BB pins much hope on global economic recovery

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FE Report
The central bank has found strong link between the performance of the Bangladesh economy in the current fiscal and the pace of recovery of the global economy from deep recession.
In its annual report (for fiscal 2008-09) released Sunday, the Bangladesh Bank expressed the fear that Bangladesh might have to make some downward revision in its medium-term economic forecasts in the event of the third wave of recession.
It has also listed the stabilization of inflation as a major challenge for the policymakers.
However, the BB report while dwelling on the near and medium term prospects of the macro-economy said Bangladesh would be able to become a middle income country after posting US$976 as per capita gross national income (GNI) by 2013.
The Bangladesh Bank (BB) observation came as the per-capita GNI of Bangladesh has risen by over 50 per cent to $690 in the last four years up to fiscal 2008-09 (FY09).
"At this rate, reaching the middle income threshold of $976 should not take more than another four years, say, not beyond 2013," BB Governor Atiur Rahman said Sunday while releasing the annual report for the FY09.
The central bank has identified six downside risks, including infrastructure constraints particularly power, gas, ports and transportation in the economy.
The report said the outlook envisaged in the Medium Term Macroeconomic Framework (MTMF) faces several near and medium term downside risks and uncertainties originating from probable adverse effects of the global financial crisis on exports and workers' remittance inflows, continuous return of migrant workers laid off in recession-ridden host countries, weakening in investment momentum, risk of exacerbating domestic inflation if unexpectedly faster global recovery takes hold and floods and other natural disasters and climate change.
"We've already taken measures to off-set the risks," the central bank chief said while replying to a query and added that the central bank is ready to face any risk.
"All the risk factors are being minimised," Senior Consultant of the central bank Allah Malek Kazemi said, adding that the overall risks on the economic growth have reduced slightly.
Initiatives to remove infrastructure inadequacies, especially the power shortages, should be taken as priority to support the near and medium term gross domestic product (GDP) growth targets and to improve external competitiveness, the central bank recommended.
A comprehensive energy plan, including establishment of power plant, strengthening of power transmission and distribution facilities and implementing reforms with corporatisation and financial restructuring of power sector entities needs to be seen as the most important factors to economic development, including industrialisation, the BB added.
"Unless the global economy recovers rapidly, FY10 will be a challenging one to attain the growth projection close to FY09 level within the indications that the global financial crisis is beginning to impact the economy," the annual report noted.
The report said stabilising the inflation rate is a major challenge for the policymakers because a low and stable rate of inflation is critical for accelerated economic growth and poverty reduction.
"The plummeting trends of global commodity prices by and large ceased in the beginning of 2009 and started to edging up, may involve some risk of exacerbating domestic inflation," it added.
Although global economy is beginning to stabilise showing the signs of recovery, the third wave of recession is likely to impact the Bangladesh economy, necessitating some downward revision in the medium term economic forecasts, according to the report.
In the updated MTMF, the real GDP growth has been projected conservatively to be in the range of 5.5 per cent to 6.0 per cent in FY10.
"The growth rate for FY10 may exceed the target following faster global economic recovery together with investment plan implementing initiatives, including public private partnership (PPP)," it noted.
On the other hand, inflation is projected to decline to 6.5 per cent in FY10 and to 6.0 per cent in FY12, with monetary policy stance to support attainment of highest sustainable output growth without triggering escalation of inflation.
Meanwhile, the total income of the central bank for the FY09 decreased by Tk 9.1 billion to Tk 32.4 billion compared to Tk 41.5 billion in the previous fiscal due mainly to the global meltdown.
"The central bank has deposited Tk 17.3 billion to the government exchequer during FY09 despite the interest rates were cut drastically in the global market," the governor said.
He also said the central bank wants to keep the country's foreign exchange market stable without taking any risks.
Regarding GNI growth, Mr Kazemi said the GNI of Bangladesh has grown rapidly following increased economic growth along with the inflow of remittances.
"The Human Development Index will have to be improved significantly. The government is now working on the issues to come out from the group of least developed countries (LDCs) by 2020," he noted.