Economy well on course to recovery, says MCCI

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FE Report
Economy in the country is well on the way to recovery, even though performance of different sectors and sub-sectors remained mixed in the fourth quarter of the last fiscal year.
The overall investment scenario still remains largely depressed but there are some definite signs of improvement. Actual increase in investment would depend on how effectively the government can ease the constraints to investment growth, including the shortage of power and electricity.
This was revealed in Metropolitan Chamber of Commerce and Industry (MCCI) Review of Economic Situation in Bangladesh for April-June 2010.
The chamber report pointed out improved implementation of the annual development programme and success in rapidly institutionalising the PPP efforts, especially in the infrastructure sector, will be important in crowding-in private investment.
"The acceleration of growth would depend upon the success in raising investment especially in the private sector," the MCCI review said.
The government will also need to take quick and innovative actions in economic management in order to improve the implementation capacity, raise the level of economic activity, and make progress towards realising the social goals, including the poverty reduction targets, it added.
The report cautioned that the inflationary pressure will need to be kept under control through judicious coordination of fiscal and monetary policies.
While the performance of the economy remained weak in the third quarter (Q3) of FY10, the pace of economic activity improved in the fourth quarter (Q4, FY10), it said.
It also added: "The recovery from the slow growth in the previous quarters enabled the economy to achieve a 6.0 per cent growth during FY10, surpassing the 5.74 per cent growth in the previous fiscal."
All the sectors contributed to this growth, which is well above the pessimistic 5.5 per cent growth projection made by donor agencies and other quarters, it mentioned.
In agriculture, crop production is expected to exceed last year's production, although it may fall short of the FY10 target, said the review.
The target for food grains production for FY10 was set at 35.05 million tonnes consisting of 2.49 million tonnes of aus, 12.74 million tonnes of aman, 18.80 million tonnes of boro, and 1.02 million tonnes of wheat. The target was 9 percent higher than the actual total production of food grains of 32.16 million tonnes in FY09.
Referring to an analysis of food grains import situation, it said during July-May period of FY1 0, total import stood higher at 3.16 million tonnes compared to 2.95 million tonnes during the corresponding period in FY09.
However, it said, the stock of food grains (including transit stock) with the government stood lower at 0.72 million tonnes at the end of May 2010 compared to 0.98 million tonnes at the end of May 2009.
"The stock is, however, expected to increase after public procurement of boro ends," it said.
The FY10 budget proposed a comprehensive approach to developing the rural economy covering both farm and non-farm sectors, the review mentioned.
On 'Public Support and Input Delivery', the review said a number of important and complementary measures were implemented by the government in FY10 for improving the delivery of subsidy and fertiliser to the farmers.
Besides, the Ministry of Agriculture (MoA) has introduced 'Agriculture Inputs Assistance Card' (Krishi Upakaran Sahayata Card) for the farmers.
These measures are believed to have had a favourable impact on the agriculture sector, in particular the crop sub-sector, and contributed to its growth in the fiscal, it added.
Fisheries and livestock sub-sectors, too, depicted good growth during the Q4.
Within the broad industry sector, the performance of different sub-sectors was mixed, it said, adding while large and medium scale industries was yet to regain the historically high growth rate witnessed in the middle of the present decade, their recovery is well under way.
In particular, manufacturing industries oriented to the domestic market have done better, it mentioned, adding the performance of construction, mining and electricity sub-sectors has improved while gas and water sub-sectors lagged behind during the said quarter
The services sector, overall, performed well, led by positive growth in hoteliering, road and air transport, storage, public administration, education and public health, it said.
Private sector credit increased significantly by 17.6 per cent during the Q4, while net credit to public sector declined by about 10 percent during the same period, it revealed.
Revenue collection under the National Board of Revenue (NBR) increased by 17.4 percent during the Q4, compared to a much lower rate of 14.0 percent in the previous quarter, it said.
Revenue collection in the entire fiscal (FY10) recorded an all-time high of 18.05 per cent growth and also exceeded the annual target by over Tk 10 billion, it mentioned.
Revenue collection from VAT and income tax rose 24.5 and 23.3 percent, respectively, during the fiscal, the review added.
On the external front, the negative growth of exports during the past months of the fiscal was reversed in the fourth quarter.
Regarding imports, the declining trend since March 2010 persisted in April and May as well but the annualised import growth till May 2010 remained positive and stood at 2.68 percent over the previous fiscal, the MCCI review revealed.
The price pressure eased somewhat in the Q4 of the last fiscal, the point-to-point inflation falling from 8.78 percent in March to 8.54 percent in April, it said, mentioning that both food and nonfood inflation had contributed to this decline.
On manufacturing sector, it said the industry sector, especially the manufacturing activities, experienced significant depression in the wake of global recession and downturn of economic activities especially during the first six months of FY10.
It, however, said it is difficult to identify the most recent trends, adding while the performance of large and medium scale manufacturing industries remains generally weak, there are signs such as the rise in private sector credit and increased volume of L/Cs opened, which indicate that manufacturing activities have been on the rise since the advent of the third quarter of this fiscal.
In particular, manufacturing industries catering mainly to the domestic market (including small scale industries) seem to have performed better during the period, it said.
Also, some indirect evidence, e.g., electricity and gas consumption by industrial establishments shows some picking up of industrial production especially during and after the second quarter of FY10, it added.
The gas consumption in different industry-related activities (e.g. power generation, industrial and commercial activities) rose by between 10 percent and 20 percent during July-October 2009 indicating some revival of the industry sector growth, it added.
The disbursement of industrial term loan that rose by 9 per cent during July-September 2009, compared with the same period of the previous year, also indicates positive investments in the industry sector.
The distribution of outstanding advances shows that most of the term loans went to domestic market oriented industries, it said, adding the service related industries, on the other hand, accounted for a low share of term loans but advances for working capital financing grew robustly (at about 37 per cent).
The small and medium enterprises (SME) sector is considered both a thrust sector and a pillar of the country's economic growth, it said. A well developed SME sector is a prerequisite to attaining higher growth of large-scale industry and services sector as well, the MCCI review added.
In FY10, Bangladesh Bank (BB) undertook a number of activities, including establishment of a separate department called 'SME and Special Programme Department' and preparation of an SME financing guideline called 'SME Credit Policies and Programme', it mentioned.
Regarding construction sector, it said the sector expanded at a steady pace, as indicated by the high growth in the production of cement and import of construction materials, though data of the last quarter are not available, we can say that the construction activities have been increased during this period.
About electricity, it said power conditions of the Q4 of FY10 continue almost the same against the previous quarter, although the demand of electricity increases gradually but the production condition is not well to meet the demand.
"The government has taken a policy to generate more power through higher public and private investment, reduce system loss to the minimum and harness natural gas, solar power, atomic power and hydroelectric resources," it said.
It went on: "As per private sector power generation policy formulated by the government in October 1996, three barge-mounted power generating units with capacity of 100 MW each would be set up by private sector entrepreneurs at Khulna, Haripur and Shikalbaha."
Other power projects in the pipeline at Meghnaghat, Haripur, Mymensingh and Baghabari will help Bangladesh attain self-sufficiency in power generation in near future, it added.
About the services sector, it said up to the first month of Q4 of FY10, several service sector activities showed good performance such as hospitals, IT services, travel agencies, education, social work, public administration, road and air transport, storage, hotels and restaurants.
The trade sector also got a boost with 35 per cent of total advances going to various trading activities during the period, it said, adding the growth of services sector is reflected in several indicators, such as, the volume of cargo handled by Chittagong port.
Total export cargo grew by 24.1 per cent while import cargo grew by 20.6 per cent during Q3 of FY10 over the same period of the previous fiscal year, it said.
On the whole, the overall performance of the services sector was good in the Q4 of the fiscal, it revealed.
On 'money and credit, as announced in the BB's Monetary Policy Statement (MPS) for the period January-June FY10, the Bank's monetary policy stance remained basically unchanged during the second half of FY10, it said.
It also attempted to maintain a stable exchange rate with a view to containing the high pass-through effects, the review added, saying broad money grew by 15.7 percent during July-April FY10 against the same period of the previous fiscal year.
Of the components of broad money, currency outside banks, deposits, demand deposits and time deposits increased by 17.42 per cent, 15.46 per cent, 21.93 per cent, and 14.6 per cent respectively, during July-April FY10, it mentioned.
High growth of foreign assets (by 35.71 per cent) resulted in a rise in the stock of reserve money in the July-April period of FY10, it said, adding reserve money recorded a marginal increase during July-April FY10 against the same period of the previous fiscal year. However, net domestic assets of BB decreased during the period under report, it added.
Citing BB data, it said disbursement of industrial term loan, during Q1, Q2 and Q3 of FY10 were Tk.54.03 billion, Tk.72.11 billion and nearly Tk. 62.13 billion respectively.
On the other hand, recovery of industrial term loan, during the same quarters were Tk. 38.32 billion, Tk. 47.22 billion and Tk. 46.51 billion respectively, implying that disbursement of industrial term loans was always higher than their recovery.
About annual development programme (ADP), it said the weak implementation capacity of the ministries/divisions continues to remain a major bottleneck of public sector investment. The government has to improve the capacity and utilize the fund from early in the FY instead of spending at the last moment, it suggested.
About country's balance of payments, it said during July-April FY10, trade balance recorded a deficit of US$ 4,501 million, higher than the deficit of US$ 4,490 million during July-April of the previous fiscal year.
However, due to larger current transfers amounting to US$ 9,726 million, the current account balance recorded a bigger surplus of US$2,834 million during July-April FY10 against a surplus of US$ 1,208 million during July-April FY09, it said.
On remittances, in the Q4 of FY'10, Bangladesh received US$ 2685 million as remittances, which shows a marginal decline of about US$ 52 million over the remittances of the previous quarter (US$ 2737 million). However, remittances of Q4 of FY10 were higher, albeit by a small amount of US$ 29 million, than the remittances of the corresponding quarter of the previous fiscal year, it said.
Total remittances during July-June FY10 showed an increase of about 13 per cent over the same period of the previous fiscal year.