The Asian Development Bank (ADB) further cut its FY14 GDP growth forecast for Bangladesh to 5.6 per cent from the government’s projection of 6.3 per cent, citing the impacts of political turmoil, weakening exports, remittances and domestic demands. Earlier, ADB projected this fiscal year’s growth at 5.8 per cent. “GDP growth is expected to slow to 5.6 per cent in FY2014, owing to a decline in remittances (which have been equivalent to about 15 per cent of private consumption spending) and as export growth tapers off in the coming months. Domestic demand was depressed in the first half of the year because the prolonged political unrest ahead of parliamentary elections in January 2014, dented consumer and investor confidence,” said ADB in its latest report titled Asian Development Outlook (ADO) released on Tuesday. It said: Bangladesh’s GDP growth moderated last year, inflation declined, and the current account returned a larger surplus. This year, growth will slip again, reflecting slower expansion in exports, falling worker remittances, and political unrest before parliamentary elections. The report however forecast that growth is expected to rebound to 6.2 per cent in FY2015, aided by higher remittance and exports growth, as well as by prospects for continued economic recovery in the US and the Euro zone. A likely rise in consumer and investor confidence after the political situation stabilizes is also expected to stimulate demand and strengthen growth momentum, the report said. “Bangladesh needs to boost investment in infrastructure and skills development to raise the economy’s productive capacity if it hopes to upgrade economic growth to a 7 per cent to 8 per cent trajectory,” said the ADB report, adding, “Investment has remained virtually stagnant at around 25 per cent to 26 per cent of GDP over the past several years and needs to be raised to the 32 per cent to 33 per cent range, as envisaged in the Sixth Five-Year Plan, FY2011-FY2015,” it added. “Clearly, more public resources should be mobilized to finance large infrastructure investment requirements in electric power, gas, ports, railways, roads, and urban services, and to enhance the skills base to strengthen the garment industry, help diversify the economy and raise global competitiveness and growth,” it said.The ADB also advised increasing the revenue resources by simplifying laws and procedures, improving logistics and automation, and reducing scope for evasion with the introduction of advanced auditing and enforcement techniques.Moreover, fiscal space needs to be expanded by cutting subsidies, which requires raising electricity prices to reflect the cost of production vis-.-vis other options, and by aligning fuel prices with international oil prices, the Bank said.For instance, the ADB said gas prices need to be set keeping in view gas prices on the international market and the cost of alternative fuels. The resources freed up could be allocated for infrastructure and human resource development.Public sector capacity for project design and administration, procurement, audit, and financial management must be enhanced to make project implementation more efficient, the ADB said.In addition, it suggested that projects under public-private partnerships need to be advanced by developing the capacity in line agencies to design, bid, and award such contracts.The ADB saw weak governance in state-owned commercial banks undermined the strength and efficiency of banking sector, the main financing source for private investment. “However, in line with the latest memorandum of understanding between these banks and the central bank, performance is to be improved by adopting stronger risk management and controls, and by placing ceilings on credit growth for each bank based on its performance and financial soundness”, the development bank said.For stock market development, it advised that the ongoing capital market reforms to enhance market stability and governance need to be deepened through development of a liquid bond market to expand sources for private sector financing.To improve the business climate, it said the trade regime needs to be liberalized through tariff and non-tariff reform. Import duties need to be cut, and the dispersion in rates and average level of protection lowered to boost competitiveness and reduce biases against exports.Trade and infrastructure and logistics, including port services and automation, need to be improved to lower transaction costs and facilitate faster clearance of goods, the ADB said.
