ADB cuts Bangladesh’s GDP growth forecast to 6.6%

The Asian Development Bank (ADB) has trimmed its growth forecast for Bangladesh's gross domestic product (GDP) to 6.6% for the current fiscal year from a 7.1% projection made in April.

In its September report of the Asian Development Outlook 2022 revealed on Wednesday, the lender said the growth momentum in Bangladesh continued in 2022, but it will slow in 2023 because of lower consumption expenditure on weaker export demand and income, an uncertain outlook, and domestic production constraints.

The government placed a target to achieve 7.5% GDP growth in the current fiscal year. ADB's growth projection is 0.9 percentage points lower than the government target.

The moderately lower growth forecast reflects slower domestic demand and weaker export prospects due to slower growth in advanced economies, the ADB said, adding that the current account deficit is expected to narrow from 4.1% of GDP in FY2022 to 3.6% of GDP in FY23 as imports slacken and remittances increase.

The ADB released the update of the Asian Development Outlook from its headquarters in Manila highlighting the economic growth in developing Asia and the Pacific, amid mounting challenges, including increased monetary tightening, fallout from the protracted Russian invasion of Ukraine, and recurrent Covid-19 lockdowns in China.

The ADB lowered the growth projection for the region in the current fiscal year to 4.3% from the April projection of 5.2%. The growth forecast for next year has been lowered to 4.9% from 5.3%.

The report projected 6.5% growth for the South Asia region, which remained the same with the previous fiscal year's and 0.9 percentage points lower than the April projection of 7.4%.

Bangladesh Resident Mission of the ADB published a special chapter of the report at a press briefing arranged at its country office in Agargaon.

ADB Country Director Edimon Ginting said at the event that the government is navigating the prolonged external economic uncertainties relatively well and has implemented appropriate policies to reduce the external imbalance.

But turbulent times like these are also a good time to accelerate reforms that would improve the country's growth prospects in the medium term. These reforms include improving domestic resource mobilisation, deepening the financial market, and enhancing competitiveness to promote the creation of productive jobs in the private sector, he added.

He also said uncertainties in the international energy market provide a good momentum to accelerate reforms to achieve the country's climate change goals and expand domestic renewable energy supply to reduce dependence on fossil fuels

The update states that private investment growth will be lower due to global uncertainty and energy shortages. With slower revenue growth and higher import costs, public investment growth will also be slower as a result of the government's austerity measures. 

The ADB expects that the inflation would accelerate to 6.7% in FY23 from 6.2% in FY22 as price pressures increase due to the upward adjustment of domestic administered prices for all types of fuel and rising global commodity prices. 

Presenting the report at the event, Chan Hong, senior country specialist of ADB's the Bangladesh office, said the economy of the developing Asia and the Pacific region is facing several downside risks, including a sharp deceleration in global growth, stronger-than-expected monetary policy tightening, escalation of the Russian invasion of Ukraine, deeper-than-expected deceleration in China, and negative pandemic developments. These challenges would hinder the growth in the region.

He also said weakening in exports is the main downside risk for Bangladesh with global uncertainty over prolonged Russian invasion of Ukraine. He also found adverse weather events are a perennial risk.

The agriculture growth would decline due to the unusually dry monsoon season, which has adversely affected Aman rice planting, he noted, adding that floods in the northeastern region during the early monsoon damaged infrastructure, affected economic opportunities and all other aspects of life. 

"Industry growth is expected to be lower due to lower demand from major export destinations and disruptions in power and energy supply," he said, pointing out that the Bangladesh Bank is expected to further tighten monetary policy to contain inflation and reduce the volatility of taka.

Inflation is projected to accelerate to 6.7% in FY23 due to the rise in global food and fuel prices driven mainly by the impact of the Russian invasion of Ukraine. 

With a relatively higher projected increase in expenditure compared to revenue, the budget deficit is expected to increase to 5.5% of GDP in FY23. 

All of the economy in South Asia to slide

The ADB dropped average growth for South Asia in 2023 to 6.5% from the previous projection of 7.4% mainly, reflecting the pattern of growth in India, which accounts for 80% of the subregional economy. 

GDP growth for India is revised down from 8% in the next year to 7.2% as price pressures are expected to adversely impact domestic consumption, and sluggish global demand and elevated oil prices will likely be a drag on net exports.

Growth prospects for the rest of South Asia's economies will be mixed, revealed the report. Sri Lanka's economy contracted by 3.3% in 2023, which was projected to grow by 2.5% earlier.

The severe balance of payments and debt crisis that led to a default, a shortage of foreign exchange reserves, supply bottlenecks, and the need for fiscal tightening will take a heavy toll on the Sri Lankan economy this year and the next, the report added.

The report also projected lower growth for all other economies in the region.