WB forecasts 1.6% growth in FY21

The World Bank (WB) in its biannual report on the South Asian economy released on Thursday forecast that Bangladesh would achieve a 1.6% growth in its gross domestic product (GDP) in the current fiscal year.

However, the government's growth target for the current fiscal year is 8.2% – which is five times higher than the projection of the global lender.

Planning Commission Member (General Economics Division) and Senior Secretary Dr Shamsul Alam said multinational development agencies publish different projections on their own and often those do not match one another.

"The difference in their projections is also huge. The wiser thing is not to pay any heed to those," Dr Shamsul Alam told The Business Standard as he was approached for a reaction.

Last September, the Asian Development Bank (ADB) predicted that the country would register a 6.8% GDP growth in the current fiscal year.

Earlier in June, the International Monetary Fund (IMF) projected the growth to be 6% while the latest WB report titled "South Asian Focus: Beaten or Broken? Informality and Covid-19" decelerated the number to 1.6%.

Contacted, former lead economist of the World Bank Dr Zahid Hussain said Bangladesh's GDP growth basically depends on consumer spending. But the drop in consumer spending prompted by coronavirus-led income fall would be reflected on the GDP growth.

Dr Zahid said though the country saw a robust remittance inflow in recent months, it would tumble in upcoming days if the virus situation in the Middle East and elsewhere does not improve. Besides, European and American customers might lose confidence as they brace for the second wave of the pandemic.

"Therefore, exports are unlikely to grow to the desired level," he noted.

He said a large portion of the informal sector people has already either lost income or witnessed a fall in their earnings, which altogether might affect consumer spending in the upcoming days.

According to the former WB lead economist, the global lender forecast the decelerated 1.6% growth considering those facts.

Dr Zahid thinks the agriculture-based rural economy is the last resort for the Bangladesh economy to bounce back.

"If the government can ensure support to the rural economy, consumer spending of rural people would increase. And this may push the GDP growth closer to the target," he added.  

Mercy Tembon, World Bank Country Director for Bangladesh and Bhutan, said the global economic downturn will impact Bangladesh's economy. However, the policies that the government has undertaken to mitigate the impacts are in the right direction.

"For a resilient recovery, the government needs to continue to safeguard its fiscal and debt positions, build financial sector health, protect the poor and vulnerable and create a conducive environment for private sector development and job creation."

The World Bank report warns that informal workers and firms have little room to cope with unexpected shocks of the magnitude of Covid-19.

While the poor have faced rising food prices and suffered severely, the Covid-19 crisis has dealt a further blow to many informal workers in the middle of the income distribution who experienced sharp drops in earnings. 

Few informal workers are covered by social insurance, have savings or access to finance.

The report urges governments to design universal social protection as well as policies that support greater productivity, skills development, and human capital. In that effort, securing international and domestic financing will help governments fund crucial programs to speed up recovery.

The World Bank report said South Asia is set to plunge into its worst-ever recession as the devastating impacts of Covid-19 on the region's economies linger on, taking a disproportionate toll on informal workers and pushing millions of South Asians into extreme poverty, it said.

The latest South Asia Economic Focus forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7% in 2020, after topping 6% annually in the past five years.

In previous recessions, falling investment and exports led to the downturn. This time is different as private consumption, traditionally the backbone of demand in South Asia and a core indicator of economic welfare will decline by more than 10 percent, further spiking poverty rates. A decline in remittances is also expected to accelerate loss of livelihoods for the poorest in some countries.

Hartwig Schafer, World Bank Vice President for the South Asia Region, said the collapse of South Asian economies during Covid-19 has been more brutal than anticipated, worst of all for small businesses and informal workers who suffer sudden job losses and vanishing wages.

"Immediate relief has dulled the impacts of the pandemic, but governments need to address the deep-seated vulnerabilities of their informal sectors through smart policies and allocate their scarce resources wisely."

"Covid-19 will profoundly transform South Asia for years to come and leave lasting scars in its economies. But there is a silver lining toward resilient recovery: the pandemic could spur innovations that improve South Asia's future participation in global value chains, as its comparative advantage in tech services and niche tourism will likely be in higher demand as the global economy becomes more digital," said Hans Timmer, World Bank Chief Economist for South Asia Region.