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Bangladesh Business Forecast Report Q3 2014

  • June 2014
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Bangladesh will benefit from the power struggle between China and India for dominance of South Asia and the Indian Ocean, as the two giants will want to strengthen their political, economic, and defence cooperation with Dhaka. This bodes well for Bangladesh’s long term economic growth, which we are forecasting to come in at an annual
average rate of 6.3% over the next 10 years. With the return of political normalcy, we are optimistic that investment and export sector growth will start to pick up over the coming quarters, and are forecasting real GDP growth of 6.3% in FY2014/15. We expect the Bangladesh Bank to keep its repo rate unchanged at 7.25% in H1FY15 (July-December), as inflation will likely remain relatively benign, while the economy should recover from the recent political turmoil.

The recent increase in electricity prices will enable the government to reduce energy subsidies and narrow the fiscal deficits. With this positive development, we are forecasting the budget deficit to come in at 3.1% of GDP in FY2013/14, before falling marginally to 3.0% of GDP in FY2014/15. We expect the Bangladeshi taka to remain fairly stable near its current level of BDT77.65/USD over the coming months, as the Bangladesh Bank (BB) will likely continue to anchor the currency while it bolsters its foreign reserves. However, we see scope for mild appreciation over the course of the year as the garment export sector recovers amid renewed political stability.


Major Forecast Changes

While we initially forecasted a 50 basis points cut in interest rates to support growth, rising inflationary pressures will likely hold back such a move. As such, we forecast the central bank to maintain a neutral monetary policy stance for the remaining months of FY2013/14, and will keep its benchmark repo rate unchanged at 7.25%.

Table Of Contents

Bangladesh Business Forecast Report Q3 2014
Executive Summary. 5
Core Views..5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics.. 8
Bangladesh To Benefit From Sino-Indian Rivalry8
Bangladesh will benefit from the power struggle between China and India for dominance of South Asia and the Indian Ocean, as the
two giants will want to strengthen their political, economic and defence cooperation with Dhaka. This in turn bodes well for Bangladesh's
long-term economic growth, and we are forecasting real GDP to grow at an annual average rate of 6.3% over the next 10 years.
Table: Political Overview..8
Long-Term Political Outlook.. 10
Limited Chances Of Major Improvement...10
Although Bangladesh returned to full civilian rule following elections in December 2008, the political system remains immature and
prone to instability. We see only limited prospects for a substantial improvement over the next 10 years.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings... 13
Economic Activity... 14
Recovery On Track But Challenges Remain.14
With the return of political normalcy, we are optimistic that investment and export sector growth will start to pick up over the coming
quarters, and are forecasting real GDP growth of 6.3% in FY2014/15. Growth challenges such as the poor business environment and
inefficient banking system still remain, however, which will prevent the economy from growing at a much more rapid rate.
table: Economic Activity .14
Fiscal Policy. 15
Electricity Price Hike A Sustainable Positive Step15
While the recent increase in electricity prices will hurt the economy in the near-term, it will enable the government to cut down on
energy subsidies and narrow the fiscal deficit. The fact that the government has pushed through reform measures amid the ongoing
political crisis bodes well for the government's fiscal reform efforts and the economy in general over the medium term. With this positive
development, we are therefore forecasting the budget deficit to come in at 3.1% of GDP in FY2013/14, before falling marginally to 3.0
%of GDP in FY2014/15.
table: Fiscal Policy15
Monetary Policy .. 16
Current Rates Still Appropriate In H1FY1516
We expect the Bangladesh Bank to keep its repo rate unchanged at 7.25% in H1FY15 (July-December), as inflation will likely remain
relatively benign, while the economy should recover from the recent political turmoil. Risks to our interest rate forecast remain weighted
to the downside, however, as inflationary pressures should subside, allowing scope for monetary easing should the economy fail to
recover strongly.
Table: Monetary Policy17
Balance Of Payments.. 18
Taka To Remain Stable As BB Bolsters Reserves.18
table: Current Account...18
table: Currency Forecast..19
Chapter 3: 10-Year Forecast... 21
The Bangladeshi Economy To 2023... 21
Long-Term Potential Strong But Restricted..21
We believe that a real GDP growth rate above 6.0% for Bangladesh is sustainable in the long term given the increasing size of the
workforce. However, to achieve growth in the 7-8% range and higher, productivity will need to improve. Until this happens, GDP per
capita - while on an upward trajectory - will remain relatively low.
table: Long-Term Macroeconomic Forecasts21
Chapter 4: Business Environment. 23
SWOT Analysis 23
BMI Business Environment Risk Ratings.. 23
Business Environment Outlook. 24
Institutions... 24
Table: BMI Business And Operation Risk Ratings24
Table: BMI Legal Framework Rating.25
Infrastructure... 26
Table: Labour Force Quality..26
TABLE: ASIA - ANNUAL FDI INFLOWS27
Table: Labour Force Quality..28
Market Orientation... 29
TABLE: ASIA, ANNUAL FDI INFLOWS..29
Operational Risk.. 30
TABLE: TOP EXPORT DESTINATIONS ...30
Chapter 5: Key Sectors.. 33
Pharmaceuticals and Healthcare... 33
tab le: Phar mac eutica l Sales, Historica l Data And For ecasts 33
Telecommunications... 35
tab le: Teleco ms Sector -Mobi le-Historica l Data and For ecasts (Banglad esh 2011-2018).. 35
tab le: Teleco ms Sector -Wir eline-Historica l Data and For ecasts (Banglad esh 2011-2018).. 36
Chapter 6: BMI Global Assumptions. 39
Global Outlook. 39
Emerging Market Deceleration39
Table: Global Assumptions.39
Tab le: Develop ed Stat es, Real GDP Growt H, %...40
Tab le: BMI VE RSUS BLOOMBERG CONSEN SUS REAL GDP GROWTH FORECASTS, %. 40
Tab le: Emergi ng Mar kets , Real GDP Growth , %..41

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