DHAKA, Oct. 3 (Xinhua) — The Asian Development Bank (ADB) has maintained forecast for Bangladeshi economic growth at 6 percent in the current fiscal year 2012-13 ending next June, citing weak global and domestic demand.
“GDP (gross domestic product) growth in fiscal year 2012-13 ( July 2012-June 2013) is projected at 6.0 percent, unchanged from the ADO 2012 forecast, as exports and domestic demand are slowing as expected,” the Manila-based bank said in its Asian Development Outlook Update (ADOU) 2012, which was released here Wednesday.
While relaxed rules of origin under the European Union’s Generalized System of Preferences from January 2011 gave Bangladesh an advantage over regional competitors, the European Union market is seen as highly volatile because of the euro zone sovereign debt crisis, the ADB said.
The update retains the ADO 2012 average inflation projection of 8.5 percent for the current fiscal year.
Upward adjustments in domestic fuel and electricity prices will lift nonfood inflation, but inflationary pressures will be contained as the central bank’s tighter monetary policy takes hold, while international prices for commodities, including fuel, are expected to be broadly stable, said the ADOU.
It said food prices are expected to fall in the first half with comfortable domestic supply and rise in the second half, as drought in a number of major agricultural exporters cuts global supplies.
According to ADOU, several downside risks could upset projections.
Fiscal management could come under pressure if the revenue target is not realized, planned foreign financing does not materialize, or political pressures quash the expected increases in fuel and electricity prices, it said.
The ADOU said monetary discipline could be undermined if the government increases bank borrowing to finance subsidy spending. Finally, it said unfavorable weather or political unrest could affect economic activity.
According to the ADOU, growth in domestic demand will remain limited owing to the central bank’s continued credit tightening, while the expected rise in remittances is not strong enough to fully offset it.
Industry growth is expected to slow to 7.5 percent, reflecting weaker domestic demand, modest export growth, and expected growth- retarding increases in electricity prices, it said.
Agriculture growth will accelerate to 4.5 percent on previous year’s low base in response to more intensive policy support, especially for input supply and extension services, it said adding services growth is projected to slow slightly to 6.0 percent because of weaker performance by industry and trade services.
Macroeconomic imbalances started surfacing in late 2010 because of adverse trade terms owing mainly to escalating oil prices, higher oil imports needed for power generation, and expansionary fiscal and monetary policies. A surge in subsidy costs, mainly for fuel, intensified fiscal pressures and spurred a rapid rise in domestic borrowing.
The main thrust of budget policy is to create fiscal space by strengthening tax revenue collection and containing subsidy costs by raising fuel, power, and fertilizer prices, said the ADOU.
It said the projections are now underpinned by International Monetary Fund’s agreement in April 2012 to support the authorities’ comprehensive program of economic policies.
Owing to sluggish exports and investment scenario, the the Washington-based IMF had earlier reportedly predicted that Bangladesh economic growth will slow down to 5.8 percent in the current fiscal year.
The Bangladeshi government set the GDP growth target for the current 2012-13 fiscal year at 7.2 percent. Bangladesh’s GDP in 2011-12 (ended June 2012) grew by 6.3 percent but it was at 6.7 percent in 2010-11 fiscal year.