year, reflecting large-scale fiscal support and the easing of pandemic restrictions.

Among emerging markets and developing economies, China is anticipated to rebound to 8.5% this year, reflecting the release of pent-up demand.

"While there are welcome signs of global recovery, the pandemic continues to inflict poverty and inequality on people in developing countries around the world," said World Bank Group President David Malpass.

"Globally coordinated efforts are essential to accelerate vaccine distribution and debt relief, particularly for low-income countries. As the health crisis eases, policymakers will need to address the pandemic's lasting effects and take steps to spur green, resilient, and inclusive growth while safeguarding macroeconomic stability."

The report projected 6.8% growth in the next year equal to the current year and slightly reduced at 5.3% in 2023.