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Bangladesh Business Forecast Report Q4 2014

  • September 2014
  • -
  • Business Monitor International
  • -
  • 36 pages

Core Views
T he peaceful resolution of the maritime dispute between India
and Bangladesh in the Bay of Bengal will allow both countries to
strengthen political and economic cooperation.
We believe that Bangladesh’s growth recovery remains on track. We
are forecasting real GDP growth of 6.0% in FY2014/15 (July-June)
as compared to an expected 5.7% in FY2013/14 on the back of a
recovery in investment, resilient garment exports and increase in
government development spending.
We expect the Bangladesh Bank (BB) to keep its repo rate unchanged
at 7.25% in H2FY2014/15 (January-June), as stubbornly high inflation
will likely ease slowly towards BB’s average inflation target of
6.5% as disinflationary dynamics remain in play.
We are projecting Bangladesh’s budget deficit to remain manageable
at around 3.0% of GDP on average over the coming years,
as ongoing tax reform efforts by the government will rake in more
revenues to support development spending.
We expect the Bangladeshi taka to remain fairly stable against the
USD, trading within the range of BDT77.00-78.00/USD over the
coming months, as the BB continues to anchor the currency while it
builds up its foreign reserves through intervention. We are forecasting
a year-end exchange rate of BDT77.70/USD in 2014.
.

Major Forecast Changes
We forecast Bangladesh’s real GDP growth for the next 10 years
to come in 6.0% as compared to the previous 6.3%, as a result of
the country’s weak banking sector and poor business environment.

Table Of Contents

Bangladesh Business Forecast Report Q4 2014
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics.. 8
Maritime Dispute Resolution To Boost Political And Economic Ties8
The peaceful resolution of the maritime dispute between India and Bangladesh in the Bay of Bengal will allow both countries to
strengthen political and economic cooperation. Additionally, this allows Bangladesh to conduct oil and gas exploration within its
demarcated sea boundary, which could help to alleviate power shortages and narrow the country's fiscal deficit over the coming years.
TABLE: POLITICAL OVERVIEW..8
Long-Term Political Outlook 9
Limited Chances Of Major Improvement.9
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
Growth To Remain Solid..14
Resilient garment exports, a recovery in investment and an increase in government development spending support our view that
Bangladesh's growth recovery remains on track. We are forecasting real GDP growth of 6.0% in FY2014/15 (July-June) as compared to
an expected 5.7% in FY2013/14. We note that political unrest remains a key risk to our optimistic outlook.
Table: Economic Activity..14
Fiscal Policy 15
Tax Reforms The Key To Further Economic Development...15
The lack of government revenues remains a major obstacle to Bangladesh's economic development. However, we are optimistic that
ongoing tax reform efforts by the government will rake in more revenues to support development spending, and keep the country's
budget deficit manageable at around 3.0% of GDP over the coming years.
Table: Fiscal Policy16
Monetary Policy .. 17
Inflation To Embark On A Slow Downtrend...17
Stubbornly high headline inflation, which is slowly easing towards the Bangladesh Bank's average inflation target of 6.5% for
FY2014/15, supports our view that the central bank will keep its repo rate unchanged at 7.25% for H2FY2014/15 at its next meeting in
January 2015. However, we believe the risks are weighted to the downside as inflationary pressures could subside faster than expected.
Table: Monetary Policy18
Exchange Rate Policy 19
Taka Stability Here To Stay.19
The Bangladeshi Taka is likely to remain relatively stable against the USD over the coming months as Bangladesh Bank continues to
anchor the currency. Beyond 2014, we expect the Taka to depreciate in line with long term trends, though at a more moderate pace
than recent years owing to a current account surplus and growing FDI. Given that the central bank is looking to build its reserves,
currency weakness is warranted.
Table: CURENCY FORECAST..20
Table: Current Account...20
Chapter 3: 10-Year Forecast... 23
The Bangladeshi Economy To 2023... 23
Long-Term Potential Strong But Restricted..23
We believe that a real GDP growth rate of 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 Forecasts23
Chapter 4: Business Environment. 25
SWOT Analysis 25
BMI Business Environment Risk Ratings.. 25
Business Environment Outlook. 26
Introduction...26
Institutions... 26
Table: BMI Business And Operation Risk Ratings26
Table: BMI Legal Framework Rating.27
Infrastructure... 28
Table: Labour Force Quality..28
TABLE: ASIA - ANUAL FDI INFLOWS29
Table: Labour Force Quality..30
Market Orientation... 31
TABLE: ASIA - ANUAL FDI INFLOWS31
Operational Risk.. 32
TABLE: TOP EXPORT DESTINATIONS ...32
Chapter 5: BMI Global Assumptions. 35
Global Outlook. 35
Eurozone Downgrade On Poor Q214..35
Table: Global Assumptions.35
Table : Devel oped States , Real GDP Growt H, %...36
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, %. 36
Table : Emerging Mar kets , Real GDP Growth , %..37

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