World Bank sees slow GDP growth, high inflation and low forex reserve for Bangladesh

Infographics: TBS

The World Bank forecasts a slow economic growth for Bangladesh as inflation is likely to remain elevated, while foreign exchange reserves are expected to stay low. 

In its latest edition of Global Economic Prospects, the global lender warns continued import restrictions and rising input costs could impede private investment, while slower export growth to Europe might impact overall economic prospects for Bangladesh.

"In Bangladesh, growth is forecast to slow to 5.6% in FY2023/24. Inflation is likely to remain elevated, weighing on private consumption," says the World Bank's flagship report, which forecasts a "still-robust" 5.6% economic growth for the South Asia region, with India performing the highest and Sri Lanka and Pakistan remaining low performers this year.

While some countries in the region will be in need for higher external and fiscal financing needs, Bangladesh will be under less stress regarding external finance, it points out.

Bangladesh's GDP growth is expected to rise to 5.8% in FY2024/25 as inflationary pressure recedes, it forecasts.

"As foreign exchange reserves are likely to stay low, import restrictions are expected to continue and impede private investment. In contrast, public investment is envisaged to remain resilient," it says about Bangladesh.

"Additionally, in Bangladesh, slower-than-anticipated growth in its export destinations, particularly in the European Union, could pose a risk to growth prospects," the World Bank says in its report released on Tuesday.

Bangladesh's growth is estimated to have slowed to 6% in FY23, as activity was hampered by import restrictions and rising material and energy costs, as well as mounting external and financial pressures, the report said.

In contrast, public investment is envisaged to remain resilient and the growth is expected to rise to 5.8% in FY25 as inflationary pressure recedes, reads the report.

South Asia's economic outlook

Growth in South Asia is estimated to have slowed slightly to 5.7% in 2023 and expected to edge down to 5.6% in 2024, yet it remains the fastest among emerging market and developing economy regions.

This is largely attributed to a robust expansion in India, which accounted for more than three-fourths of the regional output in 2023. Excluding India, however, activity was more subdued.

Risks to the forecast remain tilted to the downside, with the most pressing concerns revolving around higher energy and food prices caused by an escalation of the conflict in the Middle East and adverse spillovers stemming from larger-than-expected increases in policy rates in advanced economies.

In addition, elevated external and fiscal financing needs, the growing frequency and severity of extreme weather events, and sharper-than-expected growth slowdown in trading partners also pose risks to the region.

External and fiscal financing needs are elevated in the region, including Maldives, Pakistan, and Sri Lanka, increasing vulnerabilities to financial market disruptions.

However, in Bangladesh, the needs for external financing will be the lowest in South Asia in 2024.

Heightened uncertainty around elections in 2024 in some countries is also a downside risk in the region.

However, the implementation of growth-friendly policies after elections could improve growth prospects.

Global economy set for weakest half-decade performance in 30 years

Global growth is projected to slow for the third year in a row – from 2.6% last year to 2.4% in 2024, almost three-quarters of a percentage point below the average of the 2010s.

The report mentioned, "Downside risks to the outlook include an escalation of the recent conflict in the Middle East and associated commodity market disruptions, financial stress amid elevated debt and high borrowing costs, persistent inflation, weaker-than-expected activity in China, trade fragmentation, and climate-related disasters."

Developing economies are projected to grow just 3.9%, more than one percentage point below the average of the previous decade.