Bangladesh needs to improve infrastructure, boost investment and maintain political stability to achieve its desired economic growth for becoming a middle income country, Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka has said.
"Without developing new infrastructures and improving existing ones, Bangladesh cannot hope to become a middle income country within the targeted period," MCCI said in its quarterly review (July-September) of the current financial year (FY) 2014-15, released Tuesday.
It said major challenges now facing Bangladesh are to restore the confidence of the country's business and investors' community, boost private investment, and bring momentum in economic activities.
The Chamber, however, said although the progress made is below potential, the country experienced stable growth, inflation was under control, the exchange rate remained stable, and foreign exchange reserves rose and remained at comfortable level.
"Bangladesh's economy is progressing well, but below its true potential, as infrastructure bottlenecks, crisis in power and energy sector, absence of investment-friendly climate and political uncertainty keep it from performing at full capacity," it said.
"Services sectors are doing well but these will need adequate government support to enable them to recoup the losses they suffered during the political crisis last year," the MCCI review stated.
It has suggested immediate government actions to enact the Public Private Partnership (PPP) law, and award contracts to build Special Economic Zones (SEZs).
The MCCI has also advised to pay attention to the creation of skilled manpower, restoration of political stability, and achieving an investment-friendly climate, which are the key factors for higher economic growth.
"Entrepreneurs, whether local or foreign, are not as interested in economic incentives as they are in sound economic policies, a favourable business environment and a stable political climate. These are also some of the essential preconditions for accelerating the country's economic growth," it said in its quarterly review.
The Chamber has also suggested completing the larger development projects including the Dhaka-Chittagong and Dhaka-Mymensingh four-lane, the double tracking of the Dhaka-Chittagong railway, the Padma Bridge, the Dhaka metro-rail and the two Bibiyana gas field-based power plants.
The MCCI said Bangladesh needs to accelerate export, attract more investments and improve the overall infrastructure.
"To achieve faster economic growth, which is necessary to achieve the status of a middle-income country, Bangladesh needs to improve its road and rail infrastructure, develop port facilities, increase power production and remove other infrastructure bottlenecks," it said adding these impediments must be removed to restore the confidence of the country's business and investors' community.
About the Industrial sector, the MCCI in its review said the broad industrial sector grew at 8.39 per cent in the past fiscal, 1.25 percentage points lower than the previous year's 9.64 per cent.
"Shortage of power and gas, political violence, labour unrest in the garments sector, insufficient private investment and shortage of industrial lands in export processing zones were the main reasons behind the low growth of the industrial sector. These problems persisted in the quarter under review as well, affecting the performance of the sector," it added.
The review said, "The services sector witnessed a better performance in FY2014 compared to the previous fiscal. Some of the sub-sectors that suffered heavily during the months of political violence intensified their efforts in the quarter under review to recoup their losses."
On the agricultural sector, the MCCI said production targets of food grains may be achieved, barring the unforeseen occurrence of natural disasters. "Preliminary estimates by the DAE indicate that the production of Aman - the first crop of the fiscal - may exceed the target."
"The construction sub-sector perhaps did well in the quarter under review, sustaining the upward trend of the past fiscal. Public sector development projects, including the rehabilitation of roads and highways, and construction of multistoried buildings in the private sector financed with foreign remittances were the main drivers of the growth of the construction sector," the MCCI has noted.
The MCCI observed that domestic credit recorded a higher growth of 11.36 per cent (y-o-y) at the end of August 2014, compared to 10.44 per cent growth at the end of August 2013.
"Total liquid assets of the scheduled banks stood higher at Tk 2.243 trillion as of end August 2014 compared to Tk 2.147 trillion as of end June 2014. Also, the required liquidity (SLR) of the scheduled banks stood higher at Tk730.83 billion, the excess liquidity of scheduled banks as of end August 2014 stood higher at Tk 1.51trillion, compared to Tk1433.97 billion as of end June 2014," it said.
The MCCI said, "Disbursement of industrial term loans during April-June of FY14 increased 23.5 percent over the immediate previous quarter, following improvement in the country's overall political situation in the aftermath of the parliamentary election on January 5 last. The recovery of industrial term loans also increased, reversing the negative recovery during January-March of FY14."
It said the capital market depicted heightened investors' confidence amid increasing turnover. "Because of the fall in banks' deposit interest rates, the capital market was flooded with excess liquidity and investors continued their buying spree."
About the revenue income, the review said the collection of NBR revenue increased 15.3 per cent during July-September of FY'15 over the corresponding period of the previous fiscal.
On the external sector, the Chamber said exports grew by 0.88 per cent compared to the same period of the previous fiscal, which fell short of the strategic target by 3.87 per cent.
"Import payments during July-August stood at US$6.79 billion, which is 7.3 per cent higher than import payments during the corresponding months of FY14. Encouraged by a relatively peaceful political environment after the January 5 elections, businessmen started to increase the import of machinery and industrial raw materials, which pushed up the volume of imports in the first two months of the quarter," the review stated.
The review said remittance inflows recorded a significant rise (21.87 per cent in the quarter under review, mainly because of higher remittances during the two Eid festivals.
"Bangladesh's dependency on foreign aid has substantially fallen since the independence of the country. The foreign assistance came down from 12 per cent of the gross domestic product in 1977 to only 1.8 per cent now. The decline in aid dependence has been possible due to the rise in internal resources," the review said.
In July-August of FY2015, net foreign direct investment (FDI) increased by 10.4 per cent to US$244 million.
MCCI, quoting the industry insiders, said this investment is not enough for the country's development.
"The investors have adopted a go-slow policy in making fresh investments because of their lack of confidence in the business environment, which they attribute to the country's underdeveloped infrastructure, shortage of power and energy, procedural bottlenecks, lack of proper regulatory framework, scarcity of industrial lands, and political uncertainty. The government needs to overcome these obstacles to attract more FDI in the country," the MCCI observed.
It said trade balance recorded a higher deficit of US$999 million in the first two months of FY2015 compared to the deficit of US$790 million in the corresponding period of FY'14.
"Despite the larger inflow of workers' remittances, higher deficits in services and primary income accounts led to a smaller current account surplus of US$327 million during July-August of FY'15, compared to the corresponding months of FY'14. Yet, a large surplus in the financial account resulted in a relatively larger surplus of US$782 million in the overall balance during July-August of FY'15," MCCI said.
About the currency market, the MCCI said Taka appreciated marginally (by 0.30%) in terms of US dollar between end-June and end-September of 2014, showing stability in the foreign exchange market.
About the falling inflation, the MCCI said, "The general point to point inflation fell by 0.07 percentage points to 6.84 per cent in September 2014 from 6.91 per cent in August 2014 mainly because of the fall in both food and non-food inflation. Also falling commodity prices in the global and local markets helped lower the inflation rate."
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