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Economy Outlook 2015 - Bangladesh

Over the last decade Bangladesh has been able to maintain six plus percent growth of annual
average real GDP amidst the prolonged global economic slowdown. And during the past five
years the growth has averaged 6.2 percent. At the same time, macroeconomic stability has been
reflected in the single digit CPI inflation which is found to continuously follow a downward
trend.
The IMF in its World Economic Outlook, April 2015 has projected the growth rate for
Bangladesh in 2016 to be 6.8% and for 2020 to be 6.7%. At the same time, the estimates from
the ADB suggest that the Bangladesh economy is projected to grow at 6.4% in the current FY16,
aided by higher remittances and export growth, and the inflation rate to be near about 6.2%.
Additionally, if the ongoing political calm is maintained, the current account deficit of 0.5% in
FY15 is likely to bounce back to become a surplus of 0.5% in FY16. Estimates from the World
Bank indicates that, if stability coupled with sound fiscal and monetary management is ensured,
the growth for FY16 to be 6.3% and that for FY17 to be 6.7%.
According to the Bangladesh Bank, the governments target of 7.0% real GDP growth appears to
be ambitious but attainable subject to providing the proper enabling environment which includes
urgent redressing of infrastructural and administrative deficiencies impeding investments,
alongside preserving political calm and stability. Furthermore given that the standard deviation
of Bangladeshs growth is respectably low, not too much deviation is expected from the forecast
values.

Global Economic Outlook


So far signs from the global outlook appear to provide mixed signals. Europe is still struggling
to recover from its recessionary episode and the European sovereign-debt crisis that affected
Greece among other countries. On the other hand, USA is showing signs of recovery reflected in
its higher projected growth rate of 3.1% for 2015 compared to 2014. These results of Europe and
the US emit mixed signals to the prospects of Bangladeshs exports.

European economies have more scope to recover, and the recently announced QE program may
help improve business and consumer confidence, and the weakened euro could help offset
negative effects from slower exports to emerging markets. Despite softening growth rates, the
Asia-Pacific region remains the leader for global growth. Chinas double digit growth has gone
out of steam and its projected growth for 2016 turns out to be 6.3 percent. On the other hand
India, which lagged behind China in the growth race, has projected a growth figure of 7.5% for
2016 (IMF World Economic Outlook, April 2015). Other major emerging markets will continue
to grow, but their pace will vary depending on the net impact of declining oil prices and
exchange rate depreciations, as well as progress of their own reform agendas.
The global growth projection by the IMF predicts 3.8 % growth for the whole world in 2016
including 2.4 % growth in advanced countries and 4.7 % growth in emerging and developing
nations. The prediction for inflation is 4.8% for the developing bloc while the figure is only 1.4
percent for the advanced bloc. In spite of short-term headwinds from the global economy,
Southeast Asia is predicted to continue to strengthen to become a global production hub.
Bangladesh Economy: Brief Overview
According to the WB report, Bangladesh recently became a lower-middle income country with
the Gross National Income per capita (GNI), joining those with annual incomes of $1,046 to
$4,125. Now the target is for the country to be a middle income one by 2018. The GDP growth
rate of Bangladesh started picking up since the early 1990s and it is recognized that the economy
has the potential to grow at an even higher growth rate if the growth constraints such as poor
governance, rampant corruption, infrastructure bottlenecks, underdeveloped financial markets
and failure to attract FDI are removed.

The percentage of people living below $1.25-a-day declined from 70 percent in 1992 to 43
percent in 2010, a tremendous achievement; GDP per capita (in current US$) tripled from $225
in 1980 to $675 in 2010. GDP per capita, measured in purchasing power parity adjusted constant
2005 dollars, more than doubled from $677 to $1,488 during this period.
Bangladeshs average inflation of 6.45 percent along with plus-minus deviation of 2.44 percent
over the 1995-2014 period is a testimony of the prudent monetary management of the countrys

central bank. Inflation volatility in Bangladesh is also found to be the lowest among the
neighboring countries of India, Pakistan and Sri Lanka in the last 20 years since 1995.
Bangladesh also has the lowest volatility in growth among these countries.

The current account balance to GDP ratio has significantly improved for Bangladesh, starting
with a deficit of 3.9 percent in 1980 and ending with a surplus of 2.1 percent in 2010. Hence, this
implies a very impressive improvement in the current account balance to GDP ratio of 6.0
percentage points between 1980 and 2010 and improved competitiveness based on the export
performance. Looking at the evolution of exports and imports, Bangladesh had made the most
progress across South Asia and is (excluding mineral exporters) among the best performers of all
LICs.
Bangladeshs net inflows of FDI, although still very limited, experienced some increase during
the late 1990s and early 2000s and stabilized at around 1 percent of GDP since 2005. Further
measures to attract and facilitate FDI, which is still below 2 billion dollars, must be taken to raise
the investmentGDP ratio that eventually generates growth. In the case of remittance earnings,
Bangladesh has done extraordinarily well, especially since 1995. Bangladeshs workers
remittances increased from 1.9 percent of GDP in 1980 to about 3.2 percent in the mid-1990s,
after which they increased sharply during the 2000s. Budgetary allocation for the social safety
net programs also increased from 8.4% to 16.9% of total budget during 2004-05 to 2008-09.

Thanks to the stability of output growth and inflation in Bangladesh, the country is poised to
energize its investment demand and thus attain higher economic growth in the future.