DHAKA, April 11 (BSS) - Bangladesh economy is expected to grow at 6.2 percent in the current fiscal year and the average annual inflation rate will rise to 11 percent, according to the Asian Development Bank (ADB).
"As the year progresses, growth will slow down in export, the major driving force of Bangladesh economy. The performance of exports is weakening, largely because of weaknesses in its key market, the eurozone, which is in a prolonged period of adjustment to its debt crisis," Teresa Kho, ADB country director to Bangladesh, forecast while speaking at the publication ceremony of 'Asian Development Outlook 2012' here today. The ADB country chief suggested tasking steps to rationalize subsidy expenditures to minimize pressure on the budget.
About rising inflation, Teresa Kho said steps should be taken to control inflation through coordination among monetary policy, fiscal and exchange policies.
Chief economist of ADB's country office Zahid Hossain also spoke on the occasion.
The GDP growth rate in the ongoing 2011-12 fiscal has been forecast at 7 percent and the current budget envisaged the average inflation rate within 7.5 percent.
The forecasts for FY2012 and FY2013 assume that it will be hard to contain inflation in FY2012, despite policy tightening, the ADB said. It said export growth slowed sharply to 13.0 per cent in the first 8 months of FY2012, from 40.3 percent in the year earlier period, which will also affect production in export- linked domestic industries.
"The rise in interest rates is expected to moderate domestic demand. GDP growth in FY2013 is expected to slip to 6.0 percent as interest rates are raised to bring down inflation, and as export growth slows further," the ADB said.
Agricultural growth in FY2012 will moderate to 4.4 percent, crimped by rising irrigation costs (reflecting higher fuel and electricity prices) and because of the high base in the previous In FY2013, sector growth is projected to rise slightly to 4.5 percent in response to better procurement prices, as the government steps up food procurement programs and strengthens policy support, the outlook added.
It said industrial growth is expected to slow to 7.8 percent in FY2012, mainly reflecting falling export demand.
"Higher interest rates and labor costs as well as the expected increases in fuel and electricity prices will further raise the cost of production and squeeze profit margins," the ADB said.
Annual average inflation will edge up to 11 percent in FY2012, the ADB said, adding that while food inflation has traditionally driven up the headline rate, the sharp rise in nonfood prices from July 2011 has emerged as a major policy concern.
To rein in inflation, the central bank continued the previous year's credit tightening measures and raised its policy rates in September 2011 and January 2012 by 100 basis points each, to 7.75 percent and 5.75 percent, respectively.
"In January 2012, the central bank abolished the cap on commercial bank lending rates to more effectively transmit its policy to the private sector. Inflation is projected to slow to 8.5 percent in FY2013 as monetary tightening takes greater hold." Export growth is projected to slow to 12 percent in FY2012 and further to 10 percent in FY2013, mainly reflecting weak demand for garments (over three-fourths of exports) from the eurozone and from the US, which is experiencing a slow recovery from its financial crisis, the ADB said.
Although garment exports to new (mainly developing country) markets are becoming more important, they are yet to become major markets to offset declining exports to the EU and US, the two dominant traditional markets.
It said net inflows of foreign assistance declined, although FDI inflows rose marginally. Pressure on the balance of payments is expected to intensify in the forecast period, with larger import payments compared to export and remittance receipts.