Brisk exports helped to maintain growth and a current account surplus in Fiscal Year 2014 in Bangladesh despite political disturbances ahead of elections in January 2014. Political blockades and violence in early 2015 will constrain growth and turn the current account into a small deficit. Higher growth and a current account surplus are projected to return in FY2016 with political calm. Prolonged strife remains a risk. Eliminating infrastructure bottlenecks and improving the investment climate are top priorities.
|Selected Economic Indicators (%) - Bangladesh||2015||2016|
|Current Account Balance (share of GDP)||-0.5||0.5|
Source: ADB estimates.
In Bangladesh, economic growth in Fiscal Year 2014 (ended June 2014) is provisionally estimated at 6.1%, slightly improved from 6.0% in FY2013. Agriculture expanded by 3.3%, aided by good weather and continued government support. Industry growth slumped to 8.4% from 9.6% a year earlier, however, because political unrest before the parliamentary election in January 2014 disrupted the supply of materials and undermined consumer confidence. Services advanced by 5.8%, up slightly from 5.5% the year before, mainly on stronger trade in the second half of the year.
On the demand side, net exports added to growth as garment exports grew briskly. A decline in remittances and weak consumer confidence ahead of the election held down growth in consumer spending. Investment rose slightly to 28.7% of the gross domestic product (GDP) in FY2014 from 28.4% in the previous year, as private investment slipped to 21.4% of GDP from 21.8% in FY2013 while public investment rose from 6.6% to 7.3%. Private investment was constrained by the unsettled political environment, difficulties with infrastructure and skills deficits, and procedural problems that inhibit investment. Rising public investment came as the government stepped up its implementation of election pledges. Foreign direct investment remained low.
Projections for FY2015 are based on a several assumptions: The central bank will maintain its cautious monetary stance to contain inflation, as envisaged in the January 2015 monetary policy statement. The government will raise electricity and natural gas prices to cut subsidies and keep current spending within the budget. It will attain targeted budget revenue and foreign financing and strengthen project implementation. Finally, the weather will be favorable.
GDP growth in FY2015 is projected at 6.1%. Before political unrest began in January 2015 - the anniversary of national elections that the opposition boycotted - the economy had been FY2015. Strong remittance inflows boosted consumption, and private investment was rising, as indicated by higher capital equipment imports. Although exports remained subdued, they were gradually improving as export orders picked up. However, political unrest and action to shut down transportation began undermining growth prospects by affecting private investment and export activity. Continued healthy remittance inflows are expected to support consumer spending, however, and sustain economic momentum. Notwithstanding the country’s resilience under domestic and external shocks, if political unrest continues, it would further hinder economic growth.
Growth in FY2016 is projected to accelerate to 6.4%, aided by higher remittances and export growth, which is underpinned by the continued economic recovery in the United States and the euro area. Consumer and investor confidence are expected to pick up as the political situation stabilizes, strengthening growth momentum. In addition, infrastructure constraints will likely ease somewhat with the completion of ongoing projects, particularly the opening of new power plants.
Excerpted from the Asian Development Outlook 2015.