The Bangladesh Story: Performance and Potential

FAISAL AHMEDSenior Economic Advisor

Bangladesh Bank

Outline

• The Bangladesh story

• Where we started

• Where we are today

• Where we are relative to peers

• The journey ahead

Where we are now – Context

Urbanization Industrialization

• From a low-income agrarian society at its birth in 1971, Bangladesh is now a lower middle-income country of 160 million people with a $250 billion economy in the midst of four critical transitions.

Urbanization

30

%

Industrialization

28

% G

DP

Demographics

50

% <

25

yr

13

0m

M

ob

ile

Technology

Where we are now – Poverty Reduction

• Growth from labor-intensive manufacturing, agriculture, and remittance has been inclusive, supporting poverty reduction and gains in HDIs.

100%

50%

75%

100%

Poverty Rate73Life expectancy 40s => 72 years

0%

25%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

25

Asian Financial Crisis

Most severe flooding in modern history, affecting 66% of the land, killing 26,000 livestock, and

damaging 16,000 km of roads

Severe cyclonic storm BOB 06:

300,000 affected, 8,755 homes destroyed

Slower growth

post 9-11

Severe Floods: 36% of the country flooded, affecting

36mn people

Cyclone Sidr: 3,500 people killed

Major floods: 500 people died, with wider repercussions affecting30% of the country

Oil price hikes, with price of crude brent

reaching > USD100/b

Global Financial

Crisis

Tropical catastrophic

cyclone

Growth trajectory remains steady despite domestic and external shocks

Two decades of resilient economic growthEx

tern

al

Fact

ors

Current EM volatility

Populism sentiment and commodity

price drop

5.3

5.0

5.45.6

4.84.9

5.8

6.16.3

6.9

6.5

5.55.3

5.6

6.5 6.5

6.06.1

6.6

7.1

4.5

5.0

5.5

6.0

6.5

7.0

7.5 Real GDP growth, %

roadshomes destroyed affecting30% of the country

was affectedExte

rna

l Fa

ctors

price drop

4.51997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F

Real GDP growth (%) Poly. (Real GDP growth (%))

MFA Phase Out 2006-08 Bangladeshi political transition Eection 2014

External Shocks Natural Disasters Political Crises

*Linear (Real (GDP growth (%)) is an extrapolated trend line of real GDP growthSource: Bangladesh Bank/IMF World Economic Outlook (October 2016)

Inte

rna

l Fact

ors

Where we are now – Inequality

• Inclusion minimized inequality: lower than the start and lowest among the peers.

10

20

30

40

50

Cross-Country Gini Coefficients

10

20

30

40

Gini Coefficient : Bangladesh

0

10

01973 1992 2010

1990 2014/ Latest

Bangladesh Bangladesh India Sri Lanka Pakistan

Progress in human developmentBangladesh has shown impressive progress in recent years, outperforming regional peers in several key social indicators

Bangladesh (BB-)

Bangladesh (BB-)

India(BBB-)

Sri Lanka(B+)

Pakistan(B)

Fertility rate, total (births per woman)

4.5 2.2↑ 2.4 2.1 3.6

Immunization, DPT (% of children 12-23 mths)

69% 94%↑ 87% 99% 72%

Life expectancy at birth, total (years)

58.4 71.6↑ 68.0 74.8 66.2

Literacy rate, adult total (% of people ages 15 and above)

35.3% 61.5%↑ 72.2% 92.6% 56.4%

Mortality rate, infant (per 1,000 live births)

99.7 30.7↑ 37.9 8.4 65.8

Source: World Bank

Where we are now – Financial Depth

• Bangladesh ranks well in terms of its financial depth and can facilitate foreign investments.

20

40

60

Domestic Credit(In percent of GDP)

Median Emerging Market Depth

0

20

Tanzania Kenya Mexico Indonesia Sri Lanka Nigeria Phillippines Bangladesh India

Where we are now – Financial Inclusion (MFS)

• Digital inclusion through MFS represents a paradigm shift.

22

30

39

20

30

40

Clients (In millions)Clients (In percent of adult population)

41 million

03

12

0

10

Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16

Where we are now – Financial Inclusion (MFIs)

• MFIs are playing an effective role in financial inclusion.

10

15

Borrowers (In percent of population)

10

15

Depositors(In percent of population)

0

5

Tanzania Nigeria Sri Lanka India Kenya Phillippines Bangladesh

240

5

India Tanzania Nigeria Sri Lanka Phillippines Bangladesh Kenya

Where we are now – Economic Structure

• Manufacturing and trade are thrust sectors; cottage-MSMEs are job-rich (rural: 70+ percent; 80 percent enterprises established since 2000)

Economic Units by Sector Employment by Unit Size

34

29

9 8 6

Economic Units by Sector(In percent of total)

54

29

17

Employment by Unit Size(In percent of total)

9 8 6

Tra

de

Mau

fact

urin

g

Oth

er s

ervi

ces

Tra

nsp

ora

tio

n

Ed

ucat

ion

Co

ttag

e

Mic

ro-S

mal

l

Med

-Lar

ge

Where we are now – Economic Structure

• Recent transformations fuelled by dynamic rural non-farm sectors (enterprise numbers more than doubled in last decade).

6371

Economic Units(In percent of total)

Rural

Urban

Units by Year of Inception(In percent of total)

37 29

2001 2013

7 13 80

Before '90 During '90s After 2000

Growing rapidly while maintaining macro-stability

173

195

221247

250.0

300.0

Economy has more than doubled since 2010GDP bn (USD)

5.6

6.5 6.56.0

6.1 6.67.1

6.0

7.0

8.0

YoY, %

Growth – stable and significantly higher than peers

115129 133

150

173

0.0

50.0

100.0

150.0

200.0

2010 2011 2012 2013 2014 2015 2016E 2017F

Monetary policy has been effective; inflation continues to be on a sustained decline

10

0.0

1.0

2.0

3.0

4.0

5.0

6.0

20

10

20

11

20

12

20

13

20

14

20

15

20

16

E

Bangladesh Average GDP growth of peers

35.0

USD bn

FX reserves, at around USD 32bn, are adequate

CPI Inflation (% )

7 months

Source: IMF WEO October 2016; Bangladesh Bank

7.3

8.8 8.7

6.8

7.4

6.4

5.9

5.31

4

5

6

7

8

9

2010 2011 2012 2013 2014 2015 2016 2017Feb

10.9 10.4 15.3

21.5 25.0

30.2 31.7

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

FY2011 FY2012 FY2013 FY 2014 FY 2015 FY2016 July-Jan FY 2017

Foreign Reserves (in USD bn), LHS

7 months

Robust growth amid a weak global backdrop

8.0YoY, %

1.4

1.92.0

1.61.7

2.00

2.50

Standard Deviation of 10 Yr Growth (2007-2016E)

GDP growth has trended higher than peers since 2010… … And is less volatile than other countries globally

Growth is marked both by low volatility from a diverse base and a higher near-term trend compared to similarly-rated peers

Growth is projected to be above 7% in FY17

5.6

6.5 6.5

6.0

6.16.6

7.1

3.0

4.0

5.0

6.0

7.0

0.5

1.41.6

0.00

0.50

1.00

1.50

Bang

lad

esh

(B

B-)

Pa

kist

an

(B)

Ind

ia (BB

B-)

Sri L

ank

a (B+

)

Wor

ld

Emer

gin

g

ma

rket

and

d

eve

lop

ing

eco

nom

ies

Source: IMF WEO Oct 2016

Strong growth compared to South Asian peers; Particularly significant in light of the current global economic weakness

Average Growth of South Asian Countries (2007-2016E)

0.0

1.0

2.0

20

10

20

11

20

12

20

13

20

14

20

15

20

16

E

Bangladesh Average GDP growth of peers

Source: Bangladesh Bank and IMF WEO Oct 2016Peers refer to all countries rated BB- as of 15 March 2017

7.4

6.36.0

3.7 3.5

5.4

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Ind

ia (BB

B-)

Ba

ngla

desh

(B

B-)

Sri L

ank

a

(B+

)

Pa

kist

an

(B)

Worl

d

Emer

gin

g

ma

rket

and

d

eve

lop

ing

eco

nom

ies

Strong growth is raising income and investment

Strong increase in GDP per capita reflects robust economic transitionsBangladesh is projected to witness higher investment flows over the medium term

Bangladesh is expected to see a steady rise in investment with continued improvement in infrastructure and business climate

35.00

40.00

Investment (% of GDP)

1,446

1,600

GDP per capita (USD) Projections

GDP = 7-8%

15.00

20.00

25.00

30.00

Bangladesh (BB-)

Vietnam (BB-)

Georgia (BB-)

Jordan (BB-)

Dominican Republic

(BB-)

Bahrain

Costa Rica(BB-)

Serbia(BB-)

808857

916

1,030

1,163

1,292

400

800

1,200

USD 1,100 threshold

GDP = 7-8%

Source: : IMF WEO October 2016Source: IMF WEO October 2016

10.00

15.00

20

10

20

11

20

12

20

13

20

14

20

15

20

16

E

20

17

E

20

18

F

20

19

F

20

20

F

Bahrain(BB-)

0

2010

2011

2012

2013

2014

2015

2016

35Bangladesh BB- India BBB- Pakistan B Sri Lanka B+ Serbia BB- Costa Rica BB-

Bangladesh’s improving competitivenessOne of the few sovereigns to have moved up in its competitiveness ranking compared to similarly-rated peers

35

55

75

95

115

135

Global Competitiveness Index (GCI), rank

2012-13

2013-14

2014-15

2015-16

2016-17

↑ More competitive

+12

+20-3

+5

+3

+2

A gain of 12 ranks since 2012-13

* As defined by the WEFSource: WEF

Diversified drivers to sustain growth aheadBangladesh’s well-diversified economy insulates it from sector-specific shocks

FY 2016 Sectoral Share of GDP: Agriculture (14.0%) FY2016 Sectoral Share of GDP: Services (53.7%)

Sub-sector share (percentage of GDP) Sub-sector share (percentage of GDP)

Fishing, 3.1%

Wholesale and retail trade;

repair of motor vehicles, 12.4%

Health and

Community, social and personal

services, 11.2%

FY 2016 Sectoral Share of GDP: Industry (27.3%)

Sub-sector share (percentage of GDP)

Mining and quarrying, 1.6%

Crops & horticulture, 7.8%

Animal farming, 1.9%

Forest and related services, 1.3%

Fishing, 3.1%Hotels and restaurants,

1.0%Transport,

storage and communication,

9.8%

Financial intermediation,

3.7%

Real estate, 7.1%

Public administration and defence,

3.8%

Education, 2.7%

Health and social work,

2.0%

services, 11.2%

Rising rural wages, an ongoing structural development, aid strong domestic demand., supported by pick up credit growth

Source: Bangladesh Bureau of Statistics, World Bank Review

quarrying, 1.6%

Manufacturing, 17.0%

Electricity, gas and water supply, 1.4%

Construction, 7.3%

Outperforming similarly rated peers

22.5

38 40.243.7 42.3

37.9

62.959.2

67.5

22.3

39.3

45.1 45.9 50.8

55.7 59.3

59.6 67.5

20304050607080

2016E 20172019F

Low debt levelNet general government debt(% of GDP)

5.2 4.8 4.9

6.36.1

14.1

3.6 4.2 4.3 5.7

7.5

9.9

6

8

10

12

14

16

2016E 2017-2019F

High fiscal flexibilityChange in general government debt (% of GDP)

6.3

5.1 5.5

2.6 3.0 3.0

2.0

0.6

5.3 5.2

4.5

3.3 3.0

2.7

2.7

1.1

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0 2016E 2017F

Strong per capita growthReal GDP per capita growth (%)

01020

Bang

ladesh

(BB-)

Georg

ia (

BB-)

Mace

doni

a(B

B-)

Dom

inic

an

Repub

lic (

BB-)

Cost

a R

ica (

BB-)

Bahr

ain

(BB-)

Jord

an

(BB-)

Vie

tnam

(BB-)

Serb

ia (BB-)

7.7 7.0

6.4 6.3

6

7

8

9

2016E 2017-2019F

Solid external financesGross external financing needs(CAR+ usable reserves)

Net external creditor positionNarrow net external debt (% of CAR)

3.2 2.9 3

5.2 4.8 4.9

2.4

2.7

3.6

4.3

5.7

0

2

4

6

Jord

an

(BB-)

Bang

lad

esh

(BB-)

Georg

ia (B

B-)

Ma

ced

oni

a(B

B-)

Serb

ia (B

B-)

Dom

inic

an

Rep

ublic

(B

B-)

Vie

tna

m (BB

-)

Cos

ta R

ica

(BB

-)

Ba

hra

in (BB

-)

316313

250

300

350

2016E 2017-2019F

Strong buffers against shocksReserves (months of current account payments)

(1.5)(1.8)(3.0)

(2.0)

(1.0)

-

Bang

lades

h (B

B-)

Vie

tnam

(BB-)

Dom

inic

an

Repub

lic (

BB-)

Geo

rgia

(BB-)

Serb

ia (BB-)

Cos

ta R

ica (

BB-)

Mace

don

i a(B

B-)

Jord

an

(BB-)

Bahr

ain

(BB-)

50.7

70.270.7

91.1

29.9 33.9 52.4

61.5 67.7

101.7

60

80

100

1202016E 2017-2019F

4.5 4.5

2.52.0 1.5

1.5 1.6

4.4

4.2 3.2

2.5 2.0

1.6 0.9

0

1

2

3

4

5

6

Jord

an

(BB-)

Bang

lades

h (B

B-)

Cos

ta R

ica (

BB-)

Serb

ia (BB

-)

Geo

rgia

(BB

-)

Dom

inic

an

Repub

lic (

BB-)

Vie

tnam

(BB

-)

Mace

don

i a(B

B-)

Bahr

ain

(BB

-)

68

93

98104

102

110 101120

6789

9799

102 106107

117

0

50

100

150

200

250

Bang

lades

h (B

B-)

Vie

tnam

(BB

-)

Serb

ia (BB

-)

Dom

inic

an

Repub

lic (

BB-)

Cos

ta R

ica (

BB-)

Mace

don

i a(B

B-)

Jord

an

(BB-)

Geo

rgia

(BB

-)

Bahr

ain

(BB

-)

Source: S&P Sovereign Risk Indicators (Dec 2016); Worldwide Governance Indicators

-43.1

-4.3

3.0

23.433.7

(29.0)

(10.4)(1.1)

29.9

-60

-40

-20

0

20

40

60

Bahr

ain

(BB

-)

Vie

tnam

(BB

-)

Bang

lades

h (B

B-)

Jord

an

(BB-)

Mace

don

i a(B

B-)

Cos

ta R

ica (

BB-)

Serb

ia (BB

-)

Dom

inic

an

Repub

lic (

BB-)

Geo

rgia

(BB

-)

The Journey Ahead...

Infrastructure: A coordinated big push BIDA has been mandated and empowered to improve the business climate.

Coordinated efforts underway to upgrade infrastructure.

Several transformative megaprojects are soon to be completed.

Infrastructure ProjectsCompletion

PeriodDhaka Chittagong Highway 2016

Special Economic Zones OngoingPadma Bridge 2018LNG Terminals 2018Inland Container Terminals Ongoing

Rampal Power Plant (1320 MW) 2018

10,000

14,000

Electricity Generation Capacity(In MW)

24,000 MW by 2021

Source: Bangladesh Bank

Rampal Power Plant (1320 MW) 2018Matabari Power Plant (1200MW) 2018-20Rooppur Nuclear (2400 MW) 2022Dhaka Metro Rail 2019

Deep sea ports 2023

2,000

6,000

FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15

A labor-intensive manufacturing-led growth

• A strong manufacturing base and skilled entrepreneurs can take advantage of the labor force.

100

200

300

Minimum Monthly Wage (In USD, per month)

82

40

80

120

Labor Force (In millions)

IDN = 3x BDG

00

Labor is ample and productive, relative to peers

1,500

2,200

3,000

8,300

2,000

4,000

6,000

8,000

Manufacturing Worker: Total Annual Salary (USD)

77

84

100

Bangladesh

Vietnam

China

Labor Productivity(In percent of productivity in China)

1,500

-

2,000

68Cambodia

Sources: McKinsey, JETRO

Poised to benefit from China’s rebalancing

• China’s rebalancing is a strong tailwind for manufacturing and diversification.

-3

-2

-1

0

1

2

Change in Market Share in Labor-intensive Goods (5 largest and smallest since 2010, ppts)

Apparel, Footwear, Furniture, and Plastic Toys

20

40

Global Market Shares of Garments Exports (In percent)

-4

-3

Ch

ina

Germ

any

Japan

Ho

ng K

on

g

Th

ailand

Mexico

Ind

on

esia

Cam

bo

dia

Ban

gladesh

Vietn

am

Apparel, Footwear, Furniture, and Plastic Toys

0China Bangladesh

Source: IMF

“Density” to support domestic demand and service sector

GDP Density (In millions of USD, GDP per sqm)

1.0

1.5

2.0

(In millions of USD, GDP per sqm)

GDP $250b

0.0

0.5

Myanmar Cambodia Pakistan Indonesia Vietnam India Thailand Malaysia Phillippines China Sri Lanka Bangladesh

The Bangladesh Story: Looking Ahead

Underrated Credit

More resilient and better cushioned than similarly rated peers.

High Inclusive

GrowthMedium-term growth at 7+. Growth more inclusive than peers; broad-based; reduced gender gaps and better HDIs.

Twin Engines A buoyant domestic demand and a competitive external sector.

Manufacturing Manufacturing Story

A manufacturing-led growth story, with a strong tailwind supported by service sector.

A Big Push Coordinated efforts underway to upgrade infrastructure, energy, and business climate

Thank you