"Risks to the growth process include the knock-on effects of high global oil price, weak governance and political uncertainty, especially in the run-up to the January 2007 elections," said ADB in its Quarterly Economic Update for December 2005 released yesterday.

The report said private consumption will be the main driving force behind the growth, bolstered by strong remittance inflow. "Growth in the fiscal 2005-06 will be underpinned by steady expansion in industry and services, aided by a strong recovery in agriculture," it added.

At a press briefing to mark the release of the economic update on the country, head of ADB's Bangladesh mission Hua Du praised the opposition Awami League's decision to join the parliament and termed it 'a good sign for the country's economy'. She also lauded the macro-economic management of the country, saying "it is very solid".

Hua Du formally released the economic update at the briefing held in Dhaka.

The Manila-based bank in a separate study on "Macroeconomic Impact of Oil Price in Bangladesh" said rise in oil price in international market impacts on balance of payment, fiscal measures and inflation situation.

The ADB suggested reduction in dependence on imported petroleum, saying, "Use of compressed natural gas in all types of road and water transports will be encouraged to replace diesel and motor fuels." The report also suggested cut in dependence on a single type of fuel to minimise the adverse effects of any potential global energy crisis.

The ADB also underscored the need for maintaining stability in the money and foreign exchange markets as well as containing the growing inflationary pressures.

"The inflation continued on an upward trend. On an annual average basis, inflation increased to 7 percent in December, 2005 from 6.7 percent in July, 2005," the report said.

According to the report, higher inflation has been caused by depreciation of taka, increase in food price, rise in international commodity prices and increase in the state-administered price of oil. "Increased government borrowing from the banking system fueled inflationary pressure," it added.

Agricultural sector of the country is expected to show a significant recovery in the current fiscal, as the Aus production increased by 16.7 percent while Aman production by 10 percent, the report mentioned.

Growth in services sector has kept pace with the strong growth in agricultural and industrial sectors. Rapid growth in cellphone usage, emergence of new private TV channels and expansion of healthcare services will also contribute to the strong growth in services sector, according to the ADB update.

The ADB said oil import bill is projected to reach US$ 2,000 million in 2005-06, up from $ 1,602 million in the previous fiscal.

"Despite the recent fuel price increases, the subsidy remains very high, about $ 520 million or 0.8 percent of GDP," the report said, adding that losses of the Bangladesh Petroleum Corporation (BPC) would also remain high, estimated at $ 380 million in this fiscal.