GDP growth to slow to 5.2pc as global slide hits country: ADB
Friday, 18 December 2009
FE Report
The ADB has downgraded Bangladesh's economic growth in the 2009-10 fiscal year to 5.2 per cent - the slowest in eight years - as a delayed impact of the global recession cut through exports and hit industry and services sector.
The Manila-based development lender said the worst global downturn in six decades has dampened Bangladeshi shipments, affecting in turn the country's industrial sector, while a lower trade and weaker domestic demand impacted services sector.
The bank in its quarterly update projected a modest 4.1 per cent growth in agriculture, as bad weather hampered Aus and Aman crop production with boro remaining the lone hope for a revival,
The report forecast that industry would grow at six per cent, sharply lower than the last fiscal year as deficiencies in power, gas and other basic infrastructure have emerged as major supply-side bottle-necks for manufacturing growth.
"Slower industrial and trade activities in the coming months will affect growth of service sector, which will slow down to 5.5 per cent" it said.
Asian Development Bank Resident Mission chief in Dhaka Paul J Heytens said a belated impact of the global economic recession has cast a negative spell on the Bangladesh economy.
"There will be knock on effect on economy, as export growth is negative in the first four months and remittance growth has slowed down," Heytens said.
Export earning declined by six per cent while import payment dropped by 19 per cent in the July-October period but remittance maintained a better growth of 24 per cent in the first five months of the current fiscal.
"Export is the driving force of production in Bangladesh and poor remittance flow will result in lower domestic demand," he explained.
Heytens said an acute power shortage is also hampering the growth prospect. "It will be the binding constraint for growth in the near future, if immediate actions are not taken," he said.
There is a huge infrastructure gap in the country and it is not possible for the government to close the gap alone, he added.
The ADB report said the government now needs to manage macro-economy prudently to maintain stability in the present economic environment and significantly raise infrastructure investment to enhance long-term growth prospects.
The update said rising commodity prices, especially rice, in the international market and excess liquidity in the banking system may spur inflationary pressure.
Inflation rose to 7.3 per cent in October from 2.3 per cent in June.
The bank also said more attention needs to be given for raising revenue to support higher public spending for faster poverty reduction and filling up infrastructure gap.
The government collected only 14 per cent tax collection in the first four months of the current fiscal while annual development programme implementation was only 16 per cent in the period.
"The overall revenue target of 15 per cent growth is unlikely to be achieved," the report said.
It said a significantly lower private credit and broad money growth remain a concern although the country's central bank has adopted "the right monetary stance of easy credit conditions to support the expansionary fiscal policy".
Nominal exchange rate has remained stable at Tk 69 level a dollar but the real effective exchange rate appreciated by 5.7 per cent, which means Bangladesh lost export competitiveness, the ADB said.
The balance of payment surplus rose to $1.3 billion in July-September period and the foreign exchange reserve rose to all time high of $10.3 billion, the report said.
Heytens said global economy is gradually recovering from the recession but experts were not sure when it would be operating in full swing.
While briefing newsmen about the latest ADB update, Heytens said the bank has expressed its concern over the government's recent amendments to the public procurement act.
But he said ADB's overall credit disbursement maintained a steady pace in recent months. "We disbursed $415 million project money in 2009 calendar year and it was $293 million in the last year," he said.
ADB head of country programme M Zahid Hossain said the government should undertake intensive preparatory work to launch successful public private partnership project to execute key infrastructure.
"The government should work hard in the groundwork and form PPP cell immediately to make the programme successful," he said, adding private investment mobilisation for infrastructure projects would be a big challenge in absence of well-developed capital market here.
"Public private partnership could be an important way to engage private sector to come forward for developing infrastructure," he said.
The economist expressed his concern over the "huge" fall of private sector credit growth to 13.7 per cent in September this year from 26.6 per cent in the same month last year.
He said excess liquidity overhang in the banking system might put extra pressure on inflation.
Lending rates need to be reduced by increasing efficiency of banks and improving financial health, he suggested.
The ADB has downgraded Bangladesh's economic growth in the 2009-10 fiscal year to 5.2 per cent - the slowest in eight years - as a delayed impact of the global recession cut through exports and hit industry and services sector.
The Manila-based development lender said the worst global downturn in six decades has dampened Bangladeshi shipments, affecting in turn the country's industrial sector, while a lower trade and weaker domestic demand impacted services sector.
The bank in its quarterly update projected a modest 4.1 per cent growth in agriculture, as bad weather hampered Aus and Aman crop production with boro remaining the lone hope for a revival,
The report forecast that industry would grow at six per cent, sharply lower than the last fiscal year as deficiencies in power, gas and other basic infrastructure have emerged as major supply-side bottle-necks for manufacturing growth.
"Slower industrial and trade activities in the coming months will affect growth of service sector, which will slow down to 5.5 per cent" it said.
Asian Development Bank Resident Mission chief in Dhaka Paul J Heytens said a belated impact of the global economic recession has cast a negative spell on the Bangladesh economy.
"There will be knock on effect on economy, as export growth is negative in the first four months and remittance growth has slowed down," Heytens said.
Export earning declined by six per cent while import payment dropped by 19 per cent in the July-October period but remittance maintained a better growth of 24 per cent in the first five months of the current fiscal.
"Export is the driving force of production in Bangladesh and poor remittance flow will result in lower domestic demand," he explained.
Heytens said an acute power shortage is also hampering the growth prospect. "It will be the binding constraint for growth in the near future, if immediate actions are not taken," he said.
There is a huge infrastructure gap in the country and it is not possible for the government to close the gap alone, he added.
The ADB report said the government now needs to manage macro-economy prudently to maintain stability in the present economic environment and significantly raise infrastructure investment to enhance long-term growth prospects.
The update said rising commodity prices, especially rice, in the international market and excess liquidity in the banking system may spur inflationary pressure.
Inflation rose to 7.3 per cent in October from 2.3 per cent in June.
The bank also said more attention needs to be given for raising revenue to support higher public spending for faster poverty reduction and filling up infrastructure gap.
The government collected only 14 per cent tax collection in the first four months of the current fiscal while annual development programme implementation was only 16 per cent in the period.
"The overall revenue target of 15 per cent growth is unlikely to be achieved," the report said.
It said a significantly lower private credit and broad money growth remain a concern although the country's central bank has adopted "the right monetary stance of easy credit conditions to support the expansionary fiscal policy".
Nominal exchange rate has remained stable at Tk 69 level a dollar but the real effective exchange rate appreciated by 5.7 per cent, which means Bangladesh lost export competitiveness, the ADB said.
The balance of payment surplus rose to $1.3 billion in July-September period and the foreign exchange reserve rose to all time high of $10.3 billion, the report said.
Heytens said global economy is gradually recovering from the recession but experts were not sure when it would be operating in full swing.
While briefing newsmen about the latest ADB update, Heytens said the bank has expressed its concern over the government's recent amendments to the public procurement act.
But he said ADB's overall credit disbursement maintained a steady pace in recent months. "We disbursed $415 million project money in 2009 calendar year and it was $293 million in the last year," he said.
ADB head of country programme M Zahid Hossain said the government should undertake intensive preparatory work to launch successful public private partnership project to execute key infrastructure.
"The government should work hard in the groundwork and form PPP cell immediately to make the programme successful," he said, adding private investment mobilisation for infrastructure projects would be a big challenge in absence of well-developed capital market here.
"Public private partnership could be an important way to engage private sector to come forward for developing infrastructure," he said.
The economist expressed his concern over the "huge" fall of private sector credit growth to 13.7 per cent in September this year from 26.6 per cent in the same month last year.
He said excess liquidity overhang in the banking system might put extra pressure on inflation.
Lending rates need to be reduced by increasing efficiency of banks and improving financial health, he suggested.