The bank said, 'Besides slowing production and growth momentum, the political disruption here would affect competitiveness and investment climate."

ADB predicted several risks of the country in near to medium term, which included possible political disruption, infrastructure constraints and external volatility in oil prices.

The report estimated that output of aus, the first rice crop of the year would be 24 million tonnes lower than it was in the previous year. It, however, expects higher aman harvest this year compared to the previous year as farmers have brought more lands under aman cultivation, though they experienced scanty rainfall and fertilizer crisis.

"Bangladesh faces several downside risks to its near -to medium-term prospects. These include possible political disruption affecting the economy in the run-up to the general election in January 2007 and infrastructure constrains, including power and transportation, which are critical impediments for moving on to a higher growth path.''

The report further said medium sized and large manufacturing output rose by 14.8 percent during the first two months (July and August) of FY2007. The manufacturing and service sector continued to maintain steady growth, it said.

The point-to-point inflation rate declined to 6.9 percent in September 2006 from 7.5 percent in June 2006, the report said, adding that although declining, inflation remains high because of the expansion of domestic credit and the rise in commodity prices.

The ADB suggested phasing out subsidies in petroleum prices saying that 'these subsidies need to be phased out to divert resources to more productive uses in building physical and social infrastructure'.

It also recommended for intensifying tax efforts along with supervision and monitoring to support human capital development and implementation of poverty reduction programmes.

Tightened monetary conditions, according to the ADB suggestions, would grow broad money and reserve money in line with Bangladesh Bank's monetary programme targets and contain inflationary pressure.

It said the main challenges facing the thriving garment sub-sector are emerging social compliance issues including labour unrest and infrastructure constrains rather than the adverse effect of abolishing MFA quotas.

It said although Bangladesh significantly improved its business- friendly environment for sustaining higher GDP growth, infrastructure needs to catch up with other competing countries.