By most accounts, 2014 has been a good year for Bangladesh economy. Economic progress was steady and confident - even vibrant. No major crisis marred the performance. Underpinning the steady course of the economy was the political calm and normality in law and order situation. Economic activities continued without any hiccup or dislocation. External economic shock was absorbed with aplomb.
During the year economic fundamentals remained more or less satisfactory. Inflation continued its fall coming down to 6.21 per cent in December, the lowest in 24 months. Food inflation was the biggest driver behind the drop in overall inflation, sliding to 6.44 per cent from 7.16 per cent in October. Non-food inflation, however, continued to rise. It reached 5.84 per cent in November from 5.74 per cent from the previous months due to rise in transportation cost, higher education and medical expenses and other non-food items. The continuous decline in food prices on the international market helped food inflation to come down. A good harvest of food grains in the country also helped. No such mitigating factors were at play for the non-food items.
Exports rebounded in 2014 propelled by a pick up in garment exports. In November 2014 exports raked in $2.42 billion, up 3.5 per cent year-on-year. The figure surpassed the monthly export target by 5.8 per cent. Garment products, which typically account for the bulk of export receipts, brought in $1.94 billion in December, up 10.22 per cent year-on-year. Worryingly, garment exports in the first five months of the fiscal 2014-15 were below the target. It made up for the slack later on. Leather and leather products continued its promising entry into export markets raking in $463.12 million in the first five months of the present fiscal. Jute and jute goods did well in exports by its past standard. The sector earned $348.64 million between July and November, a 4.89 per cent rise year-on-year. Shrimp export exceeded the target and fetched $276 million in the first five months. Overall, though exports rebounded last year some of the exportable items found it hard to meet export targets.
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) in collaboration with Bangladesh Brand Forum organised Apparel Summit in Dhaka in December. Issues crucial for driving the country's garment industry towards increasing export earnings to $50 billion by 2021 were discussed. The mood among the participants was upbeat. There was call for the foreign buyers to raise the prices they offer to suppliers. Foreign buyers appeared satisfied with the compliance of conditions for safety of labour but kept up pressure for the same. Though GSP (generalised system of preferences) was not restored by America garment exports surged ahead in the American market.
The World Investment Report released by UN Conference on Trade and Development (UNCTAD) showed Bangladesh placed as the second favoured investment destination in South Asia after India. Inflows of Foreign Direct Investment (FDI) into Bangladesh rose 24 per cent to $1.6 billion in 2014. Net foreign portfolio investment shot up 111 per cent due largely to the investment in the mobile phone sector. The government approved the country's biggest-ever investment project of $4.5 billion to set up a coal-fired power plant. Japan International Co-operation Agency (JAICA) will provide $3.8 billion as soft loan for the project. FDI in 2014 was not, however, diversified.
According to a recent survey (2014) by the Japanese Agency JETRO business in Bangladesh has better cost and profit advantages than many other countries. Bangladesh was shown ahead of Myanmar, Cambodia, Vietnam, Philippines and India in this report. Bangladesh made a significant leap in the Competitive Industrial Performance (CIP) index ranking 77th position, advancing by 25 notches. While noting the significant improvement of Bangladesh in CIP ranking the report by UN Industrial Development Organization (UNIDO) also brought attention to some major challenges, suggesting that these should be addressed carefully. Skills and talent improvement, innovations, industrial policy and resource efficiency are the four areas that have been identified for intervention. The report has said, it is critical to address the convergence of interests because overlooking an advanced manufacturing strategy could lead to a lack of competitiveness within the manufacturing value chain.
The rate of growth in gross domestic product (GDP) in 2014 fell short of the target due mainly to economic factors that included sluggish private investment, infrastructural underdevelopment, unsatisfactory collection of revenue and slow implementation of development projects. A report prepared by the Ministry of Finance pointed out that the economy's natural ability to grow is 6.0 per cent; to grow beyond that some stimulus is needed. For instance, to achieve 8.0 per cent GDP growth the investment-GDP ratio should be 32 per cent, a substantial increase over what has been achieved in the past. The investment-GDP ratio in 2014 was around 22 per cent.
Unnayan Onnesan (UO), a think tank, has shown that private investment declined in 2014. According to it private investment as a percentage of GDP has been on the decline since 2011-12. In fiscal 2011-12 private investment stood at 22.50 per cent which declined to 21.34 by 2013-14. It was not inadequacy of savings that accounted for this. Referring to increased gap between savings and investment UO has shown that during fiscal 2013-14 national savings were 30.54 per cent when total investment stood at 28.69 per cent of GDP. High cost of borrowing from commercial banks has been pointed out as the main reason. The country's banking sector has been shown to be caught in a trap and is characterised by high interest spread, excess liquidity and declining growth in credit disbursement coupled with poor risk management, lax oversight and captured governance.
The think tank has pointed out the relatively poor revenue collection as one of the factor for slow growth of GDP. Against the target of 11 per cent the tax-GDP ratio stood at 9.7 per cent in 2013-14. It has been apprehended that the aggregate shortfall in the tax-revenue collection will amount to Tk. 12 billion.
Lack of a sustainable improvement in the implementation of ADP (annual development programme) continued to afflict the economy in 2014. Despite increasing allocation ADP implementation has been falling short of target. Reforms in the implementation procedure is urgently called for.
Agricultural growth during 2014 was on track, aided by favourable weather, reasonably good functioning of agricultural input market and improved farm gate prices. Developments in the fisheries and livestock sectors were normal, backed by steady demand.
The manufacturing sector operated below capacity due to inadequate import of machinery and raw materials, resulting from credit crunch. The SME (small and medium enterprises) sector, however, prospered having special attention of the government and enthusiastic participation by women entrepreneurs.
The Dhaka Stock markets in 2014 was more than on course, receiving its highest flow of foreign investment. Inflows in the first 11 months surpassed the previous records. Net investment between January and November stood at Tk. 238.8 million which is about 23 per cent higher than the last year's total. A comparatively better political situation, positive market outlook and favourable macroeconomic indicators encouraged foreign investors to invest in local securities with zest.
A significant increase in the overall balance of payment surplus boosted official foreign exchange reserves to all time high (US$25 billion). A steady remittance flow and reasonably good export performance contributed to this achievement. A pragmatic monetary policy that intervened to prevent a large appreciation of the nominal exchange rate ensured stability in the foreign exchange market. The exchange rate depreciated only slightly as the central bank began to sell dollar for the first time in three years. Overall, the monetary policy succeeded in maintaining price stability and promoting growth.
2014 has been a significant year for the economy of Bangladesh. It was a year of steady growth with price stability.
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