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Warning sounds over slow ADP

WB report foresees sluggish growth ahead, stresses economic reforms

Star Business Report
The World Bank has warned that Bangladesh's GDP growth and poverty reduction rate may slow further in the current fiscal year because of sluggish exports, remittance inflow and investment amid global recession.
Against this backdrop, the WB in an economic update said the first priority is to expedite implementation of annual development programme (ADP) and economic reforms to cope with the situation.
The report -- Bangladesh Country Economic Update -- was released yesterday at a press conference at the WB Dhaka office.
"In the short term the best thing the government can do is to really implement its development programme - that’s the no 1 priority," said Sanjay Kathuria. lead economist for Bangladesh, while releasing the report
Kathuria also said the impression is that the pace of economic reforms has been quite slow in the last few months. "If we can start by getting back on the track, accelerating these reforms is needed to help boost business optimism," he said.
WB acting Country Director Robert L Floyd said Bangladesh would get over $3 billion between FY2010and FY2013 under the next country assistance strategy of the donor agency.
The country got $2.69 billion during FY2006-FY2009 under the assistance strategy.
The report predicted that the GDP (gross domestic product) growth rate might be 5.5 percent in the current fiscal year.
It also said the rate could be as high as 6 percent if a sustained global recovery leads to strong export and if the performance of energy sector improves.
The GDP growth was 5.9 percent in the last fiscal year, a slight drop from the 6.2 percent growth achieved in FY2008.
The report, however, warned that the growth might slow further in FY2010, pointing to slower growth in exports and remittances in the second half of FY2009 and a mixed private investment outlook.
Private consumption, accounting for
around 75 percent of GDP, may also decline because of lower agricultural and remittance growth. The investment rate has remained flat in recent years due to growing infrastructure constrains and high interest rates.
The report predicted that the impact of the global financial crisis on poverty would be more significant in 2010 than in 2009.
"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 in 2010," the report said.
The estimated impact is also uneven in different regions of the country, with more industrialised and integrated regions (Dhaka, Chittagong and Sylhet divisions) likely to affected more by the crisis.
The report applauded the improvements in Bangladesh's debt indicators in the period between FY2002 and FY2009, which were due among other things to
fiscal adjustments and rising GDP growth.
It said sustaining these improvements would require stronger efforts to mobilise domestic revenues as well as a higher quality of expenditure, especially on the ADP
"Also, slow ADP implementation can hurt both growth and poverty reduction."
The report warned that inflationary pressure may reemerge if the liquidity overhang in the banking system continues and international commodity prices rise.
Senior Economist at WB Bangladesh office Zahid Hossain said the country suffered less in the global economic crisis compared to other countries. He said investment has been almost stagnant for the last three years. One of the main causes is high interest rate, and weak infrastructure, especially in gas and power sectors.
He said there has not been remarkable improvement in public investment in gas and power sectors for the last several years. ADP allocation in these sectors should be increased, he suggested.