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Bangladesh Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 37 pages

Core Views Bangladesh's real GDP growth will likely remain stable at 6.5% in FY2015/16 (July-June) before picking up slightly to 6.7% in FY2016/17, aided by an accommodative monetary policy, an expansionary fiscal policy and the return of a stable political climate. In particular, the government's ongoing focus on public investment into supporting infrastructures should help to attract more investment and boost productivity in the manufacturing sector, thus allowing Bangladesh to retain its dominant position in the global garment industry. Bangladesh's small budget surplus of 0.1% of GDP between July and October 2015 will likely flip into a deficit over the coming months as the government accelerates its capital and development expenditure to support growth in the economy. As such, we maintain our forecast for Bangladesh's budget balance as a share of GDP to come in at -4.3% in FY2015/16 (July to June).

The Bangladeshi taka remained relatively stable against the US dollar for most of 2015, trading within a tight range of BDT77-80/ USD. Over the remainder of 2016, we expect broad stability but foresee downside risks on the currency due to our expectations for a significant slowdown in inbound remittances growth, as well as a lacklustre investment outlook. As such, we forecast the Bangladeshi taka to weaken slightly against the US dollar in 2016, taking the end-year exchange rate to BDT79.65/USD. The number of domestic terror attacks in Bangladesh could increase over the coming months, posing further downside risk to political and social stability as the Awami League government continues to dismiss the presence of the Islamic State in the country and downplay the scale of the threat.

Accordingly, we have downgraded Bangladesh's Short-Term Political Risk score to 62.4, from 64.2 previously. This could have an adverse impact on the country's economic growth prospects as investors, expatriates and tourists may be deterred. That said, the recent establishment of a counter-terrorism special task force should help to alleviate some security risk concerns. Bangladesh Bank will likely hold off further interest rate cuts over the remainder of 2016 as volatile food inflation and rising core inflation will constrain the monetary authority's policy options. However, the central bank could adopt more selective easing measures over the coming months if stimulus effects fall short of its expectations.

Table Of Contents

Bangladesh Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Supportive Macroeconomic Policies To Underpin Growth8
Bangladesh's real GDP growth will likely remain stable at 65% in FY2015/16 (July-June) before picking up slightly to 67% in
FY2016/17, aided by an accommodative monetary policy, an expansionary fiscal policy and the return of a stable political climate In
particular, the government's ongoing focus on public investment into supporting infrastructures should help to attract more investment
and boost productivity in the manufacturing sector, thus allowing Bangladesh to retain its dominant position in the global garment
industry
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal And Public Debt Outlook 10
Fiscal Expenditure To Accelerate Over Coming Months10
Bangladesh's brief budget surplus of 01% of GDP between July and October 2015 will likely flip into a deficit over the coming months
as the government accelerates its capital and development expenditure to support growth in the economy As such, we maintain our
forecast for Bangladesh's budget balance as a share of GDP to come in at -43% in FY2015/16
Structural Fiscal Position 11
TABLE: MAIN SOURCES OF REVENUE AND EXPENDITURE12
Currency Forecast 12
BDT: Marked By Depreciatory Pressures12
The Bangladeshi taka remained relatively stable against the US dollar for most of 2015, trading within a tight range of BDT77-80/
USD Over the remainder of 2016, we expect broad stability but foresee downside risks on the currency due to our expectations for a
significant slowdown in inbound remittances growth, as well as a lacklustre investment outlook As such, we forecast the Bangladeshi
taka to weaken slightly against the US dollar in 2016, taking the end-year exchange rate to BDT7965/USD
TABLE: BMI CURRENCY FORECAST13
Outlook On External Position 14
TABLE: MAIN EXPORT AND IMPORT PARTNERS14
TABLE: MAIN EXPORT AND IMPORT PRODUCTS14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE15
Monetary Policy 15
Volatile, Elevated Inflation To Hold Back Further Rate Cuts15
Bangladesh Bank will likely hold off further interest rate cuts over the remainder of 2016 as volatile food inflation and rising core inflation
will constrain the monetary authority's policy options However, the central bank could adopt more selective easing measures over the
coming months if stimulus effects fall short of its expectations
Monetary Policy Framework 16
Chapter 2: 10-Year Forecast 19
The Bangladeshi Economy To 2025 19
Long-Term Potential Strong But Restricted19
We believe that a real GDP growth rate of 60% 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 FORECASTS19
Chapter 3: Political Outlook 21
SWOT Analysis 21
BMI Political Risk Index 21
Domestic Politics 22
Rise In Security Threats Could Hurt Growth Prospects22
The number of domestic terror attacks in Bangladesh could increase over the coming months, posing further downside risk to political
and social stability as the Awami League government continues to dismiss the presence of the Islamic State in the country and
downplay the scale of the threat Accordingly, we have downgraded Bangladesh's Short-Term Political Risk score to 624, from 642
previously This could have an adverse impact on the country's economic growth prospects as investors, expatriates, and tourists may
be deterred That said, the recent establishment of a counter-terrorism special task force should help to alleviate some security risk
concerns
Long-Term Political Risk 23
Limited Chances Of Major Improvement23
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 4: Operational Risk 25
SWOT Analysis 25
Operational Risk Index 25
Operational Risk 26
TABLE: OPERATIONAL RISK26
Trade Procedures And Governance 27
TABLE: ASIA - TRADE PROCEDURES AND GOVERNANCE RISK27
TABLE: IMPORT AND EXPORT DOCUMENTS 28
TABLE: TRADE PROCEDURES BREAKDOWN 28
Vulnerability To Crime 29
Chapter 5: BMI Global Macro Outlook 33
Global Macro Outlook 33
Tail Risks Mounting Amid Sub-Par Growth33
TABLE: GLOBAL ASSUMPTIONS33
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %34
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 34
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %35
TABLE: MACROECONOMIC DATA and FORECASTS37

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