Economic performance has remained resilient to global headwinds and disruptive politics in Bangladesh in FY13. Gross Domestic Product (GDP) growth decelerated for the second year in a row to 6 percent. Disruptions caused by political strife, deepening political tensions relating to the impending political transition and the inadequacies of improvements in the provision of power, gas and infrastructure were the key factors in the growth slowdown. These contributed to weakening investor confidence leading to a 1.2 percent decline in the private investment rate. Recovery in remittance growth contributed to sustaining private consumption growth which combined with a significant rise in public investment and robust increases in exports helped maintain GDP growth above the average 5 percent growth in developing countries in 2013. Growth declined in both the agriculture and service sectors while industrial growth increased slightly. Inflation decelerated but remained high. Annual average inflation declined from 8.7 percent in FY12 to 6.8 percent in FY13. External balances have improved further. The external trade deficit decreased significantly due primarily to an increase in export growth over FY12 and flat import payments. The banking system remains under stress and capital market activities have been weak. Several financial scams and resultant loan defaults in the state-owned commercial banks moved them into a position of insolvency, which needs to be urgently addressed. The most pressing challenges lie in maintaining economic and financial reforms, rebuilding the image of the garment sector, and removing supply bottlenecks. Some structural reforms have moved forward. The International Monetary Fund's extended credit facility is on track with significant progress in strengthening macroeconomic conditions and structural policies under the extended credit facility arrangement. The new value added tax law has moved firmly into the implementation phase; the National Board of Revenue has introduced an online tax registration system; amendments to the Banking Companies Act have been passed and progress is being made in identifying critical weaknesses in the state-owned commercial banks; the FY14 budget introduced revenue reforms such as increasing the corporate profit tax rate on cigarette manufacturing companies and reducing the nominal protection rate to 28.1 percent in FY14 from 28.9 percent in FY13. Removing Bangladesh's favored access to the United States market under the Generalized System of Preferences program may not hurt Bangladesh's garment industry unduly. If the European Union were to suspend Bangladesh's favored access to its markets, Bangladesh could see its total exports fall by as much as 4.1 to 8 percent.
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