Bangladesh: Economy

The provisional estimate for Bangladesh’s Gross Domestic Product (GDP) growth in the financial year (FY) 2015 (ended 30 June 2015) is higher than the 6.1% recorded in FY2014 and projected in the Asian Development Outlook 2015.

Selected economic indicators (%) 2015 2016
  ADO 2015 Update ADO 2015 Update
GDP Growth 6.1 6.5 6.4 6.7
Inflation 6.5 6.4 6.2 6.2
Current Account Balance (share of GDP) -0.5 -0.8 0.5 -0.5

Source: Asian Development Outlook 2015; Asian Development Outlook 2015 Update

Economic performance

Despite political agitation early in 2015 that adversely affected transport services, exports, and private investment, growth in Bangladesh held up well because of brisk domestic demand, boosted by higher worker remittances, private sector wages, and public investment.

Inflation moderated in FY2015 much as forecast in ADO 2015 from 7.4% a year earlier, reflecting large public stocks of food grains, normal weather, a supportive monetary policy, and lower global food and commodity prices that a steady exchange rate allowed to passed through.

Export growth was 3.3% in FY2015, down significantly from 12.1% in FY2014. Garments—accounting for about 80% of total exports— grew slowly by 4.1%, reflecting supply chains disrupted by political demonstrations in early 2015, soft demand from the European Union and the US, and a marked decline in prices for cotton, a major input cost that can affect pricing. Imports rose by 11.2%, accelerating from 8.9% growth in FY2014. Larger imports of food grains, machinery, fertilizer, and industrial raw materials helped to propel the expansion. As exports grew significantly more slowly than imports, the trade deficit widened markedly.

Despite a strong recovery in remittances, the current account recorded a small deficit slightly higher than the ADO 2015 forecast.

Economic prospects

The GDP growth forecast for FY2016 is revised somewhat higher still with the expectation that exports will grow with continued economic recovery in the US and the euro area, strong expansion in remittances will boost consumption demand, private and public investment will pick up as the business climate improves under a stabilizing political situation, and spending will increase under the annual development program.

The ADO 2015 Update retains the ADO 2015 projection for average inflation in FY2016, which matches the central bank’s monetary policy statement. Although higher public sector wages and upward adjustments to administered prices for natural gas and electricity from 1 September 2015 will exert inflationary pressure, the easing of supply constraints, a cautious monetary policy, and a better crop outlook should keep inflation in check.

Export growth in FY2016 is projected to improve to 6.0% as economic growth in the euro area and the US strengthens. Imports are projected to increase by 13.0%, mainly for capital goods, industrial raw materials, and food grains. Despite the expansion in remittances, the larger trade deficit will likely mean a current account deficit narrower than in FY2015 but failing to achieve the small surplus projected in ADO 2015.

Excerpted from the Asian Development Outlook 2015 Update.