Bangladesh Business Forecast Report Q2 2010
Political Uncertainty To Weigh On Economic Recovery.
Being effectively closed from investment inflows, Bangladesh has emerged relatively unscathed from the 2009 global financial crisis due to the insular nature of its banking system and strong domestic demand on the back of robust growth in remittances from overseas workers. However, we believe that 2010 and 2011 will be more difficult for Bangladesh as the textile-focused export sector has failed to gain traction on the tentative recovery in the eurozone and the US, while remittance growth has decelerated due to a decline in overseas demand for Bangladeshi labour.
Moreover, the increasingly confrontational attitude by the ruling Awami League (AL) and the opposition Bangladesh Nationalist Party (BNP) has raised concerns about political stability going ahead and could, in our opinion, weigh on business sentiment and capital investment.
We see growing risks from the increasingly confrontational tendencies in Bangladeshi politics, which could see a return to the political turmoil that preceded the declaration of emergency in January 2007. The increasing tension between the ruling AL and the opposition BNP erupted into violent street protests in February, leaving one demonstrator dead. We see a risk of escalating tension as the government of Sheikh Hasina Wajed pushes for a ban on Islamist political parties and seeks to discredit the rule of former president Ziaur Rahman, the late husband of opposition leader Begum Khaleda Zia.
We have revised down our real GDP growth forecasts for FY2009/10 (July-June) and FY2010/11 on the back of our expectations that the garment-dominated export sector will struggle amid weak demand in the eurozone and US. Moreover, an impaired labour market in the Middle East is likely to lead to a slowdown in remittance growth, which has boosted private consumption in recent years. Domestic demand should also be affected by a gradual tightening of liquidity conditions by Bangladesh's central bank as inflation rises into double digits in H110. However, we maintain that Bangladesh will remain in a secure balance-of-payments position over our forecast period on the back of the still substantial inflow of remittances and record foreign currency reserves.
Bangladesh's score in Transparency International's Corruption Perceptions Index rose from 2.1 to 2.4 between 2008 and 2009, raising it from 147th to 139th place out of 180 countries surveyed.
This was largely on the back of institutional and legal reforms implemented by the caretaker government in office between January 2007 and January 2009. A failure by the civilian government of Sheikh Hasina Wajed to uphold this momentum on fighting corruption will likely to impair much needed foreign direct investment (FDI) and domestic capital expenditure.
Moreover, the increasingly confrontational attitude by the ruling Awami League (AL) and the opposition Bangladesh Nationalist Party (BNP) has raised concerns about political stability going ahead and could, in our opinion, weigh on business sentiment and capital investment.
We see growing risks from the increasingly confrontational tendencies in Bangladeshi politics, which could see a return to the political turmoil that preceded the declaration of emergency in January 2007. The increasing tension between the ruling AL and the opposition BNP erupted into violent street protests in February, leaving one demonstrator dead. We see a risk of escalating tension as the government of Sheikh Hasina Wajed pushes for a ban on Islamist political parties and seeks to discredit the rule of former president Ziaur Rahman, the late husband of opposition leader Begum Khaleda Zia.
We have revised down our real GDP growth forecasts for FY2009/10 (July-June) and FY2010/11 on the back of our expectations that the garment-dominated export sector will struggle amid weak demand in the eurozone and US. Moreover, an impaired labour market in the Middle East is likely to lead to a slowdown in remittance growth, which has boosted private consumption in recent years. Domestic demand should also be affected by a gradual tightening of liquidity conditions by Bangladesh's central bank as inflation rises into double digits in H110. However, we maintain that Bangladesh will remain in a secure balance-of-payments position over our forecast period on the back of the still substantial inflow of remittances and record foreign currency reserves.
Bangladesh's score in Transparency International's Corruption Perceptions Index rose from 2.1 to 2.4 between 2008 and 2009, raising it from 147th to 139th place out of 180 countries surveyed.
This was largely on the back of institutional and legal reforms implemented by the caretaker government in office between January 2007 and January 2009. A failure by the civilian government of Sheikh Hasina Wajed to uphold this momentum on fighting corruption will likely to impair much needed foreign direct investment (FDI) and domestic capital expenditure.
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