Country briefing note <download pdf file>
Growth marginally slowed
- The economy of Bangladesh emerged largely unscathed from the effects of the global financial and economic crises. GDP grew by more than 6% over the period 2009 and 2012. Growth marginally slowed to 6.3% in 2012 from 6.7% in 2011, mainly due to slower growth of the agricultural sector.
- The Government has set an ambitious growth target of 7.2% for 2013, which will be difficult to attain given the critical infrastructure shortage, global economic uncertainties and likely political instability in an election year. It is more likely that growth may be about 6% in line with the country's growth performance in recent years.
High inflation persists
- In Bangladesh inflation also reached the double-digit level in 2012 when it rose to 10.6% in 2012 from 8.8% in 2011. Higher inflation in 2012 was due to multiple factors, including the lagged effect of high domestic credit growth in 2011, exchange rate depreciation and upward adjustments in energy and petroleum prices.
- A restrained monetary policy was used in 2012 to contain inflationary pressures and import growth. At the same time, well-targeted support programmes, such as selected rationing and fair price supply and open market sale of essentials for poor households struggling with high food prices, are being pursued by the Government.
Budget deficit fell slightly
- In Bangladesh, the budget deficit fell slightly to 4.4% of GDP in 2012 from 4.1% in 2011. With growing tax revenues, the tax-to-GDP ratio has been rising and stood at 13% of GDP in 2012, which was higher than the 11.8% rate in 2011.
- Improvement in tax revenue can be attributed to reforms in tax policy and administration, including modernization and automation of tax administration, expansion of the tax net and coverage, reduction of tax exemptions and the creation of awareness among citizens about paying taxes.
Current account surplus maintained
- In Bangladesh, there was a sharp slowdown in the growth of both exports and imports in 2012 due to the euro zone crisis.
- Workers' remittances have been growing despite the global financial crisis. After slowing to 6% in 2011, growth in workers' remittances again picked up in 2012, rising by 10.3%. This helped in maintaining a current account surplus in 2012.
- In order to realize its development potential, countries in South Asia in general will have to overcome a number of development challenges, including large concentrations of poverty and hunger, rising inequality, poor levels of human development, wide infrastructure gaps, lack of a diversified base for high value added products and exports, widespread food and energy insecurity and high risk of disasters.
- The subregion's economic, social and environmental priorities must be balanced in favour of eradicating extreme poverty and hunger. Today, South Asia remains home to the world's largest concentrations of people living in poverty and hunger, and people without access to basic sanitation and electricity. The subregion is also characterized by having the world's highest levels of child and maternal mortality. Progress on the health, nutrition and sanitation-related Millennium Development Goals and related targets has been stalled because of the large inequalities and disparities within populations that persist in the subregion.
- This subregion faces the dual challenge of raising productivity to ensure that incomes are rising and poverty is falling, and creating enough jobs for a growing working-age population, which is expanding by about 2% per annum. With almost 60% of the population under the age of 30, Governments of countries in South Asia have to take advantage of this demographic bulge. Otherwise, the consequence can be social unrest, conflict and insecurity.
- Countries in the subregion should maximize growth through productive job creation and appropriate structural change to reduce poverty, hunger and inequalities. Countries in the subregion should also provide good-quality education, health, sanitation and other infrastructure to make the most of the youth bulge. In addition, a minimum social protection floor should be established that meets the basic needs of vulnerable populations.
- South Asia faces growing energy demand, and a number of energy challenges — energy poverty, lack of available supplies, poor energy infrastructure and transport facilities and environmental externalities. The subregion's energy deficits are particularly detrimental in terms of growth and poverty alleviation as parts of the subregion faces regular and sustained power outages. Energy security, linked with energy availability, accessibility and affordability, is a paramount policy concern for countries in the subregion.
- Strengthened regional cooperation can help solve a number of the challenges facing South Asia and can be an important development strategy to ensure a sustainable future for the subregion. Greater regional integration not only increases intraregional trade, but also promotes efficiency-seeking investment in the subregion's supply chain and production networks. This, in turn, creates more and better jobs in addition to building productive capacity, particularly in the subregion's least developed countries. Regional cooperation can play a pivotal role in crafting solutions to shared vulnerabilities and helping ensure food and energy security, as well as reducing the subregion's vulnerability to natural disasters.