Bangladesh may still see a remarkable growth in the Asia-Pacific region in 2021 – following only the Maldives, India and China – when neighbouring economies recover from their historic lows, the Asian Development Bank says in its latest outlook.
Until September 2020, Bangladesh has been the best performing economy among 46 countries in the region, including many economies that post negative growth. But the recovery will be fast and massive, taking the growth of the Maldives to 10.5% from negative 20.5% just in a year, the development bank forecasts.
The Asian Development Bank (ADB) however projected a prolonged economic recovery for Bangladesh due to the Covid-19 pandemic and its impacts lingering longer than expected, and government stimulus packages having little time to take hold.
The multinational development agency forecasts a 6.8% growth in Gross Domestic Product (GDP) for the Fiscal 2020-21, which is significantly lower than its previous growth projections of 8% in April – which did not consider the impacts of Covid-19, and 7.5% in June.
The government of Bangladesh had set a target of 8.2% growth for the current fiscal year, but the forecast of the ADB is lower than the budgetary target.
The Bangladesh Bureau of Statistics (BBS) had estimated a 5.24% growth for the last fiscal year. So, the ADB forecasts an additional 1.6 percentage points of growth for FY21 based on gradual recovery, supported by a strong manufacturing base and strengthening of growth in export destinations.
The forecast has come from an update of the ADB's flagship report, "Asian Development Outlook (ADO) 2020", published Tuesday from the head office of the organisation.
Finance Minister AHM Mustafa Kamal has expressed his satisfaction over the ADB's growth forecast, saying that the growth has been propelled by people's working spirit.
The report forecast a 0.7% negative growth for economies across a developing Asia in 2020 – which has not happened since the early 1960s, and projected a rapid recovery with 6.8% positive growth in 2021.
The report projected a 1.8% growth for China's economy in 2020 and a 9% negative growth for India. China will recover with 7.7% growth next year, while India will recover with 8% growth, said the report.
Due to a drastic fall in the performance of the Indian economy, the South Asian sub-region is expected to shrink by 6.8% in 2020, but is expected to rebound by 7.1% in 2021.
Further analysis of the report revealed that the 5.2% growth of Bangladesh for FY2019-20 was the highest among all South Asian countries, and also the highest among all member countries of the ADB.
But the growth forecast for the following year is below average than expected in the South Asian countries.
Manmohan Parkash, country director of the ADB in Dhaka, said in a statement on Tuesday, "The Bangladesh economy has started recovering from the pandemic.
"Despite significant pressure on the health and pandemic management systems, the government has managed the economy well with appropriate economic stimulus and social protection measures, ensuring basic services and commodities for the poor and vulnerable."
He continued, "Recent economic performance in exports and remittances, and the government's macroeconomic management, including securing foreign funds for economic stimulus and social protection, have made this recovery feasible."
The report pointed out that the GDP growth declined in FY2019-20 as the Covid-19 pandemic left economic activities upended globally.
Assuming prudent macroeconomic management and proper implementation of timely announced stimulus packages, growth is expected to pick up, inflation to drop slightly at 5.5%, and current account deficit to narrow further in Bangladesh in 2021, according to the report.
The analysis in the report was that the economic performance of Bangladesh in FY2019-20 – as the Covid-19 spread globally, especially among major trade partners – affected the Bangladesh economy in the final quarter of FY2019-20.
Containment measures enforced by the Bangladesh government limited the movement of people and goods within the country and across borders, further impairing economic performance.
Exports and imports contracted significantly, and remittances, which grew by more than 20% in the first 8 months, were hit hard in March–May 2020. Moreover, mobility constraints substantially cut back consumer demand.
Consumers' uncertainty and lack of confidence scuttled plans for business expansion and investment, further constraining domestic demand.
With a cautious reopening of the economy since May 2020 and subdued global economic conditions, the ADB projected a gradual recovery for Bangladesh in the first half of FY2020-21.
Then a strong manufacturing base will enable more rapid recovery in tandem with the projected strengthening of growth in the advanced economies and import demand from those countries.
As factories gradually accelerate production, growth in exports and imports will revive. After the slowdown in March-April 2020, remittances started to recover, which aided the recovery of private consumption.
The restoration of consumer confidence, along with government stimulus packages, will boost private and public investment, the report read. It also identified a prolonged pandemic in Bangladesh or its export markets as major challenges.
The report identified some risks to achieving the projected growth, such as the uncertainty surrounding the Covid-19 crisis, natural calamities, any worsening of non-performing loans, and unexpected inflationary pressure.
The ADB expects a 3.5% growth for the agriculture sector in the FY2020-21 based on government subsidies for seeds, fertilisers, innovation, farm mechanization, irrigation and refinancing facilities to provide working capital for small and medium-sized farms affected by the pandemic. The agriculture sector in Bangladesh grew by 3.11% in the last fiscal year.
The industry sector of Bangladesh will revive by 10.3% in the FY2020-21, said the ADB report. It was only 6.10% in the last fiscal year.
The ADB made the forecast assuming improved consumer demand and strong export growth following a recovery in major export markets, and expected growth in private investment.
The report forecast 5.5% growth in the service sector, which is slightly higher than the 5.32% of the last fiscal.
The ADB projected a budget deficit of about 6.2% of the GDP in the next fiscal year, slightly higher than the budgetary target.
The report added that India began its fiscal year with its April–June quarterly GDP contracting by a record 23.9% as a pandemic lockdown clobbered consumer and business spending. The economy having weakened even before the pandemic struck, the Indian government enjoyed very little fiscal space with which to respond.
The Indian GDP is expected to fall by 9% in the whole of this fiscal year, and then grow by 8% in the next.
The Maldives and Sri Lanka, heavily dependent on tourism, will be among the hardest hit. Output in the Maldives is expected to shrink by a fifth in 2020, the sharpest GDP forecast revision in the sub-region, then grow by 10.5% in 2021.
Growth expectations for Afghanistan have also worsened, with output predicted to decline by 5% this year. Output will inch up by 1.5% next year as the country continues to grapple with political and security instability.
Bangladesh, Bhutan and Nepal managed to grow in their recently completed fiscal years because Covid-19 affected only their tail end, explained the report.
Presenting the report in Manila, the Philippines, ADB Chief Economist Yasuyuki Sawada said most economies in the Asia-Pacific region can expect a difficult growth path for the rest of 2020.
The economic threat posed by the Covid-19 pandemic remains potent, as extended first waves or recurring outbreaks could prompt further containment measures, he added.
'More realistic than previous forecast'
Speaking to The Business Standard, economist Dr Zahid Hussain said, "The ADB has downgraded its growth forecast from 7.5% made in last June to 6.8%.
"Such a correction was warranted given that the 5.2% FY20 base they used is larger than their 4.5% estimate, and the mixed indications of recovery based on high frequency data in July and August."
Dr Zahid, who used to serve as the lead economist of the World Bank's Dhaka office, added, "While export recovery has been sluggish with 2.2% growth in July-August, the ADB is assuming this will rise to 8%.
"This is possible only if the key markets for Bangladesh's exports – Europe and the US – get out of their current recession, and Bangladesh can deliver the export orders on a tighter schedule."
Private consumption, the largest single component of GDP, has not recovered enough to drive industrial growth to 10.5%, as projected by the ADB, he pointed out.
Dr Zahid further said, "The implementation of the stimulus package for the cottage, micro, small and medium enterprises has struggled to reach the target in time.
"Consequently, we cannot expect a big boost in private consumption from the vast numbers of consumers dependent on incomes from informal self or wage employment."
The ADB has assumed only 4.5% growth in remittances for the whole year, even though remittance growth was 50% in July-August 2020 relative to the same period of the previous year.
Dr Zahid Hussain finds ADB's remittance projection "quite realistic" because the spike in July-August was most likely driven by temporary factors.
"On the whole, therefore, the ADB forecast remains on the optimistic side, although more realistic than their previous forecast," he concluded giving his observations about the ADB's latest outlook.