Flooding to Affect Bangladesh's Economic Growth in FY2005

DHAKA, BANGLADESH (22 September 2004) - The gross domestic product (GDP) of Bangladesh is expected to rise by 4.8% in FY2005 against the ADB's earlier projection of 6.0% for the year. The downgrade is based on a preliminary assessment of damages resulting from the devastating flooding of July and August 2004, according to a major ADB report released today.

The Asian Development Outlook 2004 Update (ADO Update) issued today by ADB, is an update of the (ADO 2004) issued in April. ADO is ADB's annual flagship economic publication analyzing and forecasting economic trends in the Asia-Pacific region.

The damage by the flooding to infrastructure and other assets will slow economic growth and present a serious challenge to macroeconomic management, the report says. GDP growth in FY2004, which ended in June 2004, is estimated to have risen by 5.5%, mainly driven by steady growth in industrial production and exports.

Industrial growth is expected to be lower than in FY2004 due to the severe flood damage to small and medium enterprises, including the export-oriented knitwear industry.

The destruction of standing crops and the severe impact on output of poultry, livestock, fisheries, and forestry will lower agricultural growth from the year-earlier level. Expansion in services is also likely to suffer, reflecting a deceleration in industry and agriculture.

Annual average inflation is likely to edge up to 6.0% in FY2005 from an estimated 5.8% in FY2004 mainly due to higher domestic food prices and in part, to higher domestic oil prices, since the government is likely to allow passing some of the increased oil prices onto consumers.

The combined effects of the Multifibre Arrangement (MFA) phase-out at end-2004, and flood-related damage will cut by nearly half the growth in exports of textiles and clothing in FY2005. As textile and clothing exports normally account for about 75% of total exports, overall export growth will also likely fall steeply, probably by more than half.

"The abolition of MFA quotas is likely to pose serious problems in terms of reduced output and employment," the report says.

Import growth will decline, though remain relatively high at 14.0%. Reduced raw materials imports for the textile and clothing industry will be more than offset by the rise in post flood imports of food grains, medicines, and machinery, and a higher import bill for oil.

The current account will switch to a deficit of 1.5% of GDP from an estimated surplus of 0.3% in FY2004.

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