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Bangladesh Country Risk Report Q4 2018

Bangladesh Country Risk Report Q4 2018

Key View:

We expect Bangladesh's real GDP growth to slow to 7.2% in FY2018/19 (July-June), from 7.7% in FY2017/18, due to a likely moderation in garment export growth. However, the construction sector, which we expect to remain an outperformer in FY2018/19 due to the implementation of mega-projects, will likely continue to support growth over the coming quarters.

We believe that support for the Awami League government is likely to remain strong at the parliamentary elections which must be held by end-2018. This is likely to be supported by the populist FY2018/19 (July-June) budget, which saw a significant increase in planned spending that is targeted at the rural agricul-ture community and social development. We maintain Bangladesh's short-term political risk score at 58.1 (out of 100), but note that risks to social stability are weighted to the downside.

Bangladesh Bank left its policy rates unchanged for at its policy meeting on July 31. We expect the central bank to stay with its policy rates through end-FY2018/19 given the need to keep domestic inflation in check amid downward currency pressures, despite its pro-growth bias.

We believe that there is little credibility to Bangladesh's FY2018/19 (July-June) budget figures and expect the government to miss both its targets for revenue and expenditure, similar to previous years. In addition, we forecast the fiscal deficit to widen to 4.2% of GDP in FY2018/19. The shift in budget allocation towards public services, away from more productive sectors, is likely to be negative for growth.

We maintain our expectations for Bangladesh's real interest rate to narrow against the US, and a further deterioration in terms of trade to weigh on the Bang-ladeshi taka in the short-term. Over the longer term, we expect the taka to underperform the US dollar in spot terms due to the currency's overvaluation, and higher inflation in Bangladesh vis-a-vis the US.

Key Risks

Religious and social tensions remain elevated within the population, and an escalation of communal violence and social instability could further weigh on the already-poor business environment and discourage investment.


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Expedition Of Mega-Projects To Support Bangladesh's Growth
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
TABLE: GDP GROWTH FORECASTS
Outlook On External Position
TABLE: MAIN EXPORT AND IMPORT PARTNERS
TABLE: MAIN EXPORT AND IMPORT PRODUCTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Bangladesh Bank Unlikely To Hike In FY2018/19
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Budget FY2018/19: Pro-Rural Budget Lacking Credibility
Structural Fiscal Position
TABLE: MAIN SOURCES OF REVENUE AND EXPENDITURE
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Bangladesh Country Risk Q4 2018ContentsCurrency Forecast
Maintaining Outlook For Bangladeshi Taka Weakness
TABLE: CURRENCY FORECAST
10-Year Forecast
The Bangladesh Economy To 2027
Long-Term Potential Strong But Restricted
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Ruling Awami League's Support To Remain Strong In Bangladesh
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Still Much Room For Improvement
Global Macro Outlook
Strong Growth, But Greater Headwinds Too
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: BANGLADESH – MACROECONOMIC DATA AND FORECASTS

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