經濟研究
Bangladesh

Bangladesh

Population 163.2 million
GDP 1,603 US$
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%)* 7.1 7.1 7.0 7.0
Inflation (yearly average, %) -3.4 5.6 6.0 6.1
Budget balance (% GDP) 5.6 -3.3 -4.3 -4.5
Current account balance (% GDP) 0.6 -2.0 -3.2 -2.7
Public debt (% GDP) 33.0 33.0 33.4 33.7

 

(e): Estimate. (f): Forecast. *Fiscal year 2019 from July 1 2018 – June 30 2019 (Budget balance includes grants).

STRENGTHS

  • Competitive garment sector, thanks to relatively cheap labour
  • Substantial remittances from expatriate workers, mainly living in the Gulf States
  • International aid helping to cover financing needs
  • Moderate level of national debt
  • Favourable demographics: 35% of Bangladeshis are under 15
  • Improving financial inclusion thanks to microfinance and mobile services

WEAKNESSES

  • Economy vulnerable to changes in global competition in the textile sector and to developments in the GCC States
  • Very low per capita income and low female participation despite progress
  • Recurring and growing political, religious, and social tensions
  • Business climate shortcomings and lack of infrastructure
  • Recurring natural disasters (cyclones, severe floods, landslides) resulting in significant damage and harvest losses

RISK ASSESSMENT

Growth will remain strong in 2019

GDP will continue to grow fast in 2019, mainly driven by private consumption and gross fixed investment. Consumption (around 70% of GDP) is increasing fast (around 10% annually) from a low base, and thanks to increasing real wages. It relies on the sizeable expatriate remittances and on the performances of the manufacturing and agricultural sectors. It will not be weighed on by the high inflation, which is due to demand-side pressures, poor harvests, and global commodity prices. The external sector’s output is limited by infrastructure shortcomings and low value added productions. The ready-to-wear clothing segment (nearly 70% of exports) should benefit from the disruption in global value chains caused by the trade wars, as Bangladesh is a good substitute for Chinese export industries, especially thanks to the availability of cheap labour force. However, good performances in the export sector will not contribute to GDP growth, as import will grow faster than exports (because of higher oil prices and imports related to infrastructure projects). FDIs remain very low (below 1% of GDP each year), although the government intends to attract more, along with international aid via a PPP program and investment agreements (no or low interest loans and grants). The National Development Plan (NDP) will continue to oversee these investments to target shortcomings in transport, education, water, and energy, such as the Dhaka subway, financed by Japanese development aid and the Bangladeshi government. Development will also benefit from growing domestic financial inclusion, via bank account dissemination but also the arrival of PayPal in the country. However, the banking sector is challenged by the high share of NPLs (above 10% of all loans in FY 2018), with the share being much higher in state-owned banks.

Widening but sustainable twin deficits

The budget deficit will continue to widen as spending over investment programs increases quicker than revenue. The income tax base is narrow (fiscal revenues below 10% of GDP) and most of the government revenue comes from indirect taxes (customs and excise duties). Expenditure will be allocated to strengthening trade policies, recapitalising the publicly-owned banks, and ongoing investments in infrastructure – such as the Rooppur nuclear plant, the Padma railway project or the Dhaka subway. International aid represents 17% of revenues or 31% of the deficit (2017-2018), but the reliance on aid is moderate as it only represents 2% of GDP. The public debt level remains sustainable; approximately one third of it is externally held and denominated in foreign currency. High growth and a small primary deficit (i.e. excluding interests) explain its steady ratio to GDP.

The current account deficit will continue to deteriorate because of growing trade imbalances linked to imported inputs for infrastructure investments, as well as rising energy imports, such as LNG (compensating for declining national production) and oil imports that are not offset by the rise in oil and gas exports. Moreover, the deficit of the primary income balance will increase with profit repatriation by foreign investors, while the secondary income balance will show a strong surplus thanks to remittances. The current account deficit will remain financed by FDIs and public debt. Foreign exchange reserves offer a satisfactory safety net, equalling around 6.5 months of imports, in a global context of monetary tightening that is raising capital flight risks.

Vulnerable political stability even if continuity at the head of the state is ensured

The country endured several military coups since the creation of the state in 1971. Political stability is vulnerable to tensions between the Awami League (AL), the ruling party since 2009 and the Bangladesh Nationalist Party (BNP). These could translate into religious frictions between the Islamic majority of the population and minority religious groups, while risks of labour strikes and terrorist attacks remain. The AL is associated with the independence and a more secular ideology than the BNP, connected with the heritage of the military dictatorship and with a stricter traditional Islamic stance. The leader of the BNP, Khaleda Zia, is currently in prison on corruption charges. The AL won 288 out of 300 seats in the Parliamentary elections of December 2018. International observers, as well as the BNP, contested the fairness of the electoral process given the lack of freedom for political campaigns for the opposition and questioning election results. The elections took places in a very tense climate, as violent outbreaks between opposing factions caused over a dozen deaths. The enduring risk of social unrest in the country contributed to the erosion of the business climate in Bangladesh (176/190 in the World Bank’s 2019 Doing Business ranking).

Poverty and development remain the major governance challenges. Moreover, the Rohingya refugee crisis will remain a challenge. Internationally, Bangladesh will continue to concentrate on relations with China and India, even if claims over the Teesta River and migration issues will weigh on relations with the latter.

 

Last update : Février 2019

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