The performance of the Bangladesh economy during the April-June 2008 quarter (Q) was marked by several encouraging features that indicated its regaining of the growth momentum, according to the latest review of the country's economic situation by the Metropolitan Chamber of Commerce & Industry (MCCI).
The chamber noted improved agricultural and industrial production, increased momentum of investment activities, higher amount of remittances from abroad, larger implementation of the Annual Development Programme (ADP) and some decline in the rate of inflation as the redeeming features in the last quarter (Q4) of the last fiscal.
In its review, the country's leading chamber body noted that import of capital machinery, which went down to US$371.67 million during January-March 2008, showed an upward trend as indicated by opening of higher amount of L/Cs in July-May 2008.
Such latest trends about performance of the economy indicate that it is due to achieve the growth rate of approximately 1.6 per cent per quarter, which has been achieved since fiscal year (FY) 2002-03, the review pointed out.
According to the MCCI review, "there are signs of some improvement in domestic demand, both private and public, during the second half of the fiscal 2007-08. Increased collection of VAT, greater flows of capital to the private sector and higher sales of domestic market-oriented industries indicate higher spendings on consumption."
"External demand also expanded as borne out by the increase in exports. Despite the appreciating value of Taka vis-a-vis US Dollar, the improved performance of exports has been possible because of price competitiveness, improved port facilities and political stability."
"Private investment increased by 15.0 per cent, thanks largely to continuation of the Bangladesh Bank's (BB's) accommodative monetary policy as well as falling (weighted average) real interest rates. The strengthening of the Taka during this period helped reduce the cost of imported capital goods in Taka terms. The recovery in private investment led to a marked increase in imports, in particular the imports of capital goods and industrial raw materials used in manufacturing production. In the light of these developments, it is expected that GDP growth in FY 2007-08 will not be far behind the growth rate achieved in FY2006-2007", the MCCI stated.
The agriculture sector, the MCCI said, is expected to record a higher growth in FY08 resulting from the significant increase in Boro rice production (which accounts for 55 per cent of the country's total rice production) and measures adopted for increased disbursement of agricultural credit and timely supply of fertiliser and other.
"Preliminary indicators show that industrial production increased in the second half of the current fiscal and reached 6.9 per cent as against 8.4 per cent in the last fiscal", it pointed out.
During the second half of fiscal 08, manufacturing production increased by 5.0 per cent as compared to 2.4 per cent in the first half. Value added in the manufacturing sector came from jute, cotton, ready-made garments (RMG) and leather, tobacco, beverage, wood products & furniture and paper & paper product industries, the chamber noted.
"Import of capital machinery which went down to US$371.67 million during January-March 2008, showed an upward trend as indicated by the opening of L/Cs. Total L/Cs opened in July-May 2008 was US$1612.57 million as against US$1375.31 million in July-May 2007", it pointed out.
About services sector, the chamber said data on its performance for the entire second half of the present fiscal is not yet available. "The services sector displayed a higher growth rate in the January-March period (second quarter) of FY2007-2008 compared to that in the second quarter of the fiscal", it added.
About monetary and credit situation, the MCCI review pointed out that the Bangladesh Bank continued its accommodative monetary. "Credit flow to the private sector up to April 2008 increased by 23.1 per cent compared to the corresponding period of FY2006-2007. Credit to the government sector increased by 22.6%, while credit to the public sector enterprises declined by 13.3 per cent compared to 15.7 per cent, 31.5 per cent and 6.6 per cent increases, respectively, during the corresponding period of FY2006-2007", it said.
The broad money or M2 -- comprising currency outside banks, demand deposits and term deposits -- recorded an increase of 11.2 per cent during July-April 2007-2008 against the 11.9 per cent increase (luring July-April 2006-2007, while the more liquid narrow money (M1) grew by 10.4 per cent compared to 12.1 per cent in the corresponding period of the previous fiscal, the chamber pointed out.
"The total liquid assets in the banks were Tk 479.67 billion (47,967 crore) in April 2008 as against Tk 448.41 billion (44,841 crore) in June 2007. The central bank mopped up excess liquidity. In April 2008, excess liquidity was Tk 133.25 billion (13,325 crore) as against Tk 142.79 billion (14,279 crore) in June 2007", it said.
The disbursement of long-term industrial loans during July-March of the last fiscal year, according to the chamber, increased by 66.3 per cent, which was only 26.0 percent during the corresponding period of FY2006-2007. Disbursement of agricultural credit also registered an increase of 60.6 per cent during July-May of FY 2007-2008 compared to the 9.3 per cent negative growth of disbursement during the corresponding period of the previous fiscal, it added.
Government's total revenue collection during the third quarter of FY08, increased by 25.3 per cent year-on-year, reflecting 18.6 per cent growth of tax revenue and 115.4 per cent growth of non-tax revenue, the MCCI pointed out.
On the external front, despite the gloomy prospect of a weaker world economic growth, exports in the third quarter of the fiscal 2007-2008 made a remarkable turnaround after experiencing a negative growth trends for most of the first half of FY2007-2008, the MCCI noted.
The latest available Export Promotion Bureau (EPB) data, the MCCI pointed out, shows that the country's exports have increased by 14.66 per cent during the July-April period of the current fiscal year compared to the corresponding period of the previous fiscal.
"Imports increased by 23.88 per cent during July-March 2007-'08 mainly due to the import of huge quantity of food grains. Imports of other types of goods, including capital goods, raw materials and consumption goods, also increased reflecting strong growth of private consumption and private investment. The official estimate of import growth during the current fiscal is 25 per cent", the MCCI review pointed out.
"The increase in imports", the chamber stated, "led to a higher deficit of $3.92 billion in the balance of trade in the third quarter of FY2007-08 compared to $2.37 billion in the corresponding quarter of FY07. This deterioration was largely associated with the growth of imports of industrial raw materials (by 51.8 per cent), consumer goods (by 180.4 per cent) and capital goods (by 9.2 per cent). Surplus in the current account, increased largely on account of strong growth in workers' remittances. Yet the current account surplus at the end of the third quarter of FY08 was much lower (at $390 millions) than in the corresponding quarter of FY07, when it was $605 million."
"The robust growth in the remittance continued in the current fiscal year too. During July-May 2007-2008, remittances increased by 31.2 per cent over the corresponding period of FY 2006-2007. In absolute terms, the total amount of remittances were US$7164 million in July-May 2007-2008 compared to US$5462 billion in July-May 2006-2007. In FY2006-2007, export of manpower stood at about 0.6 million (6.0 lakh), the largest number recorded in a single year", the MCCI review said.
About the price situation, the MCCI review said price pressures remained strong in April-June 2008, with the average rate of inflation rising to 9.9 per cent from 9.8 per cent in the previous quarter. "The point to point inflation, however, fell to 7.44 per cent in May 2008 from 10.06 per cent in March 2008 and 11.59 per cent in December 2007".
"Domestic inflation has been in line with higher global oil and agricultural commodity prices. In particular, the increased pass-through of the prices of rice and their food products led to the acceleration in food inflation. The inflation rate in the rural areas remains higher than in the urban areas", the chamber said.
The over-all business climate and the Government's commitment to be business-friendly, as assessed by the large and medium-level entrepreneurs, are proving to be helpful to business confidence, noted the chamber.
Continuation of stable monetary policy, improved performance of the infrastructures and check on borrowings by the Government from the banking sector would prove to be mutually beneficial to the business community and the economy, it stated while pointing out that failure to improve gas and electric supplies "is a major lapse for the Government".
"The large and medium level entrepreneurs are also concerned over the process of transition to democracy", according to the chamber.
However, the businessmen in small and micro sectors, particularly those engaged in poultry farms, food processing, engineering workshops, transportation and packaging & printing are, the chamber stated, found to be less optimistic and have been complaining about lack of policy support from the Government and more particularly, against non-availability of electricity and gas.
"They point out that higher prices of gas and electricity and the law and order situation pose a grim future for small and micro enterprises," the chamber observed in its latest economic review.
