ADB revises growth forecast up to 7pc
Thevakumar
Kandiah, left, country director of ADB, speaks at the launch of the
Asian Development Outlook Update in Dhaka, while ADB's Senior Country
Specialist The Manila-based anti-poverty lender said strong export performance and expansion in domestic demand will push up growth.
The country, however, needs to address a number of issues such as containing higher inflation, accelerating tax reform process and speeding up project implementation rate to ensure the growth, said Thevakumar Kandiah, ADB country director for Bangladesh.
“Inflation has to be contained, policy reform accelerated and public private partnership operationalised quickly to achieve the goal,” he said at the launch of Asian Development Outlook Update-2011 at the ADB office in Dhaka.
Kandiah said the policymakers should focus on a larger investment in power, energy, transport, human capital and technological development to achieve the target.
He also stressed the need for accelerated policy and institutional reforms including tax reforms and proper pricing mechanism of utility services.
Although the update marginally raised the growth forecast, it retained the outlook for inflation and the current account balance.
According to the report, the average inflation rate will be 8.5 percent in the current fiscal year, which was 8.8 percent last year but higher than the monetary policy statement projection of 7.5 percent.
To keep inflation within the projected rate, the central bank will need to bring down annual money and credit growth at least to 18.5 percent and 20 percent respectively, said ADB's Senior Country Specialist Mohammad Zahid Hossain.
He said a major challenge for the policymakers will be balancing higher growth with credit polices constituent with price and balance of payment stability.
The outlook also said the overall economic performance was good last fiscal year when it grew by 6.7 percent.
The ADB said industrial growth is seen edging up to 8.8 percent as exports perform well, and smaller and agro-based industries, alongside housing and construction, expand.
Growth in agriculture is likely slow to 4.6 percent from 5 percent in FY 2011, because of the high base in two successive years. But the expansion in the use of high quality seeds and better performance in livestock, poultry and fisheries will support higher growth.
The services sector is expected to do well with 6.8 percent growth, in line with industry's acceleration and reflecting a pick-up in trade and transport activities and telecommunications services.
The import bill is expected to rise by 20 percent, reflecting the effects of the tighter monetary policy and the expected stability in prices of raw materials.
An uptick in remittances is expected, with more people leaving for work abroad. Remittances are expected to grow by 12 percent in the current fiscal year, but they will be unable to offset the expected trade, services and income accounts deficits.
The current account balance would move to a modest deficit of 0.3 percent of the GDP in the current fiscal year, from a 0.9 percent surplus the previous year.
The pick-up in export-oriented domestic industries and tax incentives for domestic industries provided in the FY2011 budget are also expected to bolster economic activity.
The ADB said controlling expansion of credit both to contain inflation and balance of payments pressure while providing a steady flow of credit to the private sector will be crucial. “In this effort the authorities will need to keep a close eye on budget finance from the banking system.”
ADB said the downside risks abound. The monetary policy stance may be compromised to meet the high growth target, or the attempted tightening may not control inflation or contain import demand.
“The expected revenue and external financing may not be mobilised as planned. Failure to boost power generation could hold back industrial expansion, and political instability could affect economic activity.”