Delayed impact of recession on economy
Tuesday, 22 December 2009
The country's policymakers until now have put a brave face on the impact of one of the worst recessions that the world has witnessed so far. The recession has started loosening its grip but the global economy is still to come out of the woods, in the real sense. During the months following the global financial meltdown which struck the major economies of the world, developed and developing, Bangladesh, because of its very limited exposure to the international financial markets, went unscathed. The government leaders, businesses and even the donors had all praise for the economy having the resilience to face odds, domestic and external.
But in the final quarter of the last fiscal, recession started biting the economy with export growth slowing down and imports and investment falling compared to those of the previous quarters. Only exception was the remittance inflow. Until now it has been maintaining a robust growth. In the face of demands from the businesses the government has so far announced a couple of stimulus packages for the export-oriented sectors. Despite knowing the odds ahead, the government was bold enough to project a 6.0 per cent economic growth for the current fiscal. The government policymakers and the central bank have so far found the growth projection attainable.
But the Asian Development Bank (ADB) while releasing its latest quarterly update slashed the growth projection down to 5.2 per cent, the slowest in eight years, as it feels that the effects of the global economic crisis on the Bangladesh economy would be deeper in this fiscal than the previous one. It projected the agriculture sector would grow at 4.1 per cent in the fiscal 2009-10 from 4.6 per cent in the previous fiscal. The Bank has also projected lower than usual growth of industrial and services sectors for the current fiscal. Until fiscal 2007, these sectors had maintained impressive growth.
The factors that the ADB held responsible for slowing down the economic growth rate include the declining export with its consequent negative impact on industrial production, lower agricultural production due to erratic weather conditions, lower trade and weaker domestic demand leading to decelerated service sector growth, infrastructure deficiencies such as power and gas. The government here has a tendency to contest the growth projections lower than the official ones. For, the government considers any downward revision of economic growth projection as its failure to run the economy well. Unfortunately, the government is not equally sensitive to its failure to improve the domestic factors, such as power and gas supply shortage and poor infrastructure, which are largely responsible for inadequate investment in the economy.
Under the prevailing circumstances, the government's main goal should be to generate enough demand in the domestic economy while exploring newer destinations for Bangladesh exports. However, the government would have to do lots of work to generate demand in the economy. Firstly, it needs to stick to its own development investment plan with a view to creating a crowd-in effect in the economy. The private sector investment would increase if the government boosts its own investment, leading to creation of more jobs. But without any noticeable improvement in the power and gas supply situation, any remarkable turnaround in private investment is highly unlikely. So, while putting greater emphasis on the growth of agriculture, rural development and small and medium enterprises, the authorities do need to sort out the problems of power and gas in the short-term. Another issue that deserves immediate attention of the government is the food-led inflationary pressure on the economy.
But in the final quarter of the last fiscal, recession started biting the economy with export growth slowing down and imports and investment falling compared to those of the previous quarters. Only exception was the remittance inflow. Until now it has been maintaining a robust growth. In the face of demands from the businesses the government has so far announced a couple of stimulus packages for the export-oriented sectors. Despite knowing the odds ahead, the government was bold enough to project a 6.0 per cent economic growth for the current fiscal. The government policymakers and the central bank have so far found the growth projection attainable.
But the Asian Development Bank (ADB) while releasing its latest quarterly update slashed the growth projection down to 5.2 per cent, the slowest in eight years, as it feels that the effects of the global economic crisis on the Bangladesh economy would be deeper in this fiscal than the previous one. It projected the agriculture sector would grow at 4.1 per cent in the fiscal 2009-10 from 4.6 per cent in the previous fiscal. The Bank has also projected lower than usual growth of industrial and services sectors for the current fiscal. Until fiscal 2007, these sectors had maintained impressive growth.
The factors that the ADB held responsible for slowing down the economic growth rate include the declining export with its consequent negative impact on industrial production, lower agricultural production due to erratic weather conditions, lower trade and weaker domestic demand leading to decelerated service sector growth, infrastructure deficiencies such as power and gas. The government here has a tendency to contest the growth projections lower than the official ones. For, the government considers any downward revision of economic growth projection as its failure to run the economy well. Unfortunately, the government is not equally sensitive to its failure to improve the domestic factors, such as power and gas supply shortage and poor infrastructure, which are largely responsible for inadequate investment in the economy.
Under the prevailing circumstances, the government's main goal should be to generate enough demand in the domestic economy while exploring newer destinations for Bangladesh exports. However, the government would have to do lots of work to generate demand in the economy. Firstly, it needs to stick to its own development investment plan with a view to creating a crowd-in effect in the economy. The private sector investment would increase if the government boosts its own investment, leading to creation of more jobs. But without any noticeable improvement in the power and gas supply situation, any remarkable turnaround in private investment is highly unlikely. So, while putting greater emphasis on the growth of agriculture, rural development and small and medium enterprises, the authorities do need to sort out the problems of power and gas in the short-term. Another issue that deserves immediate attention of the government is the food-led inflationary pressure on the economy.