The New Nation - Internet Edition

UNB, Dhaka

London-based Economist Intelligence Unit (EIU) has projected Bangladesh's GDP growth to slow down to 5.8 percent and budget deficit widen to 5.2 percent of GDP during the current fiscal year.

In its February issue of the country report on Bangladesh, EIU also revised uwards the inflation forecast for 2008 to 8.7 percent from 8.0 percent shown in its January report.

EIU is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years, it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide.

Bangladesh Bank, however, projected the GDP growth to be around 6 percent, from 6.5 percent in 2006-07, while the International Monetary Fund, World Bank and Asian Development Bank set their projection at 5.5 percent.

About budget deficit for the current fiscal year, Finance Adviser Dr Mirza Azizul Islam recently estimated that the deficit could rise to the tune of 4.7 percent of GDP from the budgetary target of 4.2 percent.

In its outlook for Bangladesh for 2008-09, the EIU said the real GDP growth is expected to slow down, as the agricultural sector struggles to recover from flooding and the devastation wrecked by Cyclone Sidr in November 2007.

"Assuming normal rainfall, a strong recovery in agriculture should boost GDP growth to 6.2 percent in 2008-09."

It said Bangladesh would continue to post a budget deficit in the forecast period as revenue expansion fails to keep pace with growth in spending.

It added that the interim government is expected to prepare and pass its second budget in June this year.

About inflation, the EIU said upward price pressures, particularly those resulting from rising food costs, are expected to persist throughout the forecast period.

Food price inflation should ease in 2009, assuming that harvests return to normal, and consumer price inflation is thus forecast to moderate slightly, to 5.1 percent, in that year.

It said the Taka is expected to depreciate against the US dollar, as inflation remains relatively high and the trade deficit swells to record levels against a backdrop of persistently high international oil prices.

The current account was in deficit to the tune of US$ 229 million in July-October 2007, compared to a surplus of US$ 334 million during the same period in last fiscal, said the outlook.

It said fiscal policy would remain expansionary over the forecast period. Liberalisation of the banking sector is expected to continue in 2008-09, although progress is likely to be slow.

Bangladesh Bank indicated in its twice-yearly policy statement in January that it would maintain an accommodative monetary policy stance during the second half of the current fiscal year.

The EIU outlook said Bangladesh's external environment is likely to become slightly less favourable in 2008 as economic growth slows in the US and the euro area.

The external environment is expected to improve slightly in 2009 as economic growth in the US picks up to 2%, while the euro zone is forecast to grow at the slightly faster pace of 2.1%, said the forecast.

Because Bangladesh imports nearly all of the oil products that it requires, high world oil prices would have a detrimental effect on Bangladesh's balance of trade and are expected to contribute to record trade deficits in 2008 and 2009.

"We expect a more pronounced deterioration in Bangladesh's merchandise trade balance in 2008 as international oil prices stay high and the external environment becomes more challenging."

The trade deficit is expected to widen to US$ 5.6 billion in 2008, following an estimated deficit of US$ 4.3 billion in 2007, and would increase further, to US$ 5.8 billion, in 2009.

"The expected widening is largely attributable to a growing import bill for oil, as import volumes remain large and prices high."

Imports are forecast to continue to grow in both volume and value terms in 2008 as demand for petroleum products and some industrial raw materials remain strong.

"The value of imports will continue to exceed that of exports by a wide margin throughout the forecast period," said the outlook.

Nevertheless, merchandise export growth would be helped by a gradual decline in the value of the taka against the US dollar. Owing to record inflows of workers' remittances, the current account will post small surpluses in 2008 and in 2009, it added.