The World Bank (WB) on Tuesday downsized the GDP growth forecast for Bangladesh by 0.1 percentage point to 5.7% for the next fiscal (FY25).
High inflation, force shortages, import restrictions, and financial sector vulnerabilities weighed on the economic outlook, the global lender also said.
The bank, however, has maintained the same GDP growth projection for the current fiscal year FY24.
In the current fiscal year, the country will grow at 5.60%, the WB said in its Bangladesh Development Update report, unveiled in Dhaka on Tuesday.
“Growth is expected to increase gradually over the medium-term as monetary, exchange rate, financial and structural reforms are implemented.”
The WB said even though political uncertainty has diminished with a new cabinet taking oath after the national elections held in January 2024, downside risks to the outlook are significant.
Tighter liquidity conditions could exacerbate vulnerabilities in the banking sector. Fiscal risks include a revenue shortfall, potential financial sector fiscal liabilities, and deficit monetization, it said.
“Expediting structural reforms are needed to promote economic diversification and integration into Global Value Chains (GVCs) and strengthen resilience over the medium to long term. Critical reforms include developing the intellectual property rights (IPR) regime and strengthening the framework for foreign direct investment.”
An efficient resolution framework for non-performing loans (NPLs) is urgently needed, the WB said.
In this regard, it said, conducting a comprehensive asset quality review of the largest banks, establishing legal frameworks for the creation of an NPL market, strengthening corporate governance of the state-owned commercial banks, and efficiently implementing regulations such as the Prompt Corrective Action framework for weak banks are crucial steps.
South Asian comparison
Earlier, the WB South Asia Development Update was also launched on Tuesday from Sri Lanka where it raised the regional economic growth to 6% for FY24 and 6.1% for FY25.
According to the World Bank, India will achieve the highest growth of 7% in South Asia by the end of the current FY24.
After that, Bangladesh will be the second highest country to achieve GDP growth. Bangladesh will achieve 5.6% growth at the end of this fiscal.
It will be followed by Bhutan at 4.9%, Maldives at 4.7%, Nepal at 3.3%, Sri Lanka at 2.2% and Pakistan at 1.8%.
However, the donor agency also said that overall 6% growth will be achieved in South Asia.
World Bank South Asia Chief Economist Franziska Ohnsorge said in this report: “South Asia is failing to utilize its human resources. That sounds like a missed opportunity. If the region employs a large share of the working-age population like other emerging markets and developing economies, its output could rise to more than 16%.”
Martin Raiser, World Bank vice-president for South Asia, said South Asia’s growth prospects remain bright in the short term. But fragile fiscal positions and growing climate shocks will remain dark clouds.
This is to further enhance growth and boost employment growth.
He also said that the countries of this region should adopt policies to increase private investment. In South Asia, working-age population growth is higher than in other developing country regions.
The share of the working population in employment has been declining since 2000. The employment ratio in South Asia was 59% in 2023, compared to 70% in other emerging economies, he also said.
South Asia is the only region where the proportion of working-age men has declined over the past two decades, and the region has the fewest working-age women, Raiser added.
