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Core Views
The government’s record on corruption has once again been hit and brought into the domestic and international spotlight following a highly critical report by Transparency International Bangladesh. Public unrest owing to heightened tensions between the ruling Bangladesh Awami League (AL) and its main opposition, the Bangladesh Nationalist Party (BNP), are unlikely to subside as both sides continue to confront each other regarding the restoration of the caretaker government system. In addition, unrest stemming from the ongoing war crimes trials is unlikely to dissipate in the near term as the tribunals are still in the early stages of handing out their verdicts.
On a related note, the handing out of the tribunal’s first verdict in January should boost the government’s political standing as it inches closer towards fulfilling an electoral pledge. Having said that, the ongoing trials could be a catalyst for Islamist militancy in the country.
Contrary to our earlier expectations that Bangladeshi economic growth would stabilise this fiscal year (FY2012/13 [July-June]), real GDP growth is expected to fall to 6.1% as economic data so farin 2013 has been unexpectedly soft, marking the second consecutive year of slower economic expansion.
Looking ahead into FY2013/14, we believe an upturn in economic activity should take place in Bangladesh, given easing credit conditions and the improving external demand outlook. We are forecasting full-year real GDP growth of 6.5% for the upcoming fiscal year.
After two-and-a-half years of holding a hawkish stance towards monetary policy, Bangladesh Bank (BB) has finally decided to reverse its posture, cutting its policy rates by 50 basis points (bps) in January. Considering the central bank’s ambitious targets for credit growth, we expect an additional 50bps worth of further easing in the months ahead.
Bangladesh Bank (BB) has allowed the taka to strengthen in line with the strong and supportive fundamental pressures on the currency – rising export growth, still-contracting imports, and robust remittance inflows. With the underlying fundamental picture is unlikely to change considerably in the short term, we will see a broad continuation of the recent taka strength. Further taka strength should help the economy’s floundering import sector.
The outlook for the Padma Bridge has once again become unclear, with the government withdrawing its request for a US$1.2bn loan for the project from the World Bank. We highly doubt the government would be able to raise the necessary funds for the project domestically.
Major Forecast Changes
We have downgraded our FY2012/13 real GDP growth forecast to 6.1%, and upgraded our FY2013/14 projection to 6.5%. Both were at 6.3% previously.
The government decided to revise the base year for calculation consumer price inflation (CPI) to 2005-06 and change the weights of the basket, resulting in a large one-off fall in the headline inflation rate. For our purposes, we are sticking to the 1995-96 CPI index until we obtain more readings of inflation based on the new weights over the coming months.
Our newly-revised CPI projections see the headline rate ending the year at 7.5% and 7.0% in FY2012/13 and FY2013/14 respectively. The magnitude of the central bank’s January interest rate cut slightly off guard. We now see the benchmark repo rate eventually heading down towards 6.75%, implying 50bps worth of further easing. We have revised our end-2013 exchange rate target to BDT75.00/ US$, from BDT80.00/US$ previously.
Key Risks To Outlook
Downside Risks To Growth: Even more so than in recent years, businesses in Bangladesh face a more turbulent political environment in FY2013/14, which poses downside risks to our real GDP growth projections. The potential spectrum of business-related political interference is likely to widen in our view, ranging from minor day-to-day operational disruptions due to sporadic eruptions of public unrest to the possibility of a complete change in the regulatory environment.
Downside Risks To Currency Strength: Should ongoing taka strength start to materially impinge on export price competitiveness, BB could rearrange its priorities and prevent additional currency appreciation. Furthermore, we caution that remittances could start to soften if manpower exports fail to pick up pace over the foreseeable future.
Core Views
The government’s record on corruption has once again been hit and brought into the domestic and international spotlight following a highly critical report by Transparency International Bangladesh. Public unrest owing to heightened tensions between the ruling Bangladesh Awami League (AL) and its main opposition, the Bangladesh Nationalist Party (BNP), are unlikely to subside as both sides continue to confront each other regarding the restoration of the caretaker government system. In addition, unrest stemming from the ongoing war crimes trials is unlikely to dissipate in the near term as the tribunals are still in the early stages of handing out their verdicts.
On a related note, the handing out of the tribunal’s first verdict in January should boost the government’s political standing as it inches closer towards fulfilling an electoral pledge. Having said that, the ongoing trials could be a catalyst for Islamist militancy in the country.
Contrary to our earlier expectations that Bangladeshi economic growth would stabilise this fiscal year (FY2012/13 [July-June]), real GDP growth is expected to fall to 6.1% as economic data so farin 2013 has been unexpectedly soft, marking the second consecutive year of slower economic expansion.
Looking ahead into FY2013/14, we believe an upturn in economic activity should take place in Bangladesh, given easing credit conditions and the improving external demand outlook. We are forecasting full-year real GDP growth of 6.5% for the upcoming fiscal year.
After two-and-a-half years of holding a hawkish stance towards monetary policy, Bangladesh Bank (BB) has finally decided to reverse its posture, cutting its policy rates by 50 basis points (bps) in January. Considering the central bank’s ambitious targets for credit growth, we expect an additional 50bps worth of further easing in the months ahead.
Bangladesh Bank (BB) has allowed the taka to strengthen in line with the strong and supportive fundamental pressures on the currency – rising export growth, still-contracting imports, and robust remittance inflows. With the underlying fundamental picture is unlikely to change considerably in the short term, we will see a broad continuation of the recent taka strength. Further taka strength should help the economy’s floundering import sector.
The outlook for the Padma Bridge has once again become unclear, with the government withdrawing its request for a US$1.2bn loan for the project from the World Bank. We highly doubt the government would be able to raise the necessary funds for the project domestically.
Major Forecast Changes
We have downgraded our FY2012/13 real GDP growth forecast to 6.1%, and upgraded our FY2013/14 projection to 6.5%. Both were at 6.3% previously.
The government decided to revise the base year for calculation consumer price inflation (CPI) to 2005-06 and change the weights of the basket, resulting in a large one-off fall in the headline inflation rate. For our purposes, we are sticking to the 1995-96 CPI index until we obtain more readings of inflation based on the new weights over the coming months.
Our newly-revised CPI projections see the headline rate ending the year at 7.5% and 7.0% in FY2012/13 and FY2013/14 respectively. The magnitude of the central bank’s January interest rate cut slightly off guard. We now see the benchmark repo rate eventually heading down towards 6.75%, implying 50bps worth of further easing. We have revised our end-2013 exchange rate target to BDT75.00/ US$, from BDT80.00/US$ previously.
Key Risks To Outlook
Downside Risks To Growth: Even more so than in recent years, businesses in Bangladesh face a more turbulent political environment in FY2013/14, which poses downside risks to our real GDP growth projections. The potential spectrum of business-related political interference is likely to widen in our view, ranging from minor day-to-day operational disruptions due to sporadic eruptions of public unrest to the possibility of a complete change in the regulatory environment.
Downside Risks To Currency Strength: Should ongoing taka strength start to materially impinge on export price competitiveness, BB could rearrange its priorities and prevent additional currency appreciation. Furthermore, we caution that remittances could start to soften if manpower exports fail to pick up pace over the foreseeable future.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
War Crimes Trial Progress A Boon For Awami League
Bangladesh's International Crimes Tribunal (ICT) handed out its maiden verdict on January 21, sentencing cleric Abul Kalam Azad
to death for his crimes against humanity committed during the Liberation War of 1971. The verdict, which demonstrated the ICT's
resilience in the face of a major scandal, should boost the government's political standing, as it inches closer towards fulfilling an
electoral pledge. That said, the verdict could be a catalyst for Islamist militancy in the country.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Limited Chances Of Major Improvement
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
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth Upswing In Critical Election Year
Contrary to our earlier expectations that real GDP growth would stabilise this fiscal year (FY2012/13 [July-June]) from the slowdown
seen in FY2011/12, economic data so far this year has been surprisingly soft. As such, we have downgraded our real GDP growth
forecast for FY2012/13 to 6.1%, from 6.3% previously. Looking ahead into FY2013/14, we believe that an upturn in economic activity
should take place in Bangladesh, given easing credit conditions and the improving external demand outlook. We are forecasting fullyear
real GDP growth of 6.5% for the upcoming fiscal year.
TABLE: ECONOMIC ACTIVITY
Monetary Policy
One More Cut Ahead
In line with our long-held view, Bangladesh Bank (BB) has finally decided to reverse its posture after two-and-a-half years of holding
a hawkish stance towards monetary policy, cutting its policy rates by 50 basis points (bps) in January. We now see the central bank's
benchmark repo rate eventually heading down towards 6.75%, and have decided to push forward our expectations for the remaining
50bps worth of r ate cuts to take place before the end of the current fiscal year, in light of BB's ambitious targets for credit growth.
TABLE: MONETARY POLICY
Balance Of Payments
Gradual BDT Appreciation In Light Of Importers' Struggles
Against our expectations for broad stability, Bangladesh Bank (BB) has allowed the taka to strengthen in line with the strong and
supportive fundamental pressures on the currency - rising export growth, still-contracting imports, and robust remittance inflows - over
the past few months. The unit, at the time of writing, was trading at BDT78.91/US$. With the underlying fundamental picture unlikely to
change considerably in the near term, we continue to see a broad continuation of the recent taka strength.
TABLE: CURRENT ACCOUNT
Fiscal Policy
Election Priorities Push World Bank Out Of Padma
The outlook for the Padma Bridge, the largest infrastructure project ever proposed in Bangladesh, has once again become unclear,
with the Bangladesh government withdrawing its request for a US$1.2bn loan for the project from the World Bank (WB). This latest
development supports our view that there is scope for additional delays in the Padma bridge project, with flagging public support and an
unwillingness to comply with the WB's conditions for the loan being key reasons for this latest delay.
TABLE: FISCAL POLICY
CHAPTER 3: 10-YEAR FORECAST
The Bangladeshi Economy To 2022
Long-Term Potential Strong, But Restricted
We believe 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 FORECASTS
CHAPTER 4: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: ASIA - ANNUAL FDI INFLOWS
TABLE: LABOUR FORCE QUALITY
Market Orientation
TABLE: ASIA, ANNUAL FDI INFLOWS
Operational Risk
CHAPTER 5: BMI GLOBAL ASSUMPTIONS
Global Outlook
Past The Major Obstacles To Recovery
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
Core Views
Major Forecast Changes
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
War Crimes Trial Progress A Boon For Awami League
Bangladesh's International Crimes Tribunal (ICT) handed out its maiden verdict on January 21, sentencing cleric Abul Kalam Azad
to death for his crimes against humanity committed during the Liberation War of 1971. The verdict, which demonstrated the ICT's
resilience in the face of a major scandal, should boost the government's political standing, as it inches closer towards fulfilling an
electoral pledge. That said, the verdict could be a catalyst for Islamist militancy in the country.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Limited Chances Of Major Improvement
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
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth Upswing In Critical Election Year
Contrary to our earlier expectations that real GDP growth would stabilise this fiscal year (FY2012/13 [July-June]) from the slowdown
seen in FY2011/12, economic data so far this year has been surprisingly soft. As such, we have downgraded our real GDP growth
forecast for FY2012/13 to 6.1%, from 6.3% previously. Looking ahead into FY2013/14, we believe that an upturn in economic activity
should take place in Bangladesh, given easing credit conditions and the improving external demand outlook. We are forecasting fullyear
real GDP growth of 6.5% for the upcoming fiscal year.
TABLE: ECONOMIC ACTIVITY
Monetary Policy
One More Cut Ahead
In line with our long-held view, Bangladesh Bank (BB) has finally decided to reverse its posture after two-and-a-half years of holding
a hawkish stance towards monetary policy, cutting its policy rates by 50 basis points (bps) in January. We now see the central bank's
benchmark repo rate eventually heading down towards 6.75%, and have decided to push forward our expectations for the remaining
50bps worth of r ate cuts to take place before the end of the current fiscal year, in light of BB's ambitious targets for credit growth.
TABLE: MONETARY POLICY
Balance Of Payments
Gradual BDT Appreciation In Light Of Importers' Struggles
Against our expectations for broad stability, Bangladesh Bank (BB) has allowed the taka to strengthen in line with the strong and
supportive fundamental pressures on the currency - rising export growth, still-contracting imports, and robust remittance inflows - over
the past few months. The unit, at the time of writing, was trading at BDT78.91/US$. With the underlying fundamental picture unlikely to
change considerably in the near term, we continue to see a broad continuation of the recent taka strength.
TABLE: CURRENT ACCOUNT
Fiscal Policy
Election Priorities Push World Bank Out Of Padma
The outlook for the Padma Bridge, the largest infrastructure project ever proposed in Bangladesh, has once again become unclear,
with the Bangladesh government withdrawing its request for a US$1.2bn loan for the project from the World Bank (WB). This latest
development supports our view that there is scope for additional delays in the Padma bridge project, with flagging public support and an
unwillingness to comply with the WB's conditions for the loan being key reasons for this latest delay.
TABLE: FISCAL POLICY
CHAPTER 3: 10-YEAR FORECAST
The Bangladeshi Economy To 2022
Long-Term Potential Strong, But Restricted
We believe 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 FORECASTS
CHAPTER 4: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: ASIA - ANNUAL FDI INFLOWS
TABLE: LABOUR FORCE QUALITY
Market Orientation
TABLE: ASIA, ANNUAL FDI INFLOWS
Operational Risk
CHAPTER 5: BMI GLOBAL ASSUMPTIONS
Global Outlook
Past The Major Obstacles To Recovery
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
