Delayed global recovery to weigh on B'desh economy, says ADB

---

FE Report
The Asian Development Bank (ADB) has praised the government for "prudent" budgetary steps to stimulate the slowing economy, but cited a delayed global economic recovery as the major downside.
Even in the wake of the worst recession in living memory, the Bangladesh economy managed to avert a major economic slowdown and was relatively unhurt compared to its competing Asian peers.
The Asian lender, however, has blamed dampening demand exacerbated by slower growth in exports and remittances inflow for Bangladesh's slight fall in growth last fiscal.
In its September economic update, the bank noted that the US$ 90 billion economy grew 5.9 per cent in the fiscal 2009, slightly down from 6.2 per cent in the 2008 financial year.
It said the budget for the 2010 fiscal strikes a "prudent" balance between the need to stimulate the economy against the backdrop of the global recession and to protect the poorest of the poor.
"It (new budget) increases spending on social safety net programmes to protect the poor, while preserving macroeconomic stability," the ADB said in its update.
The report noted public investment declined further, sliding from 5.0 per cent of GDP (gross domestic product) to 4.6 per cent, as annual development programme (ADP) implementation continued to be weak.
"Taking the economy to a higher growth path and more rapid and sustainable poverty reduction will require large-scale infrastructure investment well beyond what the government can provide," said the report, released Tuesday.
The government's strategy to address the infrastructure gap includes action on two fronts: building a more conducive environment and enhancing the framework for public-private partnerships (PPPs).
The agriculture sector grew by 4.6 per cent in FY09, up from 3.2 per cent in the last fiscal, owing to high growth in food-grain production, aided by favourable weather and strong government support.
The bank said measures to speed up delivery of seeds, fertilisers, power, and credit and scaled up subsidies for fertiliser and power used for irrigation were key factors in boosting the sector's output.
Industry sector growth, however, declined to 5.9 per cent last fiscal year, from 6.8 per cent in the previous year as export production in the second half of the fiscal year slowed due to the global slowdown.
Weak investor sentiment also affected manufacturing growth, as did slow implementation of power and energy projects, and weak construction activity, the economic update said.
Growth in the power and gas sub-sectors dropped to 4.5 per cent in FY2009 from 6.8 per cent in FY2008, while growth in the construction sector dipped slightly to 5.7 per cent.
The service sector growth, like that of industrial sector, also slowed slightly to 6.3 per cent in FY2009, due to the slowdown in remittance inflows and lower trading activities.
Slower export growth and a fall in import volumes affected trade and transport services. Retail and wholesale services were affected by moderating consumer demand.
Annual inflation declined to 6.7 per cent in FY2009 from 9.9 per cent in FY2008.
The ADB report said the successive cut in domestic fuel prices in October and December 2008 and January 2009, in line with the fall in international commodity prices and rise in domestic food supplies, has helped to ease price pressures in recent months, particularly of foodstuffs.
Revenue collection remained unchanged at 11.2 per cent of GDP in FY2009 because of the sharp fall in import growth due to the fall in international fuel and commodity prices, the global economic crisis and slower expansion of economic activity.
Revenue from the National Board of Revenue sources increased by 10.7 per cent, far below the budget target of 18.6 per cent and the 27.4 per cent growth of the previous fiscal year.
On the expenditure side, public spending was lower at 15.3 per cent of GDP, down from 15.9 per cent in FY2008, because of savings on food, fuel, and fertiliser subsidies given the fall in international prices and ADP underutilisation.
As savings on public spending were larger than the shortfall in revenue, the fiscal deficit of 4.1 per cent of GDP was lower than the budget target of 5.0 per cent.
Private sector credit growth slowed to 14.6 per cent year-on-year in June 2009, down from 24.9 per cent in June 2008, because of the slower trade growth and slackness in investment activities due to the global economic recession.
Exports grew by only 10.3 per cent in FY2009, a sharp deceleration from the 15.9 per cent in FY2008. Retail sales in developed economies fell, leading to a slowdown in garment export orders and shrinking profit margins for Bangladeshi exporters through price reductions.
Imports in FY2009 rose by only 4.1 per cent, mainly due to the sharp fall in imports of food items and capital machinery.