BD Economy to Remain Strong If COVID-19 Challenges Managed Well: ADB

Bangladesh's economy is expected to remain strong in the fiscal year 2020 with a solid GDP growth pace of 7.8%, according to a recent estimate by the Asian Development Bank (ADB).

The forecast forecasts that Bangladesh's Gross Domestic Product (GDP) is expected to rise by 7.8% in FY2020 and 8.0% in FY2021, according to the new Asian Development Outlook (ADO) 2020, ADB's flagship economic publication. 

The forecasts do not reflect the impact of the COVID-19.

“Bangladesh economy continued to perform well despite the global economic slowdown. However, there exists a downward risk due to the COVID-19 global pandemic,” said Country Director Manmohan Parkash.

These growth forecasts rest on several assumptions of continued political calm, maintained consumer and investment confidence, depressed exports and imports in FY2020 and recovery in FY2021, expansionary central bank monetary policy, and favorable weather.

ADB’s preliminary estimates indicate that about 0.2% to 0.4% of Bangladesh GDP may be lost due to spillover effects of the global COVID-19 pandemic.

If a significant outbreak occurs in Bangladesh, the impact could be more significant, said ADB on Friday.

“The outlook will be updated as more information becomes available. To cope with and mitigate the impact of the COVID-19, ADB is committed to support and collaborate with Bangladesh.” Country Director Parkash added.

Appreciating the government’s recent interventions, Parkash said, “Addressing cash management challenges and broader resiliency issues due to COVID-19 related shutdowns and economic knock-ons could help minimize the impact on Bangladesh economy.”

During the first 8 months of FY2020, Bangladesh economy showed strong performance with growing domestic demand, supported by a substantial increase in workers’ remittances.

Economic activity is expected to accelerate with higher government development spending; higher imports of liquefied natural gas, oil and construction materials; favorable power production, and government’s policy support to boost exports.

However, the COVID-19 pandemic could hamper such a trend due to disruptions in export demands, suppressed consumption, and curbed remittances.

In FY2021, private consumption will continue to drive growth, aided by continued strong remittances.

Private investment will revive on a stronger outlook supported by improvements in business regulatory environment and enforcement of single-digit lending rates in banks.

A planned rise in public investment in large projects should help expansion in domestic demand.

Improvement in global growth with expected government policy support will help the industrial activities expand.

Inflation will stay in check in both years, and expected to slightly edge up to average 5.6% in FY2020 on higher food prices as well as nonfood prices on account of higher domestic natural gas prices.

In FY2021, it will ease to 5.5% on better supply conditions.

The current account deficit will narrow in FY2020 due to moderate trade deficit and healthy remittances.

With expected faster growth in export than import and continued healthy remittances, the FY2021 current account will further improve.

The ADO 2020 notes that low revenue mobilization continues to be a key challenge for Bangladesh economy.

Bangladesh's low revenue-to-GDP ratio limits the country's capacity to support fast economic growth and reduce poverty.

Revenues, therefore, need to be substantially improved by substantive tax changes, an expansion in the tax base and a more effective allocation of capital to fund much-needed public spending on education, health, and social growth. 

Source: UNB