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WB sees economy in political danger

Warns of further slide from its 5.7pc growth forecast

Staff Correspondent
The World Bank has said Bangladesh needs a smooth transition of power through a democratic process for its steady economic growth.
"We are looking forward to an electoral process that is free, fair and credible ... that reflects the will of the people,” WB Country Directorfor Bangladesh Johannes Zutt said yesterday.
If the country fails to have “a smooth transition to a new administration," economic growth will further go down from the WB's latest forecast of 5.7 percent for the current fiscal year, Zutt said at a media briefing on the quarterly report of the global lender at its Dhaka office.
Bangladesh's GDP grew by 6.03 percent in the previous fiscal year and the government set an ambitious target of 7.2 percent forthe currentyear.
Though the WB's GDP projection is significantly lower than the government's target of 7.2 percent, it is in line with the Asian Development Bank and International Monetary Fund's forecast of 5.8 percent and below six percent respectively. These agencies made lower projections for what they said are growing unrest and political uncertainty in the run-up to the coming elections.
The WB country director said political unrest put tremendous pressure on Bangladesh's economic growth and prospect.
Zahid Hussain, lead economist at the WB office, said overall the country's economy is moving into a more volatile phase centring on the elections. "The risks stemming from impeding the political transition have grown significantly."
Zahid said, "Growth outlook hinges primarily on internal stability and policy reforms. Policymaking is expected to improve if the transition to a new government in 2014 happens smoothly."
The WB report -- Bangladesh Development Update - said real pri-
vate investment declined by 1.2 percent in fiscal 2012-13 due to political turmoil and uncertainty, compliance failures and labour unrest in the readymade garment sector, banking scams and a lacklustre global economy.
Inflation decelerated but remained high with annual average inflation declining from 8.7 percent in FY12 to 6.8 percent in FY13. This reflects a decline in both food and non-food prices. Softer international prices helped reduce food inflation, it said.
The financial system remains under stress and capital market activities have been weak. Several financial scams and resultant loan defaults in the state banks moved them into a position of insolvency, the WB said.
On higher foreign exchange reserve, Zahid said, "The country has crossed the $ 17 billion mark on Tuesday. It is a satisfactory reserve, not excessive as the current reserve level constitutes 4-6 months of import cover, 11.8 percent of GDP and 20.1 percent of broad money."
The WB also said the country's fiscal policy is on the right track, but a host of domestic challenges remain. The conduct of fiscal policy in FY13 has been broadly in line with the original budget. The overall fiscal deficit (excluding grants) at 4.3 percent of GDP has been below the budget target of 5 percent.