Bangladesh Development Update: Building on Resilience

Dhaka, April 9, 2018 — Bangladesh is continuing its strong development trajectory, even as the pace of poverty reduction has slowed down, according to a new World Bank report, “The Bangladesh Development Update April 2018.”

Sustained economic growth driven by exports, domestic demand and remittances. Despite challenges, the country maintained robust growth.  Its exports have rebounded – primarily led by the Ready-Made Garments (RMG) sector – with a 6.33% growth in FY18, compared with 4% in the previous year. A 17% growth in remittances, with more Bangladeshis going to work abroad, combined with effective action against illegal money transfers, may have contributed to the recovery, added the report.

Despite macroeconomic challenges, GDP growth is projected to be robust, in the 6.5 to 7 percent range during FY18-20. The key growth drivers are expected to be exports, driving manufacturing growth, and services, driven primarily by domestic consumption. Despite being affected by recurring floods in 2017, agriculture sector rebounded. However, private investment, which stagnated in recent years, is expected to pick up with growing confidence on infrastructure development prospects, strong domestic demand, and stronger global markets.

 

Poverty is falling but at a slower rate. The national poverty rate fell in both rural and urban areas, but the speed of reduction was much slower in urban, largely because of slower rates of poverty reduction in Dhaka and increasing poverty in Chittagong. With the increase in urban population, now more people (3.3 million) lives in extreme poverty than in 2010 (3 million). With inequality in agricultural growth, more than half the population are vulnerable to falling back into extreme poverty. In addition, the influx of over 688,000 Rohingyas since August 2017 has put a strain on resources for host communities in Teknaf, Cox’s Bazaar.

Key Challenges. Macro stability challenges include a rise in inflation due to increase in international inflation as well as expansionary macroeconomic policies and persistent external deficit due to continued growth in payments for food, industrial raw materials, capital goods and machinery imports.

Building on resilience

-        With around two million young people entering the job market every year, Bangladesh must achieve export-led growth by breaking into new markets with new products to create more and better employment opportunities.

-        The country needs to create an enabling environment to increase female labor force participation.

-        The country needs to improve the business environment, strengthen the regulatory framework, and enhance infrastructure project management

-        Tackle the banking sector’s poor risk practices through supervision, improving the legal and financial framework for loan recovery.

-        Additional measures to ensure revenue buoyancy, by improving administrative processes, introducing carbon taxes, tobacco taxes, and rationalizing tax incentives and exemptions.

-        Increased caution on the monetary policy stance needed on growing concerns for rising inflation, surging global crude oil prices and fiscal slippage.