"While GDP growth in FY06 came a 29-year high at 6.7 percent, an uncertain political environment may result in lower growth in FY07," the group said yesterday in its latest analytical report on Bangladesh economy.

"Going forward, for FY07 we expect a moderate growth at 6 percent level due to elections in January 2007, The FY07 is likely to see three governments (current, caretaker and new). This may result in near-term policy uncertainty and an increase in strikes or hartals." added the report titled "Bangladesh FY07: A Politically Challenging Year".

The report described labour unrest, sustaining export competitiveness and the impact of higher oil prices on the balance of payments as key risks to the growth outlook besides politics.

Terming textile exports remain buoyant, the report said, "For a further sustaining competitiveness, improvements in labour, social issues and infrastructure are necessary".

High oil and food prices and a depreciating taka exerted upward pressure on inflation in FY06, the report said, adding that "improvement in food grain production coupled with monetary tightening have resulted in inflation easing to 6 percent levels currently."

The currency markets have been volatile with the taka depreciating over 8 percent during FY06, the report, prepared by Rohini Malkani and Anushka Shah from Mumbai, said.

"The depreciation was due to a steady climb in the import bill both oil and non-oil imports." the report added.

The FY07 Budget was the last for the BNP (Bangladesh Nationalist Party) government in its current term, the analysis report said, adding that "The main focus of the budget remains on poverty reduction in line with Millennium Development Goals; however, the budget arithmetic looks optimistic, both on the revenue front as well as ADP spending".

Praising the achievement in the service sector that accounts for close to 50 percent of GDP, it said the sector is continuing to show buoyant trends.These include an increase in port traffic, telecom subscriptions (which have crossed 12.6 million), an increase in bank lending to some sectors, such as transport, communication and construction as well as increase in health services.