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World Bank: 2009 Bangladesh Economic Update

Bangladesh’s economy has been resilient amid the global crisis, but lower exports and remittances growth and stagnant investment rates could dampen growth prospects.

“The crisis, however, has affected the pace of poverty reduction, and we expect that about 2.4 million fewer people will be able to climb out of poverty over 2005-10”, says Sanjay Kathuria, Lead Economist for Bangladesh.

Global Economic Crisis
Bangladesh has weathered the negative effects of the global economic crisis so far, according to the World Bank’s latest Bangladesh Economic Update. The country’s annual GDP growth reached a robust 5.9% in Fiscal Year 2009 (FY09), a slight drop from the 6.2% growth achieved in FY08.

Exports and Remittances
While total year-on-year exports grew by an average of 20% in the first part of FY09, their growth fell to only 2.6% in the second half. In fact, the fiscal year ended with a year-on-year decline of total exports of 3.2% for the month of June. The near-term outlook for Bangladesh’s export sector hinges on the performance of the ready-made garment exports, which constituted 79% of total export earnings in FY09.
Contributing to this solid growth were strong remittance inflows, double-digit export growth, and a declining import bill, which saw the country’s external current account notch a large surplus of US$2.5 billion. Meanwhile, lower international food and oil prices, combined with a bumper rice crop, helped bring inflation down. The country’s foreign exchange reserves surged to a record high of nearly US$7.5 billion at end-June 2009, and reached US$9.4 billion by mid-October.

Rebalancing Policy Focus
The report warns however that growth may slow further in FY10, pointing to slower growth in exports and remittances in the second half of FY09 and a mixed private investment outlook. Private consumption, accounting for around 75% of GDP, may also decline because of lower agricultural and remittances growth. The investment rate has remained flat in recent years due to growing infrastructure constraints and high interest rates. Regarding the latter, the report finds a strong correlation between commercial bank lending rates and the rates offered by the government on the National Savings Certificates. The latter appear to set a floor for the commercial bank lending rate.

Bangladesh Key Economic Indicators
In its base-case scenario for FY10, the report predicts GDP growth of 5.5%, but notes it could be as high as 6% if a sustained global recovery leads to strong export performance and if the performance of the energy sector improves.
The report applauds the improvements in Bangladesh’s debt indicators in the period FY02-09, which were due among other things to fiscal adjustments and rising GDP growth. Sustaining these improvements will require stronger efforts to mobilize domestic revenues as well as a higher quality of expenditure, especially on the Annual Development Program (ADP). Also, slow ADP implementation can hurt both growth and poverty reduction.
The report warns that inflationary pressure may re-emerge if the liquidity overhang in the banking system continues and international commodity prices rise. While managing near-term risks is important, the report says the government must also begin systematically to address the medium-term development issues. It says Bangladesh’s medium-term prospects depend on a continuation of macroeconomic stability and deepening of financial sector and external trade reforms. The report calls for a rebalancing of the policy focus towards structural areas that have received insufficient attention. These include economic governance, urban management, infrastructure (especially power, ports and transportation), market-oriented vocational skills, and quality secondary and tertiary education.

Poverty Impacts of the Crisis
The report predicts that the impact of the financial crisis on poverty will be more significant in 2010 than in 2009.
In 2009, the country’s poverty rate (share of population below the upper poverty line) and extreme poverty rate (share below the lower poverty line) are estimated to be 0.5 and 0.4 percentage points higher, respectively, as a result of the crisis. In 2010, poverty and extreme poverty rates are projected to be 1.6 and 1.1 percentage point higher respectively as a result of the crisis.
Prior to the crisis, Bangladesh was on target to cut poverty by nearly 11 percentage points between 2005 and 2010. With the impact of the crisis, the poverty rate is now projected to fall by about 9 percentage points. This translates to around 2.4 million additional poor people in 2010 due to the crisis, the report says.
The estimated impact is also uneven between different regions of the country, with the more industrialized and integrated regions likely to be affected more by the crisis. The eastern part of the country (Dhaka, Chittagong and Sylhet divisions) had far outpaced the west (Rajshahi, Barisal and Khulna) in poverty reduction between 2000 and 2005. The crisis, however, is expected to have a greater impact in the east than the west because the east has a much higher concentration of industry and external remittances than the west.

Additional resources
Bangladesh: Strategy for Sustained Growth.
Bangladesh Homepage
Bangladesh: Development Data
Bangladesh: Analysis and Research
World Bank Program in South Asia

This article is quoted from World Bank. The article was originally published on 2009-10-22. Please go to the original article to download the entire Economic Update.

This article is uploaded by Majbritt Thomsen, administrator on ‘Views On Tourism’.

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Posted in Bangladesh, Development, Market knowledge.

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