Future economic growth to depend on domestic economic recovery; ADB

The future economic growth of Bangladesh will depend on recovery in domestic economic activities fueled mainly by implementation of stimulus packages, strong inflow of remittances and rebound in global trade amid projected growth in major export destinations, said the Asian Development Bank (ADB).

“The economy was showing signs of recovery with higher remittances, exports and other indicators, but the recent surge in pandemic and the lockdowns are likely to trim our GDP growth projection of 6.8 percent for fiscal year 2020-2021 by at least one percentage point,” said ADB Country Director Manmohan Parkash. He spoke while addressing virtually the launching of the latest Asian Development Bank (ADB) report “Asian Development Outlook (ADO) 2021”released today.

Manmohan said Bangladesh economy has withstood the impacts of the first wave of Covid-19 pandemic with timely and effective stimulus measures, ensuring basic services and commodities for the poor and vulnerable. “The economy is now going through the second wave of the pandemic and the future growth will depend on how effectively it is managed,”

“Expanding social safety nets, enhancing investments, creating employment, ensuring mass vaccination and improving the health sector are critical actions for achieving the Eighth Five Year Plan goals,” he added.

ADB senior economist at Bangladesh resident mission Soon Chan Hong made a power-point presentation on the report of ADO.

The ADB Country Director said attaining the targets of development and other spending could be challenging as revenue collection in the first eight months of FY 2021 grew by only 5.2 percent compared to 9.1 percent growth in the same period a year earlier.

“Concerted efforts are needed for achieving the annual development programme spending and boosting revenue. The outlook is subject to downside risks. Resurgence in Covid-19 cases and delays in availability in the supply of vaccines–both globally and domestically– could undermine the economic growth outlook,” he continued.

Parkash said under sustained global recovery and effective Covid -19 management, GDP growth is expected to further strengthen to 7.2 percent in FY2022.

The report said despite headwinds from the Covid-19 pandemic, Bangladesh’s GDP growth is forecast higher in FY2021 and FY2022 in line with a projected global economic rebound.

It said the GDP growth in FY21 is expected to moderate from the earlier estimate of 6.8 percent to 5.5-6.0 percent due to the resurgence of the Covid-19 cases.

When asked about the possible GDP growth, Manmohan said that the second wave of the deadly virus has severely impacted the economy of the country while the economic activities are also down due to the countrywide lockdowns to rein in the infection rate. He said the earlier estimate of 6.8 percent of growth for Bangladesh in FY21 made in March is likely to be impacted by at least one percent and it will possibly range between 5.5 to 6 percent.

“Actually this will be a very good one as Bangladesh has done quite well…We need to break the cycle of infections and protect the lives of people,” he said adding that the infection rate is coming down gradually.

Asked about ADB’s overall support in Covid-19 response to Bangladesh, Manmohan said the government is in discussion with the ADB for availing US$940 million as loan to procure vaccines and it would be available at any time.

Besides, he informed that US$500 million budget support from ADB is under process to expand social protection and promote financial inclusion while another US$500 million is under process to strengthen public financial management and enhance access to finance.

Manmohan said as support for immediate and urgent needs, the ADB provided US$500 million budget support to fund immediate expenditures and programmes for expansion of social safety nets and support to industries to protect jobs (with co financing of US$651 million).

Besides, it ensures US$100 million loan to support procurement of urgently needed medical equipment and supplies and upgrading of health and testing facilities, US$3 million grant to procure 200,000 RT-PCR test kits, US$3.50 lakh grant to bring in urgently needed, life-saving medical supplies and equipment and US$1.34 million to support trainees from Skills for Employment

Investment Programme.

The ADB would provide support for attaining COVID-19 vaccines which are certified by WHO like AstraZeneca, Pfizer while some others like Sputnik V, Sinovac have also applied for getting approval, said the ADB country director while answering a question.

He said the ADB would definitely support the government in availing the vaccines as long as those would come from the WHO enlisted suppliers.

“We’ll work on the supply side…We’ll use all of our influence and we’re committed to make any Investment that is needed,” Manmohan said adding that immunization and vaccination are the ways to counter this pandemic in a sustainable way.

Replying to another question, he said due to the impacts of the pandemic, unemployment rate as well as poverty rate will increase and for addressing this, there is a need to skill people and provide them with easy access to finance.

The ADO report said the current account balance is expected to cross into surplus of 0.7 percent of the GDP in FY2021, contributed by remittance growth. The main risk to this growth projection is further surge of Covid-19 cases and delayed availability and supply of vaccines both globally and domestically.

It said continued strong remittance inflow is likely to support domestic demand with growth in private consumption. Remittances from workers overseas increased by 35.1 percent in the first nine months of FY2021 due to the two percent cash incentive offered by the government and reduced documentation requirements.

Private investment is expected to pick up as moderate growth in private sector credit improves confidence. Higher public investment is forecasted as the government expands capital spending.

Inflation is expected to reach 5.8 percent in FY2021 from 5.7 percent in FY2020 as price pressures are increasing from higher public expenditures to implement stimulus measures and a rise in global food and fuel prices due to pick up in global economic activity.

The ADO 2021 points out that a move towards universal health care is critical to ensure inclusive and sustainable development. Health care in Bangladesh can improve with more public funding and effective administration. A contributory public social health insurance scheme can help achieve universal health care.

To enhance inclusion and high enrollment, participation should be mandated for all with subsidies targeted to lower-income people. Substantial strengthening of domestic resource mobilization will be needed to mobilize increased funding for healthcare.

ADB has already provided US$650 million in loans and US$7.23 million in grants for managing socio-economic impacts of the Covid-19 pandemic and supporting quick recovery. It is also processing two programme loans of US$500 million each and a US$940 million loan for the government’s Covid-19 vaccine programme. For 2021-2023, ADB has programmed US$5.9 billion firm and US$5.2 billion standby project assistance for Bangladesh.