The Asian Development Bank (ADB) has revised downward its growth forecast for Bangladesh economy, ranging between 5.5 per cent and 6.0 per cent, for the fiscal (FY) 2008-09 against the backdrop of the ongoing global financial crisis.
'Before the onset of the global financial crisis, a 6.5 per cent growth target for FY2009 appeared attainable. With the financial crisis in the advanced economies unfolding and recession appearing to last longer than earlier anticipated, a growth rate in the range of 5.5 per cent to 6.0 per cent seems more likely in FY2009, the ADB said in its latest Bangladesh Quarterly Economic Update (BQEU).
The global financial crisis is yet to significantly affect Bangladesh, the December BQEU also said, adding that the pressure from the global slowdown is building up with signs of moderation in growth.
Economic performance in the July-September of FY2009 had held up reasonably well with steady progress in domestic economic activity and satisfactory growth in exports and remittances, said the BQEU released Monday.
According to the Economic Update, growth in ready-made garment production, together with improved business confidence and recovery in housing and construction, stimulated the industrial activity.
During the October-December period, export growth decelerated affecting the export-based industrial production, and growth in remittances also moderated, it revealed.
Highlighting the sector-wise performances, the ADB said Bangladesh's agriculture sector is expected to attain the target growth rate of 4.0 per cent, up from the actual growth of 3.6 per cent in the FY2008.
Production of rice and wheat for the FY2009 is targeted at 34.3 million tonnes -- 33.3 million tonnes of rice and 1.0 million tonnes of wheat -- 15.1 per cent rise from the actual production in FY2008, the BQEU said.
Bumper harvests of Aman rice, maize, wheat and potato in FY2009 have already been reported, it said. A favourable outlook is maintained also for the upcoming Boro crops because of good weather conditions together with strong support from the government to ensure availability of key agricultural inputs, it added.
The prospects for output in various non-crop sub-sectors of agriculture also appear bright, it said, adding that the fishery sub-sector has performed well because of the growing domestic demand.
The country's industrial growth is expected to be in the range of 6.6 per cent to 7.2 per cent this fiscal compared to 6.9 per cent in FY2008 with production for exports continuing the slowing trends that became evident in the October-December period of FY2009, the ADB said.
It also said aided by the robust export growth of 42.4 per cent in the July-September of FY2009, the ready-made garment production, together with improvements in business confidence and recovery in housing and construction, stimulated the industrial activity.
However, exports declined by 1.4 per cent in October- December of FY2009 implying a slowdown in export-based industrial production, it said.
'On the contrary, falling prices of construction materials and a rise in demand for real estate because of the growth in bank credit and higher remittances helped revive the construction sub-sector,' the ADB said.
It also suggested that the prevailing shortages in power and gas supplies need to be urgently addressed to promote the industrial sector.
The lack of gas supplies will also constrain power generation and new investment in manufacturing activities, it said, adding that the country's export-based industry sector is likely to experience a slowdown in the coming months.
According to the ADB, growth of the country's services sector will slow to the range of 5.8 per cent to 6.2 per cent, down from 6.7 per cent in FY2008, due to lower activities in the export sector and declines in consumption spending induced by lower income and moderation in remittance growth.
Services, especially wholesale and retail trade and transport and telecommunications, performed well in July-September of FY2009.
The satisfactory performance of agriculture and industry has contributed to healthy service sector growth, it said, mentioning that in October-December, escalation in demand for services during the parliamentary elections, contributed to boost retail trade in both rural and urban areas.
On the other hand, profit margins of private sector banks remain quite healthy, and are likely to have a positive impact on growth of financial services.
However, the global financial crisis will have an adverse impact on the services sector as well, because of effects on industry, particularly related to exports, and compression of domestic demand in general.
In its Economic Update, the ADB projected the rate of inflation at about 7.0 per cent for the year as a whole, down from 9.9 per cent in FY2008.
Inflation moved steadily downward as the October-December of FY2009 unfolded, sliding from 10.2 per cent year-on-year in September to 6.0 per cent in December, it said.
It also identified a rapid decline in international commodity prices and improved domestic food supplies as the main factors for pushing inflation lower.
The decline in food inflation to 6.8 per cent in December from 12.1 per cent in September was steeper than that of nonfood inflation that came down to 4.8 per cent in December from 7.2 in September.
The cut in the locally-administered price of oil in October and December last, after a rise in July, also helped ease price pressures, the ADB said.
The likely good domestic crop harvests, the effects of raising policy rates by the central bank for restraining credit in October-December of FY2009, and the January 2009 reduction in the domestic fuel prices will also ease inflation, it added.
On the fiscal management, it said despite the recent rise in subsidy on fertiliser, the government's budget deficit is expected to be around 4.7 per cent within the budgeted level of 4.9 per cent.
According to the ADB, the government revenues are showing signs of deceleration, with the revenue collections falling from 20.5 per cent during July-September of the FY2009 to 13.2 per cent during July-December period, over the corresponding periods of FY2008.
The ADB cautioned that the slower private sector activity, as the impact of the global economic slowdown takes hold, could further affect revenue collection.
Import-based revenues will be affected by the cuts in customs duties in the FY2009 budget and the erosion in import values resulting from the decline in international commodity prices, it added.
It also mentioned that a major challenge to the new government would be to raise the utilisation rate of Annual Development Programme (ADP).
'Both quantity and quality of ADP need to be stepped up by addressing capacity constraints and better interagency and aid coordination, so that infrastructure provision can support increased private investment and help address the country's development needs,' it said.
About the monetary and financial sector, the multilateral donor agency said Bangladesh Bank maintained an accommodating monetary policy stance with little adjustment in policy rates to support high economic growth and to contain inflation within tolerable levels.
Broad money growth reached 17.9 per cent year-on-year in December last, up from 14.7 per cent in December 2007, it said, adding that the private sector credit grew rapidly at 21.8 per cent year-on-year in December 2008 from 16.8 per cent in December 2007.
In mid-January last, Bangladesh Bank announced the Monetary Policy Statement (MPS) for the January-June period of FY2009 with a commitment to continue its support to maintain the flow of credit to raise production of goods and services, and provide refinance against lending in employment-intensive sectors such as agriculture and SMEs, it mentioned.
The ratio of gross non-performing loans (NPLs) to total loans of all banks declined to 12.3 per cent at the end of September last from 14 per cent at the end of September 2007.
On the other hand, NPLs of the state-owned commercial banks (SCBs) rose from 26.9 per cent to 29.3 per cent during the period, it said.
Weighted average lending rates continued to fall and stood at 12.4 per cent at the end of September 2008 while the interest rate spread declined from 6.2 per cent in September 2007 to 5.2 per cent in September 2008.
On the balance of payments, it said the preventing of a sharp decline in export earnings in the face of the cooling global demand in the coming months will be a major challenge for the government.
During July-December of FY2009, imports rose by 23.2 per cent over the same period of FY2008 while the total remittance receipts during July-January of FY2009 rose by 29.4 per cent over the corresponding period of the preceding fiscal year.
The annual growth in the number of workers leaving Bangladesh for overseas jobs slowed in 2008 compared with a growth of 118.2 per cent in 2007.
The trade deficit edged up to $2.9 billion in the first half of FY2009, up from the $2.2 billion deficit in the corresponding period of the previous fiscal year.
Higher deficits in trade and service payments reduced the current account surplus to $232 million from $298 million of the same period the year before.
Because of the higher surplus in the financial and capital accounts, the overall balance showed a higher surplus of $489 million in July-December 2008 against a surplus of $44 million in July-December 2007.
Gross foreign exchange reserves of Bangladesh Bank were lower at $5.8 billion (equivalent to about 3.3 months of imports) at the end of December 2008, down from $6.2 billion at the end of June 2008.
ADB cuts growth forecast for Bangladesh economy
FE Report | Published: March 03, 2009 00:00:00 | Updated: February 01, 2018 00:00:00
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