Growth slowed, inflation quickened, and exports weakened in Bangladesh, but the current account surplus nearly doubled in fiscal year 2012 on strong remittances. The authorities began implementing a program of macroeconomic and structural reforms to correct emerging imbalances and foster sustained, rapid growth. Weak external and domestic demand are projected to slow growth in FY2013, but the current account is expected to stay in surplus. Political instability in the run-up to the elections is a risk. Improving the business climate and infrastructure, deepening the finance sector, and liberalizing trade is needed to boost investment and competitiveness.

Economic performance

Growth in gross domestic product (GDP) slowed to 6.3% in FY2012 (ended June 2012) from 6.7% in the previous year. Agricultural growth halved to 2.5% from 5.1% in FY2011, as crop growth dropped to 0.9% from 5.7%. Higher power, fuel, and fertilizer prices, and reduced area for the monsoon season (aman) rice crop, weakened performance. Industry growth was strong at 9.5%, up from 8.2% in FY2011, as manufacturing expanded by 9.8% and construction and power both turned in somewhat better performances. Domestic market-oriented small-scale manufacturing benefited from new tax incentives and greater access to financing. Services growth slowed slightly to 6.1%, mainly because of lower exports and imports.

On the demand side, private consumption benefited from a marked expansion in workers’ remittances and higher bank credit. Reflecting the global economic slowdown, growth in exports and imports alike decelerated sharply, with net exports subtracting from growth.

Source: ADB estimates.

Economic prospects

Economic forecasts for FY2013 and FY2014 rest on four assumptions. First, the central bank’s slight easing in monetary policy announced in January 2013 will not stoke inflation, given the declining trend in international commodity prices and a favorable domestic crop outlook. Second, the Government of Bangladesh will contain subsidies by continuing to raise fuel and electricity prices and thus keep in check its need for bank borrowing. Third, though political activity is expected to be volatile, social stability will be maintained. And, finally, weather will be favorable.

GDP growth is projected to edge lower in FY2013 to 5.7%. Export demand, a major contributor to GDP growth in Bangladesh, is expected to slacken slightly, reflecting the Asian Development Outlook's baseline assumptions that the euro area economy stagnates and the recovery of the United States remains frail. Despite higher remittances, growth in demand for private consumption is expected to weaken as households adopt a cautious approach to spending because of political uncertainties ahead of parliamentary elections expected by early 2014, depressing production in industries oriented to domestic markets. Lower rice prices will further dampen consumer demand through reduced agricultural income. Ongoing decline in imports of capital equipment and slow import growth for raw materials indicate lower utilization of existing production capacity and a lull in investment. A drop in import letters of credit opened for machinery and industrial raw materials signals weak economic activity in the coming months. With some strengthening of economic activity expected in the euro area and the US in 2014, GDP growth is projected to recover moderately to 6.0% in that year on the back of gradual rises in exports, consumer spending, and investment.

Source: ADB. 2013. Asian Development Outlook 2013. Manila.

READ MORE