An update of Bangladesh economy
Wednesday, 4 January 2012
Bangladesh economy is under manifold pressures due to soaring imports of fuel and fertiliser, soaring inflation rate, rise in budget deficit and government borrowing, increase in subsidies, and fall in foreign aid and foreign currency reserve, sharp rise in import bills, and decline in export earnings and deprecation of the currency. The observations were made by a research organisation, Unnayan Onneshan, in its half-yearly review.
While reviewing the country's economy at the end of 2011, the organisation cautions that the national output may further contract in the coming years with their lagging effects, if the challenges sparked in recent times by the processes of deceleration of growth in real sectors and the pressures created by nominal variables are not sorted out on an urgent basis by the government.
If a radical package of structural solutions is not crafted, the Sixth Five Year Plan might end up with an average annual growth rate of only 5.45 per cent against the target of 7.3 per cent. In the most optimistic scenario, GDP (gross domestic product) growth rate at 6.82 per cent might be achieved in fiscal year (FY) 2011-12 against the targeted rate of seven per cent. Thus means that the incremental GDP growth rate in FY 2011-12 might be lower than that of the previous fiscal.
The findings of the study by organisation further reveal that allocation in social sectors has dropped significantly in the current fiscal due to sharp rise in subsidy in power sector. This might have an adverse impact on the marginalised people of the country. Moreover, the rate of implementation of the annual development programme (ADP) is not satisfactory the major part of its implementation at whatever level in relation to the target is done in the last three or four months of every fiscal year. If this persisting trend continues, the incidence of poverty may slide down to 27.5 per cent and 17 per cent by calendar year 2013 and 2021, which are 2.5 per cent and 2.0 per cent higher than those of the targets of the present government.
Savings and investment: Both national savings and total investment are following growth at a decreasing rate compared to that of the previous fiscals. Under the business-as-usual scenario, the organisation projects that total investment and national savings in FY 2011-12 might reach to Tk 2079.5 billion and Tk 2396.1 billion respectively.
Inflation: Under the business-as-usual scenario, the rate of general, food and non-food inflation might climb to 9.40%, 14.55% and 5.60% respectively at the last month of FY 2011-12.
Trade balance: In the current fiscal, import bills are increasing mainly due to the payments for petroleum import. At the end of this fiscal import bills might reach to US$3383.2 million, which is 16.25% more than that of June 2010. Export earnings declined to $1591.24 million in November 2011. However, export earnings might increase to $1497.56 million at the end of the fiscal 2011-12, which is 37.00 per cent lower than that of June 2010-11.
Deficit financing and debt management: The report further added that the government borrowing and debt is following a vertical trend in recent years. Net foreign and domestic borrowings in FY 2011-12 are 125.79% and 9.63% higher than those of FY 2010-11. The trend of government borrowing has increased due to deficit financing. The amount of government borrowing in FY 2011-12 is 16.67% and 31.59% more than that of the previous proposed and revised budget respectively. Government domestic borrowing from banking sector in FY 2011-12 (July-September, 2011) is 622.57% higher than borrowing from non-banking sector. Moreover, in FY 2011-12, the amount of external debt might amount $21.87 billion.
Revenue: If the current trend continues, the National Board of Revenue (NBR) revenue earnings might reach to Tk 862.52 billion and non-NBR revenue earnings might achieve Tk 26.33 billion, which might be Tk 56.18 billion and Tk 12.71 billion less than that of the targeted level in FY 2011-12. Such a continuation of current monthly trend suggests that total tax collections might reach to Tk 862.83 billion in FY 2011-12, which might be Tk 95.02 billion or 9.92 per cent less than that of the targeted tax collection in FY 2011-12.
Foreign exchange reserve: Foreign exchange reserve might witness a shortfall in the current fiscal year due to increasing import bills and decreasing export earnings. Foreign reserve has recently declined due to the payments for the petroleum.
ADP implementation: Implementation of ADP is not satisfactory in recent years. Monthly implementation trend suggests that only 66.73 per cent might be implemented while yearly trend suggests that about 88.35 per cent of ADP allocation might be implemented by the end of the current fiscal.
Real sectors: Agriculture: Decline in subsidy on agriculture in the current fiscal might bubble up the cost of agriculture production for which food security might be at stake. The subsidy in agriculture sector in FY 2011-12 is targeted at Tk 45000 million that is 21.04 per cent less than that of FY 2010-11 when the amount of subsidy was Tk 57000 million.
Industry: The Unnayan Onneshan has observed that Bangladesh is in the process of transmission from a predominantly agrarian economy to an industrial economy. The present government is promised to increase the contribution of industrial sector in GDP from 30.33% in FY 2010-11 to 40% by the calendar year, 2021. According to the business-as-usual scenario, in FY 2011-12, total growth rate of manufacturing sector might be 9.76%, while that of small and cottage industry and medium and large industry might be 7.36%, and 10.76% respectively.
Power: The report has further highlighted that energy and power need to act as a key catalyst in helping Bangladesh to boost its agriculture, industry and socio-economic advancement. Subsidy has increased to Tk 52,000 million in FY 2011-12 compared to Tk 42,000 million in FY 2010-11. If the cost of electricity and fuel price at the international level remains the same, the oil subsidy bill might reach to more than Tk 2,00,000 million by the end of the FY 2011-12.
Social sector: The Bangladesh Economic Update has focused on the overall allocation for social sectors. It has declined in FY 2011-12. The grave concern is health where the total allocation of ADP has come down to one-third compared to that of the previous fiscal year. The growth of education is increasing but with a decreasing rate. Allocation on gender has witnessed an increased amount in volume; however, proper implementation is a matter of concern, considering the trends of previous fiscal years.
The writer is with the Unnayan Onneshan and can be reached at email: rtitumir@unnayan.org
While reviewing the country's economy at the end of 2011, the organisation cautions that the national output may further contract in the coming years with their lagging effects, if the challenges sparked in recent times by the processes of deceleration of growth in real sectors and the pressures created by nominal variables are not sorted out on an urgent basis by the government.
If a radical package of structural solutions is not crafted, the Sixth Five Year Plan might end up with an average annual growth rate of only 5.45 per cent against the target of 7.3 per cent. In the most optimistic scenario, GDP (gross domestic product) growth rate at 6.82 per cent might be achieved in fiscal year (FY) 2011-12 against the targeted rate of seven per cent. Thus means that the incremental GDP growth rate in FY 2011-12 might be lower than that of the previous fiscal.
The findings of the study by organisation further reveal that allocation in social sectors has dropped significantly in the current fiscal due to sharp rise in subsidy in power sector. This might have an adverse impact on the marginalised people of the country. Moreover, the rate of implementation of the annual development programme (ADP) is not satisfactory the major part of its implementation at whatever level in relation to the target is done in the last three or four months of every fiscal year. If this persisting trend continues, the incidence of poverty may slide down to 27.5 per cent and 17 per cent by calendar year 2013 and 2021, which are 2.5 per cent and 2.0 per cent higher than those of the targets of the present government.
Savings and investment: Both national savings and total investment are following growth at a decreasing rate compared to that of the previous fiscals. Under the business-as-usual scenario, the organisation projects that total investment and national savings in FY 2011-12 might reach to Tk 2079.5 billion and Tk 2396.1 billion respectively.
Inflation: Under the business-as-usual scenario, the rate of general, food and non-food inflation might climb to 9.40%, 14.55% and 5.60% respectively at the last month of FY 2011-12.
Trade balance: In the current fiscal, import bills are increasing mainly due to the payments for petroleum import. At the end of this fiscal import bills might reach to US$3383.2 million, which is 16.25% more than that of June 2010. Export earnings declined to $1591.24 million in November 2011. However, export earnings might increase to $1497.56 million at the end of the fiscal 2011-12, which is 37.00 per cent lower than that of June 2010-11.
Deficit financing and debt management: The report further added that the government borrowing and debt is following a vertical trend in recent years. Net foreign and domestic borrowings in FY 2011-12 are 125.79% and 9.63% higher than those of FY 2010-11. The trend of government borrowing has increased due to deficit financing. The amount of government borrowing in FY 2011-12 is 16.67% and 31.59% more than that of the previous proposed and revised budget respectively. Government domestic borrowing from banking sector in FY 2011-12 (July-September, 2011) is 622.57% higher than borrowing from non-banking sector. Moreover, in FY 2011-12, the amount of external debt might amount $21.87 billion.
Revenue: If the current trend continues, the National Board of Revenue (NBR) revenue earnings might reach to Tk 862.52 billion and non-NBR revenue earnings might achieve Tk 26.33 billion, which might be Tk 56.18 billion and Tk 12.71 billion less than that of the targeted level in FY 2011-12. Such a continuation of current monthly trend suggests that total tax collections might reach to Tk 862.83 billion in FY 2011-12, which might be Tk 95.02 billion or 9.92 per cent less than that of the targeted tax collection in FY 2011-12.
Foreign exchange reserve: Foreign exchange reserve might witness a shortfall in the current fiscal year due to increasing import bills and decreasing export earnings. Foreign reserve has recently declined due to the payments for the petroleum.
ADP implementation: Implementation of ADP is not satisfactory in recent years. Monthly implementation trend suggests that only 66.73 per cent might be implemented while yearly trend suggests that about 88.35 per cent of ADP allocation might be implemented by the end of the current fiscal.
Real sectors: Agriculture: Decline in subsidy on agriculture in the current fiscal might bubble up the cost of agriculture production for which food security might be at stake. The subsidy in agriculture sector in FY 2011-12 is targeted at Tk 45000 million that is 21.04 per cent less than that of FY 2010-11 when the amount of subsidy was Tk 57000 million.
Industry: The Unnayan Onneshan has observed that Bangladesh is in the process of transmission from a predominantly agrarian economy to an industrial economy. The present government is promised to increase the contribution of industrial sector in GDP from 30.33% in FY 2010-11 to 40% by the calendar year, 2021. According to the business-as-usual scenario, in FY 2011-12, total growth rate of manufacturing sector might be 9.76%, while that of small and cottage industry and medium and large industry might be 7.36%, and 10.76% respectively.
Power: The report has further highlighted that energy and power need to act as a key catalyst in helping Bangladesh to boost its agriculture, industry and socio-economic advancement. Subsidy has increased to Tk 52,000 million in FY 2011-12 compared to Tk 42,000 million in FY 2010-11. If the cost of electricity and fuel price at the international level remains the same, the oil subsidy bill might reach to more than Tk 2,00,000 million by the end of the FY 2011-12.
Social sector: The Bangladesh Economic Update has focused on the overall allocation for social sectors. It has declined in FY 2011-12. The grave concern is health where the total allocation of ADP has come down to one-third compared to that of the previous fiscal year. The growth of education is increasing but with a decreasing rate. Allocation on gender has witnessed an increased amount in volume; however, proper implementation is a matter of concern, considering the trends of previous fiscal years.
The writer is with the Unnayan Onneshan and can be reached at email: rtitumir@unnayan.org