Growth rate to hover at 5.5-6.0pc
Saturday, 6 December 2008
FE Report
The global financial hurricane will put "a mild brake" on Bangladesh's growth pattern in the current fiscal, the Asian Development Bank (ADB) warned Friday, hoping the next government will speed up reforms to spur growth and create jobs.
The Manila lender, however, said the downside will be limited, thanks to continued strength in agriculture and industrial sectors.
In a careful assessment, the bank said that the economy would shrink in the territory of 5.5 per cent to 6.0 per cent in the financial year 2009 as dampened global demand could weigh on exports and workers' remittances.
The government initially projected the economy to grow by 6.5 per cent, aided by robust farm and manufacturing growth and sustained expansion of services sector. In the fiscal 2008, the economy expanded at 6.2 per cent.
The ADB, in its September economic update, said there is a need to boost the economy's productive capacity over the longer term in order to keep the country on "a strong growth path."
To do this, public investment must be increased by accelerating implementation of the annual development program (ADP).
Measures to mitigate the impact of climate change - which poses a major threat to growth in Bangladesh - must also be integrated into economic development plans and activities.
The growth target for agriculture in the current fiscal year is 4.0 per cent, unchanged from earlier forecasts and against actual growth of 3.6 per cent in FY2008.
Production of rice and wheat is targetted at 34.3 million tonnes, up 15 per cent from actual output in FY2008. Favourable weather conditions, more land under cultivation, wider use of high-yielding seeds, and various government support programs will boost output in the current fiscal year.
Industry has performed relatively well so far this fiscal year, supported by further growth in readymade garment output, along with continued recovery in housing and construction, and improved business confidence.
However, the ADB report noted that the unfolding financial crisis will cause a modest slowdown in demand, slumping industrial growth in the year to 6.7 per cent from against the projected 7.9 per cent. In FY 2008, industrial output expanded by 6.9 per cent.
"To sustain the relatively strong growth rate, steps will need to be taken to urgently address shortages in power and gas supplies."
On the services sector, the report said it is expected to grow 5.7 per cent to 6.2 per cent, down from 6.8 per cent projected previously. In FY 2008 the sector grew 6.7 per cent.
"The sector is likely to see some mild pressure from a slowdown in exports and domestic demand, stemming from the global crisis," according to the report.
The ADB said the rate of inflation is likely to remain within the previous projection of about 9.0 per cent for FY 2009, with an earlier surge in commodity prices offset by a recent pullback.
The ADB report said the inflation trend will depend on several factors, including possible pressures resulting from higher spending in the run up to the forthcoming national elections.
The inflation rate grew 10.2 per cent year-on-year in September 2008 from 10.0 per cent in June, before easing back to 7.3 per cent in October as a result of a fall in food and other commodity prices.
The sharp decline in international commodity and intermediate goods prices should reduce domestic prices, it said.
But it feared a cautious approach in opening letters of credit by importers could lead to the supply crunch in the domestic market, thereby adding further price pressure.
"It appears that international prices are set to stabilise at lower levels than seen earlier in the year, which will help reduce overall inflationary pressure."
On the fiscal management front, the deficit for FY 2009 is projected at 4.9 per cent of GDP in line with the original budget target.
But the bank said sustaining high revenue growth will depend on continued strong economic activity, notably higher ADP implementation and better capital spending.
"To reduce fiscal pressures, the numerous direct and quasi-fiscal subsidies to state-owned enterprises should be reexamined as the growing costs undermine fiscal management," the report said.
Although export earnings and remittances could go down because of the worst crisis since the Great Depression, the lending agency said that this is likely to be offset by falling prices of key commodities, such as food grains, edible oils, petroleum, and steel.
As a result the current account is expected to remain in surplus in FY2009, helping underpin macroeconomic stability, the bank added.
Exports remained robust in the July-September quarter, growing 42.4 per cent year-on-year, and while demand for textiles to major destinations may slow, it is unlikely to fall sharply in the near term.
Import payments for July-August 2008 rose 36.9 per cent over the same period in the previous year, while total remittance receipts for July-October 2008 rose 36.8 per cent year-on-year.
The ADB quelled the fear about the possible overseas job losses by migrants, saying most workers are involved in low-end jobs, which are less likely to be seriously affected at the initial phase of a global downturn.
The gross foreign exchange reserves of Bangladesh Bank fell to $5.6 billion at the end of October 2008, from $5.8 billion at the end of July.
The exchange rate showed "little volatility" in the face of the global financial crisis, the report said, attributing the central bank's periodic interventions in the foreign exchange market to the relative success.
"With currency convertibility limited to current account transactions, the risk of capital flight and consequent exchange rate instability are minimal."
The global financial hurricane will put "a mild brake" on Bangladesh's growth pattern in the current fiscal, the Asian Development Bank (ADB) warned Friday, hoping the next government will speed up reforms to spur growth and create jobs.
The Manila lender, however, said the downside will be limited, thanks to continued strength in agriculture and industrial sectors.
In a careful assessment, the bank said that the economy would shrink in the territory of 5.5 per cent to 6.0 per cent in the financial year 2009 as dampened global demand could weigh on exports and workers' remittances.
The government initially projected the economy to grow by 6.5 per cent, aided by robust farm and manufacturing growth and sustained expansion of services sector. In the fiscal 2008, the economy expanded at 6.2 per cent.
The ADB, in its September economic update, said there is a need to boost the economy's productive capacity over the longer term in order to keep the country on "a strong growth path."
To do this, public investment must be increased by accelerating implementation of the annual development program (ADP).
Measures to mitigate the impact of climate change - which poses a major threat to growth in Bangladesh - must also be integrated into economic development plans and activities.
The growth target for agriculture in the current fiscal year is 4.0 per cent, unchanged from earlier forecasts and against actual growth of 3.6 per cent in FY2008.
Production of rice and wheat is targetted at 34.3 million tonnes, up 15 per cent from actual output in FY2008. Favourable weather conditions, more land under cultivation, wider use of high-yielding seeds, and various government support programs will boost output in the current fiscal year.
Industry has performed relatively well so far this fiscal year, supported by further growth in readymade garment output, along with continued recovery in housing and construction, and improved business confidence.
However, the ADB report noted that the unfolding financial crisis will cause a modest slowdown in demand, slumping industrial growth in the year to 6.7 per cent from against the projected 7.9 per cent. In FY 2008, industrial output expanded by 6.9 per cent.
"To sustain the relatively strong growth rate, steps will need to be taken to urgently address shortages in power and gas supplies."
On the services sector, the report said it is expected to grow 5.7 per cent to 6.2 per cent, down from 6.8 per cent projected previously. In FY 2008 the sector grew 6.7 per cent.
"The sector is likely to see some mild pressure from a slowdown in exports and domestic demand, stemming from the global crisis," according to the report.
The ADB said the rate of inflation is likely to remain within the previous projection of about 9.0 per cent for FY 2009, with an earlier surge in commodity prices offset by a recent pullback.
The ADB report said the inflation trend will depend on several factors, including possible pressures resulting from higher spending in the run up to the forthcoming national elections.
The inflation rate grew 10.2 per cent year-on-year in September 2008 from 10.0 per cent in June, before easing back to 7.3 per cent in October as a result of a fall in food and other commodity prices.
The sharp decline in international commodity and intermediate goods prices should reduce domestic prices, it said.
But it feared a cautious approach in opening letters of credit by importers could lead to the supply crunch in the domestic market, thereby adding further price pressure.
"It appears that international prices are set to stabilise at lower levels than seen earlier in the year, which will help reduce overall inflationary pressure."
On the fiscal management front, the deficit for FY 2009 is projected at 4.9 per cent of GDP in line with the original budget target.
But the bank said sustaining high revenue growth will depend on continued strong economic activity, notably higher ADP implementation and better capital spending.
"To reduce fiscal pressures, the numerous direct and quasi-fiscal subsidies to state-owned enterprises should be reexamined as the growing costs undermine fiscal management," the report said.
Although export earnings and remittances could go down because of the worst crisis since the Great Depression, the lending agency said that this is likely to be offset by falling prices of key commodities, such as food grains, edible oils, petroleum, and steel.
As a result the current account is expected to remain in surplus in FY2009, helping underpin macroeconomic stability, the bank added.
Exports remained robust in the July-September quarter, growing 42.4 per cent year-on-year, and while demand for textiles to major destinations may slow, it is unlikely to fall sharply in the near term.
Import payments for July-August 2008 rose 36.9 per cent over the same period in the previous year, while total remittance receipts for July-October 2008 rose 36.8 per cent year-on-year.
The ADB quelled the fear about the possible overseas job losses by migrants, saying most workers are involved in low-end jobs, which are less likely to be seriously affected at the initial phase of a global downturn.
The gross foreign exchange reserves of Bangladesh Bank fell to $5.6 billion at the end of October 2008, from $5.8 billion at the end of July.
The exchange rate showed "little volatility" in the face of the global financial crisis, the report said, attributing the central bank's periodic interventions in the foreign exchange market to the relative success.
"With currency convertibility limited to current account transactions, the risk of capital flight and consequent exchange rate instability are minimal."