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Bangladesh Business Forecast Report Q1 2014

Bangladesh economy affected by political crisis as general elections are held

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2014-01-09 09:20:03 - Bangladesh Business Forecast Report Q1 2014 - a new country guide report on

Bangladesh´s political crisis shows no signs of abating as the country heads towards a general election. A series of opposition-led strikes culminated in the recent arrest of key opposition leaders, making a near-term truce between the ruling Awami League (AL) and the opposition Bangladesh Nationalist Party (BNP) increasingly difficult.

Bangladesh´s economic resilience looks set to come under pressure as date for the remaining months of the calendar year are released, as protest activity is likely to have hurt economic activity across the board. From a more structural perspective, though, improvements made in the local business environment, particular regarding opening a business, should help to foster growth over the coming years.

Despite the potential for near-term price shocks related to strike activity, weak



economic growth and declining money supply trends suggest that inflation will remain subdued over the coming months.

Over the longer term, there is a close link between government spending as a share of GDP and CPI, with rising fiscal spending relative to GDP going hand in hand with higher inflation. This underscores the importance that fiscal developments have on fostering price stability, and we believe as government spending as a share of GDP remains elevated over the coming years, CPI will remain above historical averages.

The Bangladeshi taka should remain fairly stable over the coming months as Bangladesh Bank (BB) keeps the unit anchored at the current level of BDT77.65/US$ while it builds up foreign reserves.

We expect a 1.6% current account surplus this year, which should help import cover rise back above five months over the medium term, allowing BB significant control over the taka.

Major Forecast Changes

As a result of the heightened political tensions, we have downgraded the country´s short-term political risk rating from 68.3 out of 100 to 65.8 out of 100, leaving it below the regional average of 70.0.

Downside Risks To Growth: Bangladesh´s increasingly murky political environment puts the expected recovery in FY2013/14 at risk. Growing uncertainty over the looming elections (scheduled to take place within the next few quarters) could keep fresh investment activity on the sidelines for the time being. Should Europe´s ongoing recovery quickly lose steam, the country´s export sector could once again find itself facing a slowdown in growth.

Downside Risks To Taka Stability And Current Account Surplus:

The collapse in the number of Bangladeshis leaving for overseas employment poses a risk to continued taka stability and to the country´s current account surplus, given their importance with regards to future remittance inflows. While migration flows appear to have stabilised in recent months, the lower levels of late pose the biggest risk to the country´s external accounts.

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