Bangladesh Development Update, October 2018 : Powering the Economy Efficiently
Strong growth, driven by consumption and public investment, has continued. Macroeconomic stability is strained. Inflation has picked up, driven by food price increases initially and by non-food inflation more recently. Notwithstanding rebound in ga...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/556621538579959997/Bangladesh-Development-Update-Powering-the-Economy-Efficiently http://hdl.handle.net/10986/30565 |
| Summary: | Strong growth, driven by consumption and
public investment, has continued. Macroeconomic stability is
strained. Inflation has picked up, driven by food price
increases initially and by non-food inflation more recently.
Notwithstanding rebound in garment exports and remittances,
the current account deficit has widened significantly
because of a surge in imports. A large increase in the
disbursement of medium and long-term loans helped contain
pressure on foreign exchange reserves and moderate the
depreciation of the exchange rate. Monetary growth has been
subdued because of decline in public sector borrowing from
banks and reduced net international reserves, creating room
for increased private sector credit growth. However, weak
deposit growth and the persistence of high levels of
non-performing loans have led to rise in lending rates. The
fiscal deficit has increased despite underspending on public
investment as revenue growth fell well short of the budget
target. Excessive reliance on expensive saving instruments
to finance the budget deficit has continued.Over the
near-term, growth is expected to remain resilient,
underpinned by strong domestic demand. Inflation is likely
to accelerate with rising aggregate demand resulting in part
from election related increase in private spending, an
expansionary fiscal policy and depreciating exchange rate.
The current account deficit and the fiscal deficits are
projected to widen, but the risks of both external and
public debt distress are low. Downside risks include fiscal
slippages aggravated by drying up of assistance for
supporting the Rohingyas, delays in banking reforms, loss of
monetary policy predictability due to diminished central
bank independence and weakening reform momentum in the
run-up to the elections. Moving forward, creating more and
better jobs by boosting private investments, diversifying
exports and building human capital remain the top most
policy priorities. In addition to handling macroeconomic
imbalances through increased flexibility in the exchange
rate and interest rates, this would require ensuring a
predictable and efficient system of business regulation,
faster progress on the implementation of the mega
infrastructure projects, improving financial sector
governance, and ensuring an adequate and reliable supply of electricity. |
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