Bangladesh: Risk Assessment
Country Rating1
Rating: C
Business Climate Rating1
Rating: D
Risk Assessment2
Strong growth excepted in 2011
GDP growth could continue to trend up in 2010 thanks to the strength of domestic demand: private consumption, representing three quarters of GDP, has been the main growth engine, underpinned by the rise of incomes in the farm sector, which employs over half the working population, by the increase in the minimum-wage (with an 80% hike decided in November 2010) and by the steady inflow of large transfers from expatriate workers. Investment benefited from the strong credit expansion (up 20%) and increasing confidence amid the stabilization of the political situation. But exports, especially textiles, which represent 75% of sales abroad, have slowed due to the softness of the recovery in industrialized countries and the frequency of protests for higher wages.
In 2011, economic growth is expected to remain buoyant, driven by strong private consumption thanks to stable private transfers, mostly from Saudi Arabia. Investment is also expected to remain firm thanks particularly to FDI inflows from India, Russia, and China. On the supply side, agriculture is expected to remain dynamic thanks to good weather and support from authorities affording farmers broader access to credit. The services sector will record solid performance while industry could slow due to frequent power failures and gas shortages that affect production.
A weak financial position
The fiscal deficit widened slightly in 2010 with the continuation of expansionary fiscal policy (infrastructure investment, support for export industries, social spending, support for impoverished households). In October 2010, the government announced the listing of 35 state-controlled companies. Despite this initiative, the fiscal deficit will likely remain substantial in 2011 due to the planned increase in spending, particularly on projects intended to reduce energy shortages (two nuclear power stations could notably be built with the backing of Russia's Rosatom).
The current account surplus declined in 2010 with the dynamism of domestic demand resulting in a recovery of imports, a trend likely to continue in 2011. In this context, foreign exchange reserves in terms of months of imports are expected to remain low, with Bangladesh thus lacking the capacity to effectively withstand a sudden flight of capital.
Persistent political uncertainty
The Awami League won the legislative elections in December 2008 and is expected to be able to remain in power for its entire term. Little change in economic policy will be likely in 2011. The government will not only continue to maintain close ties to multilateral donors, including the World Bank, which announced in September 2010 a twofold increase in the amount of aid for Bangladesh over the next four years (nearly $6 million).
Tensions between the two traditional parties, the Bangladesh Nationalist Party (BNP) and the Awami League, could emerge once again in the form of public demonstrations. Moreover, the risk of social unrest persists due to the continuing high poverty rate. The political tensions and the tense social climate have affected investment, which has already suffered from deficiencies in terms of governance and particularly persistent problems with corruption.
Strengths
- Competitive garment manufacturing sector due to low cost, hard-working workforce
- Remittances from expatriate workers mainly in the Gulf and international aid compensate for the trade deficit
- Moderate external indebtedness
- International aid making it possible to offset the trade deficit
Weaknesses
- Economy susceptible to competitive changes in world textile sector
- Very low per capita income
- Deficiencies in business environment
- Very vulnerable to natural catastrophes
- Insufficient infrastructures
- Weak banking system