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ADB lifts economic growth forecast for Bangladesh

Star Business Report
The Asian Development Bank has revised upwards its economic growth forecast for Bangladesh - to 6.4 percent from 6.2 percent - for the current fiscal year.
The latest projection is still much lower than the government's 7.3 percent target.
All major economic indicators of Bangladesh have been showing a sign of improvement for the past several months, according to ADB's update report launched yesterday at its Dhaka office.
The report has also projected a current account surplus and said inflation will remain within the target of the government.
“We are very positive on Bangladesh's growth prospect this year," Mohammad Zahid Hossain, principal economist of ADB for Bangladesh, said at a press conference at their office.
Hossain presented the findings on the Asian Development Outlook Update 2014 at the briefing where ADB Country Director Kazuhiko Higuchi was present.
“Imports of capital machinery and raw materials are improving. After restructuring, export is also increasing," Hossain said.
Yet, there are binding limitations in the economy, the report said.
Infrastructure constraints, such as inadequate supply of power and inability to mobilse resources, and political unrest could dampen investor confidence and economic activities, it said.
Bangladesh witnessed a slowdown in economic activities for more than a year centring the national elections held in January this year. Even after the elections,
businesses were not getting their confidence back. Private sector credit growth went down to a 13-year low at 10.4 percent in February. But things started to turn around in the past several months and private credit growth rose to 12.3 percent in June.
"As economic reforms took hold, and despite political disruption prior to national elections, growth and exports beat projections," theADB report said.
The Manila-based development bank
said industrial growth will improve to 9.2 percent this fiscal year from the previous year's 8.4 percent, due to higher exports and stronger domestic demand, supported by a rise in remittances.
The services sector is also estimated to grow 5.9 percent, slightly more than 5.8 percent in fiscal 2013-14.
The ADB report said continued policy support will boost agricultural growth to 3.5 percent from 3.3 percent a year ago.
The external current account is projected to show a larger surplus of 1.5 percent of gross domestic product in fiscal 2014-15, with higher growth in exports and remittances.
Export growth is expected to rise to 13 percent, up from 12 percent in the previous year.
"Improvements in wages, working conditions, labour rights and building and safety standards will enhance buyers' confidence in the Bangladesh garment industry and boost exports," the report said.
Import is also projected to be higher at 15 percent in fiscal 2014-15, compared to 8.9 percent a year ago.
The inflow of remittances, which declined 1.6 percent last fiscal year, is projected to increase 7 percent in the current year.
The ADB also said average inflation will slow down to 6.5 percent from 7.4 percent a year ago, mainly due to easing supply constraints, a better crop outlook, large stock of food grains and a supportive monetary policy.
It said lower food prices on the international market and stable oil prices will contribute to a fall in the inflation rate.
TheADB report, however, detected some potential risks to these projections on the Bangladesh economy.
It said inability to mobilise domestic and foreign resources could affect the government's development spending. Costlier bank borrowing could fuel inflation and renewed political unrest could dampen investor confidence and economic activities, the report said.
"Bangladesh has higher growth potential, which is not possible to utilise without a jump in investment. Skills deficit is another major challenge for Bangladesh to grow at a faster rate," Hossain said.
Investment has remained virtually stagnant between 25 percent and 26 percent of GDP over the past several years. Analysts said investment needs to be raised to at least 32 percent to achieve 7 percent or more economic growth.