Economic growth to accelerate 6.2pc
WB forecasts for current fiscal year amid strong domestic demand
The economy may grow by 6.2 percent this fiscal year thanks to strong domestic demand and a revival in private investment activities and remittance flow, the World Bank said yesterday.
The economy’s natural capacity is sufficient to achieve growth of more than 6 percent, Zahid Hussain, a lead economist of the WB’s Dhaka office, said. “And, it will not require a huge jump in investment.”
But to achieve the targeted 7.2 percent growth, the country would have to raise the stagnant investment-GDP ratio to 35 percent from the present 28.7 percent.
“An investment boom is required for taking the investment-GDP ratio to that level,” he told reporters while making a presentation on the economy at his office in the city.
He spoke after Johannes Zutt, WB’s country director for Bangladesh, unveiled the Bangladesh Development Update.
Hussain said the country would have to complete the Dhaka-Chittagong and Dhaka-Mymensingh highways, double-tracking of Dhaka-Chittagong Railway, the Padma bridge, the Dhaka metro rail project and the two Bibiyana gas field-based large power plants to increase the investment-GDP ratio by more than six percentage points.
Even 8 percent GDP growth is possible if the projects can be completed, he said.
This fiscal year, agriculture is expected to grow by 2 percent, down from last fiscal year’s 3.3 percent. Industry will grow by 9.5 percent against 8.4 percent last fiscal year and services sector by 6.1 percent from 5.8 percent, according to the World Bank estimates.
The Washington-based multilateral lender also said the poverty incidence, based on national poverty line of $1.13 per capita per day, is projected to decline from 31.5 percent in 2010 to 24.47 percent by 2014.
This “remarkable progress” in poverty reduction is attributable to a decline in population growth rate and the changing age structure, increases in labour income, internal and external migration, improved connectivity and the government’s targeted safety net programme. “The expected decline in the poverty rate is not a result of any survey — rather, it is based on assumption. But, it is realistic,” Hussain said. On the WB’s assumption, the lead economist argued that the dynamism of the economy has remained the same or even better compared to the performance it showed between 2000 and 2010 when poverty was cut by 1.74 percentage points annually.
The WB also said the income of the bottom 40 percent is likely to have continued to increase because of increased employment and wages. The WB also warned of some risk factors facing the economy, with domestic factors dominating the risks to near-term outlook. A resurgence of political unrest, even if it is not as ferocious and as long as experienced in the last half of 2013, is the principal risk for the near term.
“This will depress private investment, push up inflation and potentially put reserves under pressure.”
It said lack of visible progress in upgrading labour and safety standards in garment factories could trigger loss of preferential access to the European Union markets. The inability to reopen job opportunities in the Middle-East clouds the sustainability of remittance growth prospects.
“These are high impact risks, particularly when combined with the possibility of a protracted slowdown in advanced economies.”
The WB said even if all the conditions are growth friendly, growth may still elude Bangladesh unless there is confidence about political stability and policy continuity.
The global lender said the deterioration in state banks’ financial solvency could challenge fiscal sustainability and constrain the availability of resources for public investment.
An oil price shock from heightened geopolitical tensions in the Middle East, or a protracted slow growth in trading partner economies, would adversely affect inflation and the balance of payments, it said.
The WB report however said Bangladesh’s closed capital account limits its vulnerability to global financial volatility, but a large depreciation of the Indian rupee could strain deepening and diversification of Bangladesh’s exports, particularly in garments, footwear and light manufacturing.
The WB said the country is well-known as a case of growth governance conundrum, adding that the governance environment may have been barely adequate thus far to cope with an economy breaking out of extreme poverty and low growth.
“Bangladesh needs to create a system of governance that can successfully manage the interactions between the state and a well-functioning globally integrated economy.”
It said managing such an economy requires inputs that markets do not easily provide: infrastructure, security, rules, standards, certifications, training and so on.
“These can be provided only by professionally competent and well-funded government agencies operating in a system that decentralises power to identify problems, work out solutions and monitor performance.”
The report said the non-elected state institutions—higher judiciary or the higher echelons of civil bureaucracy or the Election Commission or the Anti-Corruption Commission and other watchdogs, need total confidence of the public. “Without restoring the credibility of these institutions, governance will not grow out of patronage politics,” the WB added.