ADB trims Bangladesh growth forecast in pandemic fallout

A man fixes thread to an embroidery machine at a factory in Munshiganj, Bangladesh. Photo: Kazi Salahuddin Razu
The Asian Development Bank has cut Bangladesh’s growth forecast from 6.8% to 5.5% for 2021 in its latest report on the state of Asian economies.

The Manila-based institution also lowered the projected growth for 2022 from 7.2% to 6.8% in its September update published on Wednesday.

The GDP growth rate for the entire South Asia region – consisting of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka – was lowered from 9.5% to 8.8%.

The continuation of the COVID-19 pandemic is largely responsible for the revision down as the emergence of new variants, stop-start vaccine rollouts and prolonged lockdowns hampered the recovery.

The ADB noted that Bangladesh underperformed projections for FY2021, largely due to the various curbs introduced to contain the pandemic.

GDP growth had begun to revive at the start of fiscal year 2021 due to timely implementation of fiscal and monetary stimulus measures, a recovery in global trade flows and the start of vaccination.

But Bangladesh’s growth forecasts were affected by the restrictions imposed by the government to contain a second wave of infections due to the Delta variant in April, ADB said.

It also noted that Bangladesh’s vaccination rates were amongst the lowest in the region, below most other South Asian countries, such as Nepal, Pakistan, India, Sri Lanka and Bhutan.

The main risk to the economy remains the re-escalation of COVID infection rates in Bangladesh and major advanced economies, which could undercut domestic and external demand, the ADB said in a statement from its Dhaka office.

“The government’s policies for saving lives while protecting livelihoods underpinned the recovery process in Bangladesh, making it one of the few countries in the world sustaining commendable economic growth in recent difficult times,” said Manmohan Parkash, the ADB country director for Bangladesh.

“Prudent macroeconomic management, and efficient implementation of stimulus measures and social protection programs have helped. Continued efforts for job creation, quick vaccination, and improving domestic resource mobilisation will further accelerate the recovery process.”

Prakash also voiced appreciation for recent initiatives in the areas of financial inclusion, and expanding social protection.

“Sustained reforms to increase business competitiveness, foreign investment, export diversification, skills development, and technology adoption will stimulate private sector investments and hasten economic recovery.”

The September update also projected Bangladesh’s inflation rate to remain in line with targets due to weaker demand, despite rising food prices causing concerns in the rest of the South Asia region. Food imports have been helpful in tamping down inflationary pressure in the country, it noted.

Another positive indicator was remittances, which continued to exceed pre-pandemic levels by 29.5% in the first quarter. The ADB said this was largely due to relaxed documentation requirements and a 2% cash bonus introduced by the government to income remittances.

A surge in global commodity prices is also likely to benefit Bangladesh due to higher earnings from remittances.

The ADB noted that as more male workers migrated abroad for work, Asian agriculture was more reliant on women and the elderly for labour. Bangladesh, in particular, saw the share of female workers in agriculture rise 9.3% between 2010 and 2019.

Export earnings are also expected to return to pre-pandemic levels due to continued robust growth in major country destinations.

The ADB recommended expansionary fiscal and monetary policies to continue the recovery.

It also stressed the need to boost private and public investment, noting that improving consumer confidence and stimulus measures from the government may aid such pressures.

The ADB warned that the pandemic’s effects were also severe outside traditional economic measures, with food security becoming an alarming issue, particularly for Bangladesh.

The ADB estimates an additional 291 million people will go hungry across the world due in 2021, 72% of whom will be in parts of developing Asia, particularly Bangladesh, India, Indonesia and Pakistan.

The ADB put Bangladesh in the category of experiencing ‘moderately high’ food insecurity. The situation in Bangladesh is also affected by gender inequality, with one-third of female respondents to a survey in Bangladesh reporting they had reduced their food consumption for the benefit of others in the household.

But once the pandemic passes, Asia will also have to contend with longer term risks.

“As economies recover from the pandemic, medium-term risks will take centre stage again, led by the natural disasters and extreme weather events related to climate change,” said Joseph E Zveglich Jr, the acting chief economist at ADB.

The report noted that cyclone shelters in Bangladesh, combined with early warning systems for extreme weather and social capital to facilitate compliance can help prepare for such events.

It cited the example of timely information on floods in northern Bangladesh in 2019, which helped communities and the government prepare and reduced economic losses by two-thirds.