Bangladesh strained by import control, energy crisis: World Bank

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The continued import suppression measures and energy shortages have weighed on both industrial production and the service sector in Bangladesh, says the World Bank.

It came up with the observation in its latest report – Global Economic Prospect – released on Tuesday.

Referring to the loan of the International Monetary Fund (IMF), the World Bank said Bangladesh aims to pre-emptively address balance of payments pressures and help unwind import suppression measures.

However, the international financial institution retained its previous forecast for Bangladesh's gross domestic product (GDP) growth.

The World Bank, in a report in January, predicted a 5.2 per cent GDP growth in Bangladesh in the fiscal year 2022-23 and a 6.2 per cent growth in the fiscal year 2023-24.

The government set a higher GDP growth target of 7.5 per cent for the current and next fiscal.

The World Bank further said Bangladesh, Nepal, Pakistan, and Sri Lanka had taken import control measures to combat the external imbalances and exchange rate pressure. These measures impacted economic activities to a great extent.

Later, there has been some improvement in the international trade balance and it led to a relaxation of import restrictions in the countries.

Bangladesh, India, and Pakistan have imposed bans on the export of some certain food commodities. The World Bank said the food export bans, however, are expected to remain in place in the countries through 2023 despite falling global prices.

The report acknowledges improvements in employment in Bangladesh, but noted that real household earnings are yet to recover to pre pandemic levels.

Financial sector risks remain high

The World Bank said financial sector risks remain elevated in several economies, with high levels of non-performing loans, weak capital buffers, and weak bank governance.

Ratios of non-performing loans to total loans are elevated and have recently been rising in Bangladesh and Sri Lanka.

In Bangladesh, weak corporate governance and capital buffers increased the risk of stress in the financial sector.

Besides, high government and external debt, low foreign exchange reserves, and socio-economic tensions heighten the risk of financial crises in several economies in the region. Such crises could significantly reduce potential as well as actual growth, noted the World Bank.

The World Bank further said the tightening of monetary policies continues in the region while the central bank in Bangladesh has increased the policy interest rate.

Growth outlook

In terms of global growth, the World Bank has raised its forecast compared to its January prediction. It initially projected the global growth to be 1.7 per cent in 2023, but it now anticipates a slowdown to 2.1 per cent in 2023. The latest figure is significantly lower than the 3.1 per cent growth in 2022 and 6 per cent in 2021.

However, the World Bank expects global growth to recover to 3 per cent in 2025.

Growth in the South Asian region is expected to slow marginally to 5.9 per cent in 2023 and more significantly to 5.1 per cent in 2024.

Growth in India is expected to slow further to 6.3 per cent in FY2023-24 (April-March), a 0.3 percentage point downward revision from January.