Download BANGLADESH UNDER EMBARGO UNTIL 07.00 GMT, WEDNESDAY, 6 AUGUST 2014

UNDER EMBARGO UNTIL 07.00 GMT, WEDNESDAY, 6 AUGUST 2014
BANGLADESH
Country briefing notes
Slightly slower economic growth
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The economy has seen growth of more than 6% in the past few years due to expanding
garment exports and strong household spending fuelled by steady workers’ remittances.
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In the fiscal year 2013, economic growth softened marginally to 6% from 6.2% a year earlier.
The decline was due to slower growth in agriculture and services. The industrial sector
performed more favourably, growing at 9%.
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Annual private investment contracted for the first time in at least a decade due to political unrest
related to parliamentary elections and the increasing adverse effects on the economy arising
from infrastructure and energy shortages.
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The economy is projected to grow at a slightly higher rate of 6.1% in the fiscal year 2014. The
agricultural sector is likely to perform better due to improved weather conditions. However,
political tensions dampened both consumer and investor confidence. Slower export growth and
falling workers’ remittances are also expected to hold back growth.
Softening inflationary pressure
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The inflation rate decreased to 7.7% in the fiscal year 2013 from 10.6% in the previous year,
partly attributable to moderating global food and fuel prices.
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The dominance of traditional agriculture and reliance on imported cereals makes domestic food
prices highly vulnerable to weather conditions and global price developments.
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High food inflation tends to hurt the poor harder, as they spend proportionally more on food
purchases, especially cereals and vegetables. Food items account for nearly 60% of the
Bangladesh consumer price index
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To contain food inflation, substantial wastage of agricultural produce needs to be minimized by
improving the supply chain logistics and setting up cold storage and processing facilities. It is
also essential to enhance agricultural productivity by ensuring that small-holder farmers benefit
from modern technologies.
Merchandise exports rebounded
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Exports rebounded in 2013 after a contraction in 2012. Demand from developed economies
bounced back somewhat. Export items are still generally low value-added and concentrated in
textiles and garments.
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Although remittance incomes have supported household spending and contributed to the
current account surplus in Bangladesh, they also point to inadequate job opportunities at home.
Most migrant workers are also employed in low-skilled sectors.
Macroeconomic policy developments
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The fiscal deficit has widened steadily over the past years, partly due to contingent liabilities
associated with public-private partnership projects. The public debt level is close to 80% of
GDP.
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Monetary policy was generally accommodative amid some softening of inflation and fragile
external demand. In 2013, policy interest rate cuts of 50 basis points were made. Loose
monetary policy enabled strong bank credit growth; although the non-performing loan ratio was
high at close to 10%.
Medium-term development challenges
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One recent policy reform is an amendment in the labour law to strengthen worker rights by
allowing more trade unions and requiring a provision for group insurance for work-related
accidents. Another initiative is the introduction of an online tax registration system, which
facilitates tax payments.
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More recent schemes have focused on supporting the garment sector amid political disruptions.
They included lower income tax for garment exporters and reduced lending rates on input
procurement.
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Income inequality has deepened over the past decades. Gender inequality is also evident, with
the labour force participation rates for women and men at 36% and 82%, respectively. The
Bangladesh Vision 2021 is committed to increasing the participation rate of women to 40% by
the year 2021.
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Taking into account Bangladesh’s economic structure, ESCAP analysis suggests that tax
revenue could be raised by up to 70%. Among others, policies to enhance domestic resource
mobilization include rationalizing the tax system to create a larger tax base, tackling tax evasion
and tax fraud, and strengthening tax administration. The government is already addressing
some of these issues.