For Bangladesh, the global lender flagged risks in exports and remittances in its updated Global Economic Prospects report published on Tuesday.
Growth outcomes in China, the European Union, and the United States, for instance, have a direct impact on growth in many economies in the South Asia region by lowering export demand and remittances, and limiting access to external financing, the World Bank said citing a 2016 study.
For example, Bangladesh’s garment exports are heavily reliant on markets in the United States and Europe, the World Bank said.
In economies that rely on external sources of growth, such as manufacturing exports
(Bangladesh) and tourism (Bhutan, Maldives, Nepal, Sri Lanka), the recovery is likely to be particularly modest
“Export growth is forecast to remain weak in Bangladesh, especially in the readymade garment sector,” the report said.
Some economies in the region are also heavily dependent on remittance flows from countries in the Gulf Cooperation Council, which may be affected by potential renewed decline in oil prices, perhaps because of the economic impacts of the pandemic or to a sudden shift in OPEC policy, the World Bank said.
Remittance inflows remained robust in 2020 with double-digit growth in Bangladesh and Pakistan due to the increased use of formal channels to repatriate funds, government incentives, and the return of migrant workers.
These inflows have contributed to the improvement of current accounts, and in some cases with international assistance, allowed several major regional economies, including Bangladesh, to increase their foreign reserves.
The projected drag from remittances on the region’s economies is less certain given their recent strength.
Remittances may be adversely affected by the weak recovery in GCC countries, the resurgence of outbreaks in the United States and Europe, and difficulties facing migrants trying to return to host countries, the World Bank said, citing a 2020 report.