Exports, remittances are most vulnerable to recession: WB

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FE Report
The World Bank, warning of Bangladesh's vulnerability to the second-round effects of the global crisis, has said a downward spiral of exports and remittances could lead the economy to a lower growth path.
"As the global crisis worsens, Bangladesh becomes more vulnerable to the second-round effects," according to a bank report.
"Policy preparedness and timely action will be required to deal with the impending impact of the global crisis. There is a danger that the domestic economy could descend into a downward spiral of reduced export and remittance growth, leading to lower GDP growth and higher unemployment," the report says.
Based on the semi-annual economic review of the economy, the bank report said exports and remittances-the two crown jewels of the Bangladesh economy-are most vulnerable to the impending global recession.
The global economic crisis came at a time when the country averaged a healthy growth rate of 6.0 per cent over the last six years mainly from the thrusts of industrial and services sectors.
Overall export growth has been volatile and has slowed considerably to a monthly decline of 3.0 per cent by February 2009. Apparel exports, the biggest foreign exchange earner, have fallen significantly from 59 per cent at the beginning of the year to 19 per cent in February 2009.
The bank said even though remittances have held up so far but growth rates are rapidly declining.
The monthly remittance growth rate slowed from 44.7 per cent in July 2008 to 9.0 per cent in March 2009--the lowest so far in this fiscal year.
"The lacklustre performance of many Gulf Cooperation Council (GCC) countries is adversely affecting work opportunities for migrants from Bangladesh and therefore, future remittances," the report says.
The bulk of Bangladesh's remittances, about 63 percent, come from the Middle East, which hosts over 3.6 million Bangladeshi workers.
The global economic downturn is exerting "significant downward pressure" on both demand and price of a number of Bangladesh's non-RMG exports.
Frozen shrimp, a major export item, has experienced steep decline in price from US$5.0 per kg to US$3.7 per kg.
Profit margins for vegetable exporters have eroded due to the sharp depreciation of the UK pound vis-à-vis the US dollar.
The country's jute millers and spinners have reduced their production by 25-30 per cent due to the slump in external demand for raw jute and jute goods.
The Washington lender, in its report, said that sapping consumer spending in developed economies and the collapse in global trade will have an "increasingly adverse" impact on Bangladesh.
While there is scope for fiscal maneuvering due to lower food and fuel prices, the bank suggested that "delicate tradeoffs" be made while designing a fiscal package.
To dilute the effects of global recession, the bank suggested reviewing public spending and strengthening social safety nets to help ride out the storm of the global crisis.
The Washington lender said the transaction costs of remittances and investments by expatriates should be reduced and added that these steps could raise the flow of migrants' money.
The bank said Bangladesh can raise its exports, investment and growth through better connectivity and trade with regional countries.
It has estimated that the country can earn an additional $1.0 billion or more from exports, transit charges and port fees.