World Bank Lowers Bangladesh's GDP Growth Forecast For FY25

The World Bank has downsized the GDP growth forecast for Bangladesh by 0.1 percentage point to 5.7 per cent for the next fiscal year (FY2025). Elevated inflation, force shortages, import restrictions, and financial sector vulnerabilities weighed on the economic outlook, the global lender said on Tuesday. The bank, however, has maintained the same GDP growth projection for the current fiscal year FY2024.

In the current fiscal, the country will grow at 5.60 per cent, the WB said in its Bangladesh Development Update report, disclosed on Tuesday in Dhaka. Earlier, the WB South Asia Development Update was also launched on Tuesday from Sri Lanka where it raised the regional economic growth to 6.0 per cent for FY2024 and 6.1 per cent for FY2025.

The WB said persistent inflation is expected to weigh on private consumption growth, and shortages of energy and imported inputs combined with rising interest rates and financial sector vulnerabilities are expected to dampen investor sentiment. On the supply side, this will be reflected in higher industrial growth, even though services growth is expected to remain subdued.

"Growth is expected to increase gradually over the medium-term as monetary, exchange rate, financial and structural reforms are implemented." The WB said even though political uncertainty has diminished with a new cabinet taking oath after the national elections held in January 2024, downside risks to the outlook are significant.

"Inadequate progress in monetary and exchange rate reforms may result in a further decline in foreign exchange reserves and persistent inflationary pressure."Tighter liquidity conditions could exacerbate vulnerabilities in the banking sector. Fiscal risks include a revenue shortfall, potential financial sector fiscal liabilities, and deficit monetisation, it said.

"Expediting structural reforms are needed to promote economic diversification and integration into Global Value Chains (GVCs) and strengthen resilience over the medium to long term. Critical reforms include developing the intellectual property rights (IPR) regime and strengthening the framework for foreign direct investment."

An efficient resolution framework for non-performing loans (NPLs) is urgently needed, the WB said.

In this regard, it said, conducting a comprehensive asset quality review of the largest banks, establishing legal frameworks for the creation of an NPL market, strengthening corporate governance of the state-owned commercial banks, and efficiently implementing regulations such as the Prompt Corrective Action framework for weak banks are crucial steps.