Bangladesh will see a moderate 6 percent growth in FY ’08, down from 6.5 percent in FY 07, due mainly to political volatility, high inflation rate and fuel prices, said Citigroup. The US-based Citigroup published the growth prediction in its annual economic and market analysis on Asia Economic Prospects 2008 released recently.

It said Bangladesh economy continues to face multiple risks, including political volatility, weak governance and vulnerability to natural disasters.

“Political uncertainty and weakening of business sentiment are likely result in a continued slowdown in private sector investment,” the analysis said.

Politics has had a major impact on Bangladesh public finances, external sector and inflation and will determine how domestic and foreign investment pans out.

The analysis said that the economic growth will continuously be driven by private sector consumption, which comprises 75 percent of GDP. This is a result of a steady inflow of workers, remittances, growing urbanisation and rising incomes.

The analysis also predicted fueling of consumption by the caretaker government’s anti-corruption drive, as it is resulting in previously unaccounted for money coming back into the system.

The group sees inflation and food price as major risks for Bangladesh economy.

“As witnessed in most countries across the globe, food prices also pose a key concern for Bangladesh. Floods in July damaged most of the agriculture products. Further contributing to higher primary products prices are higher global commodity prices and ban on wheat export from India,” the analysis said.

The group forecast that an administered oil price regime would considerably weaken the banking system as banks ultimately finance these heavy subsidies.

The analysts of group commented that government’s budget deficit of 4.2 percent for FY ’08 appears ambitious, while revenues are relatively buoyant, higher administrative expenses, due to the revamping of the electoral roll and flood rehabilitation efforts could make achieving the target difficult.

Terming the recent export fall a deceleration, the analysts identified the reasons behind the export fall are warmer winter in the US, a higher base effect and political uncertainty which deterred some buyers.

Lifting safeguards on Chinese exports, coupled with competition from Vietnam and Cambodia, could pose risks for Bangladesh textile industry.

The analysts predicted that in the present climate of uncertainty, economic growth will depend largely on politics and the outcome of the next elections before the end of the 2008.