Ekonomisk riskbedömning
Bangladesh

Bangladesh

Population 159,857 million
GDP 1292 US$
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Synthesis

major macro economic indicators

  2013-14 2014-15  2015-16

2016-17

(f)

GDP growth (%) 6.3 6.8 6.9 6.9
Inflation (yearly average) (%) 7.0 6.4 6.7 6.9
Budget balance* (% GDP) -3.1 -3.9 -4.3 -4.7
Current account balance (% GDP) 0.9 0.7 -0.1 -0.7
Public debt (% GDP) 33.9 33.9 34.0 34.3

 

(f) Forecast

* Includes aid

Tax year: from July to June

STRENGTHS

  • Competitive clothing sector thanks to relatively cheap labour
  • Substantial remittances from emigrant workers, located mainly in the Gulf States
  • International aid helping to cover financing needs
  • Moderate level of national debt
  • Favourable demographics: 45% of Bangladeshis are under 15

WEAKNESSES

  • Economy vulnerable to changes in global competition in the textile sector
  • Very low per capital income
  • Recurring political and social tensions
  • Shortcomings in terms of business climate, especially regarding infrastructure
  • Recurring natural disasters (cyclones, severe floods) resulting in significant damage and loss of harvests

RISK ASSESSMENT

Growth is expected to remain dynamic, but political, social and security issues will continue to penalise investment

Activity remained buoyant during the 2016 fiscal year, but political, social and security issues again disrupted the economic life of the country. In July 2016, Dhaka was struck by a violent attack, responsibility for which was claimed by Islamic State, just at a time when the political situation was tending to stabilise. Nonetheless, tensions remain high between the opposition and the ruling party. Growth will also benefit from the rapid development of services, especially in the area of health and education. Foreign investment is likely to remain dynamic but could be hit by the worsening security context. The country will continue to enjoy support from the Asian Development Bank for infrastructure development projects, thanks to a USD 8bn programme over the coming years. This will, in particular, enable the construction of a 102km railway line in the south of the country.
Meanwhile, household consumption, the main component of GDP, is expected to remain dynamic. The agriculture sector, which employs half the economically active population, will continue to sustain domestic demand. However, expatriate remittances, although still high, will slow due to the difficulties experienced by the economies of the Gulf States, the main host countries for Bangladeshis. Furthermore, exports are expected to remain sustained, thanks to the strength of the textile sector which benefits from the country's 2nd place in the world in terms of production capacity. Nonetheless, they are likely to be hit by sluggish world demand and worsening price competitiveness. In addition, The Unite States have confirmed that the Generalised System of Preferences will not be restored (initially suspended following the collapse of the Rana Plazza in April 2013). However, Bangladeshi products will continue to enjoy preferential access to the European market.
Finally, inflation is set to remain high in 2017. Relative control over food prices will, however, make it possible to contain price increases.

 

The country's external position remains strong

The public deficit is expected to increase slightly. The 2016-2017 budget includes major spending plans prioritising spending on jobs, education and training, infrastructure and improving the country's attractiveness. Nonetheless, the budget provides for cuts in subsidies and the government is also planning to broaden the tax base, thanks to the introduction of VAT in July 2017. Accordingly, the public debt is likely to deteriorate very slightly in 2017, but will remain at a moderate level.
With regard to the external accounts, the current account balance is expected to continue to deteriorate, although it will remain contained. Despite strong export performance, the trade balance is likely to suffer from a slight rise in oil prices in 2017. Further, expatriate remittances will continue to be affected by sluggishness in the construction sector in the Gulf States.
In 2016, the foreign exchange reserves continued to rise, reflecting the Central Bank's intervention aimed at limiting the currency's appreciation. Reserves have grown by a factor of 3.7 since 2011 and are now at a level deemed satisfactory (almost 8 months of importance). The country's ability to withstand sudden capital outflows has thus significantly improved.
The IMF programme from which the country benefited in 2012 following the balance of payments was subject to the implementation of banking system reforms, needed because the banking sector suffers from arbitrary risk management and a lack of supervision. Steps have now been taken to strengthen governance and improve risk management.

 

Political stability has improved but the country remains vulnerable to a deteriorating security context

The January 2014 parliamentary elections took place against a backdrop of widespread violence. The Bangladesh Nationalist Party (BNP) – the opposition party - boycotted the elections as it disagreed with the electoral process. The ruling party (the Awami League) was re-elected under widely contested conditions. The situation returned to calm during 2014 until the BNP called for early elections, with the Awami League refusing to take part in any talks. In the early months of 2015, the country was shaken by a wave of violent protests and major blockades. The situation has since stabilised but remains fragile. The opposition accuses the Awami League of wanting to transform Bangladesh into a one-party State. There is a high risk of a resumption of violence at a time when the country is facing a rising tide of religious violence as evidenced by the violent attack on Dhaka organised by Islamic State in July 2016. Finally, the country pays will continue to suffer from a particularly adverse business climate.

 

Last update : January 2017

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