Bangladesh Business Forecast Report

Q4 2009

Publication Date	September 2009
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	not applicable
Product Code	BMI02719

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Summary

Hasina Consolidated In Power, But Challenges Loom Prime Minister Sheikh Hasina's government faces a multitude of challenges in 2010 which, if mishandled, could raise the risk of instability. Among her key tasks are fighting corruption, reducing the threat of Islamist militancy and ensuring fair trials for military mutineers and alleged war criminals. Hasina will be aided by the economy expanding at a relative healthy 5.5% in FY2009/10 (July-June) after a 5.9% GDP expansion in the previous fiscal year. While the export-focused manufacturing sector will suffer from sluggish external demand, domestic consumption will be bolstered by a robust remittance inflow and the expansionary policies of the government and the central bank. This will aid a recovery in GDP growth to 6.5% in FY2010/11, when rising inflation should precipitate tightening action by Bangladesh Bank.

Prime Minister Sheikh Hasina Wajed and her Awami League party will continue to face myriad challenges going into 2010, stemming from both political and economic developments. While her party's strong position in parliament as a result of its landslide victory in the December 2008 elections means that her position is not under imminent threat, a failure to tackle sensitive issues could undermine Hasina's popularity and give the opposition Bangladesh Nationalist Party (BNP) a new lease of life. Moreover, we see a risk that the government's anti-corruption drive may turn into a witch-hunt to eliminate its political opponents.

While continued political stability should be conducive for consumption and investment, we are expecting a weaker momentum in the export-focused manufacturing sector to act as a drag on growth in FY2009/10. We thus maintain our 5.5% GDP growth forecast for FY09/10, in spite of tentative signs of an economic recovery in G3 markets in Q209 and Q309 as well as policy-induced strong expansion in Chinese growth. With global economic and financial conditions expected to continue to improve, albeit at a gradual pace, we are pencilling in a 6.5% GDP expansion in FY10/11.

Bangladesh's long-term growth prospects are constrained by its weak business environment, which suffers from very high levels of corruption, poor infrastructure and an unskilled labour force. The political situation appeared stable in H209, but many foreign investors are likely to adopt a 'wait and see' attitude regarding the Hasina government's policies and this may delay major investment decisions. The future of the crackdown on corruption that began in 2007 looks uncertain following the resignation of the anti-corruption commission in April 2009 and we expect the government to be less committed to such probes. Nonetheless, Bangladesh is slowly emerging on global investors' radars as a 'frontier market'. Its vast population, low-cost labour and strategic location adjacent to India and China make it a potentially attractive destination.

Content

Executive Summary
Hasina Consolidated In Power, But Challenges Loom
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Hasina's Government Facing Mounting Challenges
- Prime Minister Hasina's government faces myriad challenges which, if mishandled, could raise the risk of instability
- Table: Political Overview
- Long-Term Political Forecast
- Limited Chances Of Major Improvement
- Although Bangladesh returned to full civilian rule following elections in December 2008, the political system remains
- immature and prone to instability. We see only limited prospects of a substantial improvement in next 10 years
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Outlook Improving, But Still Challenging
- We maintain our 5.5% GDP growth forecast for FY2009/10 as the export-focused manufacturing sector loses steam
- and agricultural growth is depressed by a high base
- table: ECONOMIC ACTIVITY
- Fiscal Policy
- Expansive Policy To Be Maintained
- An expansive fiscal policy will bring the budget deficit to BDT328.2bn in FY2009/10, equivalent to 4.8% of GDP, up
- from an estimated 4.1% in FY2008/09
- table: FISCAL POLICY
- Monetary Policy
- Banks Still Not Lending
- Development Expenditure Cutting Fiscal Deficit
- With the economy expanding below trend and the inflation outlook looking very benign in the short term, we expect
- Bangladesh Bank to maintain its accommodative stance in FY2009/10
- table: MONETARY POLICY
- Balance Of Payments
- Remittances Boosting Current Account Short Term
- We expect Bangladesh's current account surplus to widen in FY2009/10 in spite of a more challenging outlook for the
- export sector
- table: CURRENT ACCOUNT
Chapter 3: 10-Year Forecast
- The Bangladeshi Economy To 2018
- Long-Term Potential Strong, But Restricted
- We believe that a 6-7% real GDP growth rate for Bangladesh is sustainable in the long term, given the increasing size
- of the workforce. However, to achieve growth in the 7-8% range and higher, productivity will need to improve
- table: Lo ng-Term Macro economic Forecasts
Chapter 4: Special Report
- The Fate Of ???Chindia'
- Overview
- Although China and India will continue to grow during the global recession of 2009-2010, they are not immune to the
- downturn, and face a number of risks in the near term
- China And India SWOT
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Institutions
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- Infrastructure
- Market Orientation
- TABLE: LABOUR FORCE QUALITY
- TABLE: ASIA, FDI ANNUAL INFLOWS
- TABLE: BMI TRADE RATINGS
- TABLE: TOP EXPORT DESTINATIONS
- Operational Risk
Chapter 6: Key Sectors
- Pharmaceuticals
- Executive Summary
- In terms of volume and value, the bulk of the Bangladesh pharmaceutical market comprises generic drugs
- Table: Generics Market ??