WB cuts FY25 growth forecast to 4 percent

The World Bank has slashed its forecast for Bangladesh’s economic growth by 1.7 percentage points to 4 percent due to “significant uncertainties following recent political turmoil” and “data unavailability”.
The global lender released a report, “South Asia Development Update: Women, Jobs, and Growth”, simultaneously for South Asian countries during a virtual press conference yesterday.
“The wide range of the growth projection reflects the lack of available or reliable data in recent months, and significant uncertainties around the political and economic outlook following the recent political turmoil,” it said about Bangladesh in the report.
The revised projections for FY25 would mark the lowest growth rates since FY20 when Bangladesh’s economy expanded by only 3.45 percent due to the severe impact of the pandemic.
The WB’s forecast is considerably lower than the 6.75 percent growth target set by the previous Awami League government.
Among five South Asian countries, only the forecasts for Bangladesh and the Maldives have been cut.
However, Bangladesh saw a significant fall in the forecast, compared to the Maldives’ 0.5 percentage point.
In the short term, political uncertainties are expected to keep investment and industrial growth subdued, the WB said about downsizing Bangladesh’s growth forecast.
It said recent floods are expected to set back agricultural production modestly.
In the medium to long term, growth is expected to pick up gradually, benefiting from critical reforms in the financial sector, increased domestic resource mobilisation, improved business climate, and increased trade, the report added.
Responding to a query during the virtual press conference, Franziska Ohnsorge, World Bank chief economist for South Asia, mentioned the recent floods as one of the reasons for downsizing the growth forecast.
She also said the WB’s Dhaka office will release a separate report on Bangladesh’s economic update next week when more about the country’s economy will be elaborated.
The WB also highlighted that an interim government took office after the resignation of former prime minister Sheikh Hasina amid widespread student-led protests in early August.
For FY 2025-26, the WB forecasts Bangladesh’s economy to grow by 5.5 percent.
This revision comes two weeks after the Asian Development Bank (ADB) lowered its growth forecast for Bangladesh to 5.1 percent from 6.6 percent for the ongoing fiscal year, citing supply chain disruptions caused by political unrest in July and August.
On inflation across South Asian countries, the WB report said the key index has fallen to within or below target ranges in most inflation-targeting countries in South Asia, the exception being Bangladesh.
Food inflation continues to account for half or more of consumer price inflation in most countries in the region, it said.
In Bangladesh, inflation has remained elevated and above Bangladesh Bank’s target since June 2022, it added.
Inflation averaged 9.7 percent in FY23 and FY24, driven by a steady depreciation of the currency and increases in domestic prices of gas, electricity, and fuel.
Headline inflation surged to 11.7 percent in July 2024 due to supply chain disruptions and political tensions, said the WB report.
In response to inflationary pressures, the monetary policy rate has been increased by 2.5 percentage points since July 2023, to 9 percent in August 2024. However, the rate remains well below inflation, the report said.
The WB also said despite further increases in the nominal policy rate, persistently high inflation has kept real (net of actual inflation) policy rates negative.
For the banking system as a whole, the nonperforming loan ratio has been about 10 percent since the first quarter of 2023. For state-owned banks, however, the ratio rose to 27 percent in June 2024, signalling persistent challenges in the financial sector and among borrowers.
Growth of credit to the private sector has been below the pre-pandemic average (2015-19). Financial conditions tightened during the unrest in July and August and remain tight amid heightened uncertainty.
In a media statement issued yesterday, the World Bank said growth in South Asia is expected to increase to 6.4 percent this year.
“South Asia’s outlook is undoubtedly promising, but the region could do more to realise its full economic potential,” Martin Raiser, World Bank vice president for South Asia, said in the statement.
“Key policy reforms to integrate more women into the workforce and remove barriers to global investment and trade can accelerate growth. Our research shows that raising female labour force participation rates in the region to those of men would increase regional GDP by up to 51 percent.”
Female labour force participation in South Asia is among the lowest in the world, the statement said. Only 32 percent of working-age women were in the labour force in 2023, compared to 77 percent of working-age men in the region.
For all South Asian countries except Bhutan, female labour force participation rates in 2023 were 5 to 25 percentage points lower than in countries at similar levels of development, the WB statement said.
This shortfall in the female labour force is most pronounced after marriage. On average, once married, women in South Asia reduce their participation in the workforce by 12 percentage points, even before they have children, it added.
“South Asia’s female labour force participation rate of 32 percent is well below the 54 percent average in emerging market and developing economies,” WB economist Ohnsorge said in the statement.