Bangladesh News

The World Bank has projected Bangladesh’s economic growth to 5.5 percent for 2008, lower than domestic estimates, due to political tensions, flooding and Cyclone ‘Sidr’.

A stepping up of inflation, potential threat to exports, increase in the food and energy prices, and pressure on external balance would have an adverse impact on the economy, according to WB’s Global Economic Prospects 2008 (GEP 2008) released yesterday.

Bangladesh Bank as well as independent domestic researchers estimated that the GDP growth would be over 6 percent in 2008.

According to the GEP, South Asia’s regional GDP was vibrant at 8.4 percent growth in 2007, easing only moderately from the 8.8 percent of 2006.

The regional growth is expected to pick up to 8.1 percent by 2009, as recovering growth in the OECD firms up external demand and as receding oil prices ease pressures on the import bill. In 2008, global growth is expected to be 3.3 percent.

“Heightened political tensions and severe flooding were curbing demand in the second half of 2007 and will contribute to a full percentage point reduction in growth to 5.5 percent for 2008,” said the World Bank outlook.

It said tighter domestic credit conditions in Bangladesh induced a softening in investment growth, while net exports turned negative, explaining the slight moderation in growth from 6.6 in 2006 to 6.5 percent in 2007.

European and US restrictions on some categories of Chinese textile and clothing exports will be lifted at the end of 2008, and increased competition in 2009 could hurt regional exporters.

The GEP said potential effects might be discerned by examining developments in Canada, which has not imposed safeguard restrictions on China. Bangladesh’s share of Canada’s textile and clothing market declined from 7.4 percent in 2005-06 to 6.9 percent over 2007 to date.

It said high, and in some cases increasing, commodity prices also present a risk for the region’s economies.

Sharp gains in international food prices are a growing threat in a region where food imports represent 11-20 percent of total merchandise imports. In case of Bangladesh, food imports represent 19 percent of its total imports.

The GEP noted that world growth slowed modestly in 2007 to 3.6 percent compared with 3.9 percent in 2006, a downturn due largely to weaker growth in high-income countries.

It said a weaker US dollar, the specter of an American recession and rising financial-market volatility could cast a shadow over this soft landing scenario for the global economy.

These risks, it added, would cut export revenues and capital inflows for developing countries, and reduce the value of their dollar-investments abroad.

In this context, the GEP projected that the reserves and other buffers that developing countries have built up in past years may be needed to absorb unexpected shocks.

Aside from putting increased pressure on external positions, the World Bank report said higher international food prices carry potentially serious implications for the poorest members of these societies, including Bangladesh.

The higher food prices could strain government coffers and generate increased inflationary pressures given widespread food subsidies, it added.

“Similarly, further increases in energy prices remain a risk for the region, which is highly dependent on oil imports.”