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Economy resilient

WB, however, points to risks like rising inflation, ailing banking sector

Star Business Report
The economy is on track to logging in its fourth consecutive year of at least 7 percent growth, thanks to increased public spending on infrastructure along with robust private investments, exports and remittance inflows, said the World Bank yesterday.
The Washington-based multilateral lender forecasts the GDP growth in fiscal 2018-19 would be 7 percent, down from 7.86 percent registered for fiscal 2017-18.
“The country is among the 10 fastest growing economies in the world," said Qimiao Fan, WB's country director for Bangladesh, Bhutan and Nepal, at the unveiling of the report 'Bangladesh Development Update: Powering the Economy Efficiently'.
Apart from a favourable exchange rate, the rising shipment of higher valued-items, brighter image of Bangladesh's garment sector after
remediation, automation of production and relative political calm combined with rebound in the economies of major export destinations from the shocks of Brexit and general elections should help prop up growth, it said.
A good number of new factories are expected to come into operation in the next couple of years, with entrepreneurs investing to capture the shifted work orders from China.
Remittances turnaround is expected to persistas Gulf Cooperation Council economies benefit from higher oil prices and incentives for remitting through informal channels remain weak.
Private investment is likely to maintain recent 8-9 percent growth induced by progress on infrastructure development prospects, strong domesticdemand and stronger global markets.
"These, in addition to the country's reforming business environment, inform our forecast for
Bangladesh to creep towards achieving a 7 percent
growth rate in fiscal 2019-20."
The economy has once again shown resilience to the lingering effects of repeated flooding in 2017 and the ongoing accommodation of over 7 lakh additional Rohingya refugees.
However, there are some immediate risks for the economy.
Inflation is likely to accelerate with rising aggregate demand resulting in part from election-related increase inprivate spending, an expansionary fiscal policy and depreciating exchange rate.
Fiscal slippages aggravated by drying up of assistance for supporting the Rohingyas, delays in banking reforms, loss of monetary policy predictability due to diminished central bank independence and weakening reform momentum in the run-up to the elections.
The performance of the banking sector and solvency of some financial intermediaries remain a concern because of limited action to address defaults, improve risk management and strengthen corporate governance.
"Persistent weaknesses owe largely to the legacy of loans of larger borrowers, who lack incentives to repay, given legal limitations on recoveries."
Zahid Hussain, lead economist of the World Bank's Dhaka office, said the central bank should allowed limited scale rescheduling of the nonperformingloans.
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“Otherwise, the banking sector will fall further crisis."
The NPLs are concentrated disproportionately in the six state-owned commercial banks: 48 percent. In contrast, the 40 private banks accounted for 44 percent of the total NPLs.
The report recommends expanding reliable electricity supply to meet the needs of a growing economy.
Much progress has been made in recent years, with access to electricity increasing from 47 percent of the population in 2009 to 80 percent in 2017. But by 2030, electricity demand is expected to grow to 34 giga watts (GW), more than double the country's current installed capacity.
Hussain also stressed on comprehensive reforms in the power sector, including addressing inefficiencies at different stages of power supply and distribution, and reducing dependency on imported fossil fuels.
The multilateral lender also expressed concerns on capital flight because of the spike in imports.
"Recent rise in imports have raised new questions on the transparency of trade-related payments and whether illegal capital flights are taking place through mis-invoicing."
A rise in capital goods and machinery import is expected due to the large mega projects that are being implemented.
“However, a 25.2 percent import increase in a financial year is rare,” the report said, while pointing out other discrepancies in the merchandise import data.
The report said there is the possibility that capital flight has already affected the liquidity situation, exchange rate and reserves in a significant way.
Meanwhile, Qimiao said sustaining the current growth trajectory will not be easy without promoting entrepreneurship, innovation and structural transformation.
"Bangladesh should also focus on improving education, skills, nutrition and adaptability to enable its workforce to thrive in an environment of rapidly changing technology and global demands," he added.