Population 150.039 million
GDP 118.693 US$ billion
@rating
country
Business climate
assessment
| 2010* | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
6.4 |
6.5 |
6 |
6.1 |
|
Inflation (yearly average) (%)
|
7.3 |
8.8 |
10.6 |
8.5 |
|
Budget balance (% GDP)
|
-3.7 |
-4.4 |
-4.5 |
-4.3 |
|
Current account balance (% GDP)
|
3.2 |
0.2 |
-1.1 |
-1.0 |
|
Public debt (% GDP)
|
41.4 |
42.9 |
43.9 |
43 |
| (e) Estimate (f) Forecast *Fiscal year: from July to June | ||||
STRENGTHS
- Competitive garment manufacturing sector due to low cost workforce
- Large transfers from emigrant workers, employed mainly in the Middle East
- International aid making it possible to cover financing needs
- Favourable demographics: 45% of Bangladeshis are aged under 15
WEAKNESSES
- Economy sensitive to development of global competition in the textile sector
- Very low per capita income
- Business environment shortcomings
- Lack of infrastructure
- Recurrent natural disasters (cyclones, serious floods) which result in major damages and the loss of harvests
Risk assessment
Growth still sluggish in 2013
Activity slowed during the 2012 fiscal year (June 2011 - July 2012), with external demand contributing negatively to growth. Investment slowed too due to the persistent bottlenecks and electricity and gas shortages. However, consumption was supported by stable transfers from expatriate workers.
Growth is likely to slow further over the 2013 fiscal year. Exports to Europe – which represent 56% of total exports – are expected to remain sluggish while investment will be hit by monetary policy tightening and a credit slowdown. Consumption, the main driver of growth (3/4 of GDP), is expected to remain vigorous, sustained by rising wages in the agricultural sector, which employs over half the economically active population and by private transfers. On the supply side, agriculture and services are expected to post solid performances, while industry could be hit by the constant energy shortages, the drop in external demand and the rise in administered energy prices.
Inflation is likely to fall in 2013 on the back of monetary policy tightening, lower customs duties on imported products and expected price stability for foodstuffs (60% of the consumer price index). Disinflation will nonetheless probably be limited by rising administered prices for oil, fertilizer, electricity and a likely depreciation of the Taka against the dollar.
Worsening financial position but IMF support in form of Extended Credit Facility
The 2012 fiscal year was marked by a deteriorating country’s financial position: a substantial fiscal deficit and widening current account deficit. In this context, the authorities turned to the IMF who awarded the country an Extended Credit Facility of $987mn over 3 years linked to a far-reaching programme of structural reforms. In addition, the Indian central bank has provided a $400mn liquidity facility (currency swap).
On public finances, the fiscal deficit and public debt are expected to fall slightly in 2013. Revenues are set to rise due to the efforts made to close off tax loopholes, while spending will fall due to the cut in energy price subsidies following the introduction of an adjustment mechanism for retail energy prices which takes into account fluctuations in world prices. Nevertheless, some reforms, like the introduction of a new VAT law or broadening the tax base will only be implemented in the medium term. Fiscal revenues will, therefore, remain structurally weak (12% of GDP) and below the Asian average.
The current account deficit is expected to remain stable during fiscal year 2013. However, only 50% will be covered by FDIs. In this context, downward pressure on the taka looks set to last. Foreign exchange reserves will remain low, representing 2.3 months’ imports – a level that is insufficient and means the country is vulnerable to sudden capital flight. Currency risk is, therefore, critical. Nevertheless, it is worth noting that external debt will remain manageable as it is mostly concessional.
The banking system suffers from inconsistent risk management and a lack of supervision. It is also weakened by the precarious financial position of the publicly owned commercial banks which lent massively to the state owned enterprises hit by substantial losses in 2012 (like the Bangladesh Petroleum Corporation or the Bangladesh Power Development Board).
Political stability but the risk of social unrest remains
With a large parliamentary majority (2/3 of the seats), the Awami league should be able to remain in power for its full term until 2014. Furthermore, economic policy is expected to remain focused on reducing poverty, improving energy capacity and promoting macroeconomic stability. The government will, in particular, continue to maintain close ties with multilateral institutions like the World Bank and the Asian Development Bank. Nonetheless, the risk of social unrest is still present, fuelled, in particular, by continued high levels of poverty and inflationary tensions. Moreover, the tense social climate is affecting investment, itself already suffering from governance shortcomings and persistent problems of corruption.
