While S Asia thrives, Bangladesh’s growth set for record low at 4%: WB

Infographics: TBS

As South Asia remains on track to be the fastest-growing region in the world, with the World Bank raising its GDP growth forecast to 6.4% this year, Bangladesh is the outlier slipping to its lowest growth level in decades.

The Washington-based lender has downgraded its outlook for Bangladesh, predicting economic growth of just 4% for the fiscal 2024-25, down from an April forecast of 5.7%. This marks the lowest growth estimate in nearly 30 years, excluding the pandemic-affected fiscal 2019-20.

Political turmoil affected growth

The World Bank attributes the sharp downgrade to uncertainties surrounding Bangladesh's political and economic outlook following recent political turmoil.

However, analysts point to a slew of domestic issues ranging from soaring inflation and stagnant private investment to a struggling banking sector, poor revenue collection, and inefficiencies in development projects as key factors behind the country's economic downturn.

The World Bank report – South Asia Development Update (October 2024) – released today (10 October), states, "In Bangladesh, output growth is expected to slow from 5.2% in FY2023/24 to within the range of 3.2-5.2% [with a mid-point of 4.0%] in FY2024/25."

Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), told TBS that the economy showed signs of weakness from the previous fiscal years.

"There is a drought in investments, resource mobilisation has decreased, and non-performing loans in banks have increased and inflation remains high, hence it is natural for growth to slow down," she said.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, said what's notable is that in the past, the World Bank has rarely used such a wide range in its growth forecasts. Now, it's presenting a forecast with a significant difference between the high and low ends of the range, indicating Bangladesh's economic uncertainties.

"Given the current situation, if the GDP growth rate reaches 5.2%, it would be considered quite strong growth," he said.

The World Bank also says the wide range of the growth projection reflects the lack of available or reliable data in recent months and significant uncertainties around the political and economic outlook following the recent political turmoil.

"In the short term, political uncertainties are expected to keep investment and industrial growth subdued. Recent floods are expected to set back agricultural production modestly," says the report.

The report also forecasts that in the medium to long term, growth is expected to pick up gradually, benefiting from critical reforms in the financial sector, increased domestic resource mobilisation, improved business climate, and increased trade.

Were Bangladesh's economic figures inflated?

Bangladesh's GDP growth figures have come under increasing scrutiny as key economic indicators – such as private investment, credit flow, exports, imports, and energy consumption – fail to align with the reported growth rates. 

The CPD raised concerns in its June analysis of the state of the Bangladesh economy for FY2023-24.

The government initially set a GDP growth target of 7.5% for FY24, despite significant macroeconomic challenges. This was later revised down to 6.5% in January 2024, reflecting a more cautious outlook. 

Multilateral agencies, however, were even less optimistic: the Asian Development Bank forecast 6.1%, the International Monetary Fund 5.7%, and the World Bank 5.6%. 

Recently, the World Bank further lowered its estimate to 5.2%, compared to the 5.82% estimate by the Bangladesh Bureau of Statistics (BBS).

The government's introduction of quarterly GDP data in January 2024, following IMF recommendations tied to a $4.7 billion loan package, initially raised hopes for more reliable data. 

However, wide variations between quarters have puzzled analysts. For instance, the BBS reported a 6.12% growth rate for January-March of FY24, a sharp jump from 3.78% in the previous quarter and 2.3% in the same period last year.

Concerns extend beyond GDP figures. From FY20 to FY24, the gross investment-to-GDP ratio dropped from 31.31% to 30.98%, with private investment declining from 24.02% to 23.51%. 

A recent Bangladesh Bank report also revealed a $14 billion gap between export figures and actual receipts, further raising doubts about data reliability.

The overestimation issue is also evident in job creation. Bangladesh's GDP grew by nearly 7% on average between FY10 and FY19, but economists describe this growth as largely jobless. 

Each year, approximately 800,000 to 900,000 university graduates enter the workforce, yet the market struggles to absorb them.

South Asia and India's growth outpace expectations

The World Bank report says growth in South Asia is expected to increase to 6.4% this year, exceeding earlier projections and keeping the region on track to be the fastest growing in the world. 

The World Bank projects India's GDP growth to be 7% for the current fiscal year, up from 6.6% in its April forecast.

Unlocking untapped potential by increasing women's participation in the labour force and opening further to global trade and investment could help the region grow even faster and achieve its development goals, says the World Bank in its biannual regional outlook.

The latest edition of World Bank's "South Asia Development Update, Women, Jobs, and Growth" forecasts a broad-based upturn in the region, supported by strong domestic demand in India and faster recoveries in most other South Asian countries. Growth is expected to remain robust at 6.2% a year for the next two years.

However, this forecast is subject to downside risks including extreme weather, debt distress, and social unrest. Policy missteps such as delays in planned reforms could also set the region back. Fragile fiscal and external positions leave little buffer against these risks.

"South Asia's outlook is undoubtedly promising, but the region could do more to realise its full economic potential," says World Bank Vice President for South Asia Martin Raiser. 

"Key policy reforms to integrate more women into the workforce and remove barriers to global investment and trade can accelerate growth. Our research shows that raising female labour force participation rates in the region to those of men would increase regional GDP by up to 51%," he says.

According to the report, female labour force participation in South Asia is among the lowest in the world. Only 32% of working-age women were in the labour force in 2023, compared to 77% of working-age men in the region.

For all South Asian countries except Bhutan, female labour force participation rates in 2023 were 5 to 25 percentage points lower than in countries at similar levels of development. 

This shortfall in the female labour force is most pronounced after marriage. On average, once married, women in South Asia reduce their participation in the workforce by 12 percentage points, even before they have children.