Gloomy outlook for 2012

Were one to take the World Bank's biennial projections on the Bangladesh economy for the coming year at the face value, the country would seem to be heading for stormy fiscal turbulence in the 2012 financial year. In a major departure from 2011, a year that sustained an economic growth rate of about 6.7 per cent, primarily due to robust growth in both construction and manufacturing sectors aided further by a bumper crop harvest; this year's fiscal performance has taken a beating from upward movement of inflation, growing public debt fuelled by increased government borrowing and a tilting of balance of payments towards the negative, thanks to an ever increasing oil import bill. Although the government remains confident of hitting the 7 per cent growth rate in the coming fiscal year, a number of issues could possibly derail it from the course. The premise for such growth rests on increase of both exports and remittances. Despite exports having risen some 22 per cent over the 2nd quarter of 2011 and inward remittances being up by 9 per cent, it is still below the figure of the preceding year over the same period. Rosy projections over continued growing exports appear to have hit a snag as the steam fizzled out of apparel export growth to Europe and the US at 2.3 per cent in September compared to a healthy 30 per cent growth for two consecutive previous months. A continued slump in the foreign RMG markets, brought about by the global economic slowdown, would most certainly impact negatively the export target the country has set for itself. The other pillar of hope, inward remittance i.e, continues to falter in the face of not only the worldwide economic downturn, but also for the continued political turmoil that bedevils Bangladesh's traditional manpower markets of the Middle East. To put in perspective, recent events in Libya has forced the return of about 40,000 expatriate workers to the country. Other problem areas highlighted include the continued unavailability of sufficient gas that has sapped production capacities in the manufacturing sector, the sedate pace of reforms and the sorry state of infrastructure in the country. The World Bank however contended that the situation is not beyond help. "Improved fiscal and monetary discipline, combined with stronger efforts to address energy and infrastructure deficits, will be critical to sustain the growth performance of Bangladesh," contends Zahid Hussain, WB senior economist for Bangladesh. Domestic credit for wasteful, unproductive and speculative uses needs to be restrained, while ensuring adequate credit flows for all productive purposes. At the same time, the government's continued reliance on internal borrowing to finance a widening balance of payment (BoP) deficit is increasingly becoming a cause for serious concern. For Bangladesh to repeat the economic success of 2011 and grow further, exports will need to maintain a steady rise. Remittance inflow also needs to recover from recent losses. The quandary of power outages and improvement of services will have to be addressed, especially in the light of falling investments in the manufacturing sector. All this of course is a tall order in the present global economic climate and initiating necessary reform now as opposed to sometime in the future may help Bangladesh weather the impending storm.