The country’s economy will grow by 7 per cent in the next fiscal year compared to 6.5 per cent in the current year, despite challenges in infrastructure development, governance, and stimulating foreign direct investment, forecast the Asian Development Bank. The Manilabased lending agency made the projection in its Asian Development Outlook 2007 launched simultaneously in Dhaka and elsewhere on March 28, considering a strong performance of Bangladesh’s industry and service sectors.

The bank also forecast a decelerating trend in inflation in the country from 7.2 per cent in FY200506 to 7 per cent in the current fiscal and 6 per cent in FY200708. ADB economist Rezaul Karim Khan, however, could not specify any tolerable rate of inflation, though he said, The perception of inflation is always higher in Bangladesh.

The forecasts assume that the government will undertake policy adjustments to boost foreign exchange reserves, such as more flexibly managing the exchange rate, encouraging greater remittance inflows, and reducing anti-export bias in trade policy, the bank opined in its flagship report.

Its country director, Hua Du, lauded Bangladesh’s economic performance but emphasised the need for the government to take quick decisions on the pending foreign investment proposals including the one made by Tata Group if it wanted to see the much-needed capital inflow bounce back from the decline in 2006.

According to the report, Bangladesh’s short comings in key infrastructure like power, ports, railway, and roads are serious hindering the export growth, investment, and opportunities for transport integration with its neighbours.

The country’s prime seaport in Chittagong is plagued by various problems, such as low productivity and weak management, the report said while Rezaul Karim reiterated the banks prescription to contract out the port services. Yet, the report pointed out, the economic expansion in Bangladesh had been underpinned by private consumption and investment spurred by substantial remittances by expatriate Bangladeshi workers.

South Asian economy is expected to post a moderate growth of 7.7 per cent in 2007 and rise slightly to 8 per cent in 2008, the report said. The services sector, supported by an accelerated growth in manufacturing, is expected to drive the regions economic growth, it added. The regional economy expanded by 8.7 per cent in 2006 supported by a growth in consumption and investment. South Asian economy has averaged more than 7.5 per cent growth since 2003 that saw reduction in poverty levels in India, Pakistan, and Bangladesh.

South Asia’s recent economic performance shows it has emerged as a new growth pole in Asia, observed Ifzal Ali, the chief economist of the bank. The region can match East Asia’s exemplary growth rates, albeit from a lower base.

Every economy in the region posted a growth of more than 6 per cent in 2006, except Nepal due mainly to political unrest.