The GDP growth would be 6.5 percent in the current FY, 2005-06, but would slide to 6 percent in FY07, forecasts the bank's Asian Development Outlook (ADO) 2006 released yesterday.

"GDP growth is forecast to moderate to 6.0% in FY2007, mainly reflecting political uncertainty over investment and business decisions in the lead-up to the general elections in January 2007. Moreover, the newly elected Government will also probably require some time before embarking on substantive initiatives," the ADO argues.

Compared to the projected growth rates for Bangladesh, the outlook sees an average GDP growth of 7.2 percent in FY06 and 7 percent in FY07 in the South Asian region.

Releasing the ADO 2006 at a press conference at the ADB Bangladesh Residence Mission in the city's Sher-e-Bangla Nagar, ADB Country Director Hua Du said, "The national elections scheduled for early 2007 is likely to limit the major policy initiatives. Risks to medium prospects include external shocks and domestic political uncertainties".

However, Du admitted that if investments can be raised, the GDP growth rate may not slip.

FDI TO RISE
The report forecasts that Bangladesh will see much higher FDI inflow, primarily because of FDI from India. "The latest data indicate that FDI inflows increased to $776 million in FY 2005," it noted, adding, "FDI is expected to maintain steady growth in FY2006 and FY2007, but can pick up significantly if ongoing negotiations over several large investment projects prove successful."

Flagship companies like Microsoft, Orascom and Singapore Telecom have recently begun to invest in the country. The government has also received a host of large FDI proposals from various business groups including Tata of India, Asia Energy of the UK, Dhabi Group of the UAE and Kingdom Group of Saudi Arabia.

The ADO notes, "The Board of Investment estimates that total foreign investment proposals are worth about $10 billion, well in excess of historical levels."

TRADE ISSUES
The ADB outlook cautions that, though the country's garment sector has been expanding even after the MFA quota abolition, its competitiveness can not be understood clearly until 2008, when the temporary quotas for China expire.

In the quota-free world, Bangladesh garment sector must enhance its competitiveness, the ADO 2006 observes and for that it suggests a number of steps to reduce the lead-time.

The report also advises the government to address three major "behind-the-border" trade barriers that affect the country's export competitiveness.

The first barrier, weakness in governance, includes corruption and a weak state of law and order, which vitiates the business environment and long-run growth, it says.

In this regard, the ADO adds, "Although the regulatory procedures involved in starting a business in Bangladesh compare favourably with other benchmark countries, the cost of transacting business in terms of per capita income is one of the highest. On other indicators too, Bangladesh lags behind comparator countries, particularly on the measures relating to regulatory quality."

Secondly, it names the poor physical infrastructure for power, gas, ports and telecommunications, which significantly increases the cost of production, impedes productivity growth and hampers export competitiveness.

"The third main barrier stems from high operating costs, partly due to steep bank borrowing charges, in turn grounded in long-standing structural and other problems, particularly among NCBs. Such high operating costs discourage investment and constrain the ability of local firms to integrate into global supply chains," the ADO concludes.