Second round of recession begins to hit Bangladesh: ADB update

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FE Report
Asian Development Bank (ADB) Thursday said Bangladesh economy has begun to be affected by the second round of the global economic crisis, which would reduce the country's near-term growth prospects.
Despite the slow growth, Bangladesh would perform better than most Asian countries as it has avoided the first round impacts of the global meltdown, said the Bangladesh Quarterly Economic Update, March 2009 of the Manila-based lending agency.
"Bangladesh is doing well within the South and south-east Asia. Its macro economic management was very very good despite the global recession," Paul J. Heytens, ADB's country director briefed journalists when the economic update was released Thursday in Dhaka.
He said Bangladesh's economic growth in the next fiscal would depend on how-long the global economic plunge would sustain.
Bangladesh has achieved a robust 5.9 per cent GDP (gross domestic product) growth in outgoing fiscal 2009 defying the impact of the global economic fallout.
Mr. Heytens said Bangladesh now needs to focus on more power generation and raise its revenue income to weather the next impacts of the economic dip to maintain a steady and impressive growth.
The ADB's economic update said: "With the financial crisis worsening into a global recession, the real economy has begun to be affected. Exports and remittance growth have both moderated, slowing GDP growth in the near term."
"Although the agriculture sector, underpinned by favourable weather conditions and the government's strong policy support, is poised for robust growth in FY2009," it said adding, "growth rates in the industry and service sectors are likely to slow, mainly as a result of weaker demand."
The ADB report said growth in ready-made garment (RMG) and knitwear production has started to slow while serious power shortages at the onset of the dry season dampened sector growth prospects.
"The gains in business confidence stemming from a peaceful political transition have been partly offset by the negative impacts of the global economic slowdown," the economic update added.
The report said: "A major weakness of the Bangladesh economy is prolonged low investment. The private investment increased marginally from FY08 to FY09. Besides, the public investment has declined to only 4.6 per cent of GDP in FY09."
"Bangladesh needs to address weak infrastructure including acute power shortage, transportation bottlenecks, inefficient port facility and slow institutional reforms which are the major obstacles to investment," the report said.
Mr. Heytens said fall in revenue collection in the current fiscal would be a challenging issue for the economy.
"Revenue collection has slowed significantly since the onset of the global financial crisis. The overall revenue target is unlikely to be achieved this fiscal," he said.
"Given the pressures of the global economic crisis, it is essential for Bangladesh to boost aggregate demand and speed up ADP implementation," the economic update said.
"Bangladesh can improve ADP implementation by addressing capacity constraints and improving institutional coordination amongst the concerned agencies."
On the monetary policy the ADB report said the continued monetary expansion was mainly driven by strong growth in public sector credit (20.5 per cent).
"On the other hand, the pullback in private sector credit growth reflected the slowdown in economic activity, particularly the easing of imports due to the global economic recession."
The report of the Manila-based lending agency said the overall trade deficit widened slightly to $4.0 billion in the first nine months of FY2009 from $3.8 billion in the corresponding year.
"Despite the higher trade deficit, because of the 24.5 per cent growth in remittances in the first nine months, the current account surplus widened to $1.1 billion from $675 million from the same period in last FY2008. As a result, the overall balance of payments posted a surplus of $942 million, against a surplus of only $417 million in the previous year."
ADB's country programme head Zahid Hossain said: "Bangladesh is relatively unaffected by the global recession but the outlook is uncertain. Continued prudence in macroeconomic policy is needed to preserve stable economic environment."
He suggested that a large increase in infrastructure investment and continued reform are needed to enhance long-term growth prospects.
Mr. Hossain said the coming national "budget is critical" in setting directions and creating opportunities.
"The next year will not only be critical for falling trend of the revenue earnings, but as the newly elected government will announce its first budget, it will give a signal for its next five-year fiscal and economic policies," he said without elaborating much about the "critical budget".
The country programme chief welcomed the government's initiative to introduce public-private partnership investment paradigm saying it would help develop country's ailing infrastructure significantly.