Impact of global economic slowdown on Bangladesh
Saturday, 13 December 2008
Syed Jamaluddin
THE World Bank (WB) late last month lowered the growth projection for the Bangladesh economic due to global financial meltdown. According to the WB, the global financial crisis is likely to affect Bangladesh's exports and remittances in the near future, pushing down its GDP(gross domestic product) to 5.4 per cent from the existing projection of 6.5 per cent. Depending on the severity of the global economic crisis, the growth rate could even fall to 4.8 per cent. Bangladesh Finance and Planning Adviser has termed this as gross underestimation. He claimed that the country's growth would not drop below six per cent.
The country's GDP growth rate was projected at 6.5 per cent initially, but the central bank, later, lowered it to 6.2 per cent, considering the effect of global financial turmoil. The WB, however, suggested that the next elected govt. would have to adopt a prudent policy to cope with the emerging global financial meltdown. It will be a great challenge for the new govt. to face the global financial shock. Although no major adverse impact on Bangladesh had yet been reported, the situation might turn bad within the next couple of months. A significant number of Bangladeshis could lose their overseas jobs which would ultimately affect the growth of remittance. According to the WB, the govt. and the civil society should remain watchful and be prepared with a contingency plan to deal with the situation.
The WB was still against the idea of devaluation of Taka as suggested by the private sector. The macro-economic indicators like export, import, inflow of remittance and internal revenue mobilisation were favourable. Even the inflation rate has dropped to single digit. The IMF (International Monetary Fund) had projected 5.5 per cent growth in the last fiscal year due to slowdown, resulting from anti-corruption drive and crop losses due to floods and cyclone. But country's GDP grew at 6.2 per cent in 2007-2008, thanks to 15 per cent export growth, 30 per cent growth in remittance and good boro harvest.
The governor of Bangladesh Bank said that WB's projection on growth rate was not pragmatic and lacked rigorous analysis. According to him, the major strength of the Bangladesh economy is its strong macro-economic fundamentals. The potential and productive capacity is such that the economy will not really go downstream. The challenge for Bangladesh is to maintain price stability and maintain growth. Bangladesh Garments Manufacturers & Exporters Association (BGMEA) chief said that the WB comment might make buyers and bankers nervous in taking business decision. This, according to him, will ultimately help create negative impact on the industry. It has been suggested to arrange a formal meeting with the WB together with govt. policy makers, business leaders and others for detailed discussions on the country's growth projection.
Since August, 2008, the country's import payment has dropped substantially due to decline in international commodity prices, particularly those of petroleum products, wheat and edible oil. According to the WB report, continued robust growth of remittances, strong export growth and falling import payments have helped maintain sound external balances in the first two months of the current financial year. Import is probably the one channel through which Bangladesh is gaining due to lowering of prices of commodities in the international market.
The WB's view on Bangladesh economy has evoked sharp reaction from those who are concerned. It is not understood why the WB should have made the projection on hypothetical basis with no hard data on hand. Such prediction is likely to have dampening effect on our producers and exporters. The statistical data regarding export, remittance and even agricultural output are favourable. What we need now is to sustain the present trends. There might be pressure from foreign buyers to lower prices. Such pressure is already visible. We have to negotiate with these buyers carefully. In case, remittance goes down, we have to seek new destinations for manpower export with emphasis on skill development.
The global recession comes with both risks and opportunities. If we can improve infrastructures such as electricity, gas and road communications, there is no reason why productivity can not be increased. The global financial meltdown is taking its toll on sale and import of knitwear machinery. The knitwear manufacturers are shying off from bigger investment. This was quite evident from the recent international exposition that concluded in Dhaka. Many of the leading suppliers participating in the exposition portrayed a gloomy picture of the event. It is undeniable that the knitwear export is rising but behind the scene, the manufacturers are less confident about making big investments like buying new industrial machinery than ever before due to lack of bank support. The manufacturers are more busy making quick shipment of their products prior to the upcoming holidays than making new investment in machinery.
Meanwhile, the general index of the Dhaka Stock Exchange (DSE) shed nearly 500 points for about a couple of months with investors losing investments worth billions of takas. The investors are apparently failing to pinpoint factors that pulling the market down. Nobody can say for certain that the global financial meltdown is influencing the behaviour of the Bangladesh stock market. Barring occasional rise, the index has been falling continuously for nearly last two months. A good number of quality stocks have already hit the market in recent months and some more would be coming soon. The Securities and Exchange Commission(SEC) is now in the midst of drafting comprehensive rules for book building method which is expected to encourage more and more companies with strong fundamentals to go public. The investors would pin hope on the assurances coming from the finance adviser, central bank governor and business leaders, particularly the heads of BGMEA and Bangladesh Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA). Experts fear that spending for advertisement of different multinational companies may decline next year in the face of the ongoing global financial crisis. Many companies would cut their advertising cost that would eventually reduce the expenditure in Bangladesh.
The Asian Development Bank (ADB) warned on December 05 that the global financial hurricane would put a mild brake on Bangladesh growth pattern. To maintain the strong growth rate, steps will need to be taken to address shortages in power and gas supplies. The ADB commented about possible overseas job-losses by migrants, saying most workers are involved in low-end jobs, which are less likely to be seriously affected in the initial phase of a global downturn
Bangladesh's integration with the global economy is still limited and may not be part of the Asian gloomy picture presented in the IMF forecast. While watching the unfolding global financial meltdown, the technical committee will need to identify the nature of the impact of the ongoing crisis and recommend corrective measures. The govt. is planning to address the possible impact of global financial crisis on sectoral basis, instead of taking any macro-level measures.
(The writer is an economist and columnist)
THE World Bank (WB) late last month lowered the growth projection for the Bangladesh economic due to global financial meltdown. According to the WB, the global financial crisis is likely to affect Bangladesh's exports and remittances in the near future, pushing down its GDP(gross domestic product) to 5.4 per cent from the existing projection of 6.5 per cent. Depending on the severity of the global economic crisis, the growth rate could even fall to 4.8 per cent. Bangladesh Finance and Planning Adviser has termed this as gross underestimation. He claimed that the country's growth would not drop below six per cent.
The country's GDP growth rate was projected at 6.5 per cent initially, but the central bank, later, lowered it to 6.2 per cent, considering the effect of global financial turmoil. The WB, however, suggested that the next elected govt. would have to adopt a prudent policy to cope with the emerging global financial meltdown. It will be a great challenge for the new govt. to face the global financial shock. Although no major adverse impact on Bangladesh had yet been reported, the situation might turn bad within the next couple of months. A significant number of Bangladeshis could lose their overseas jobs which would ultimately affect the growth of remittance. According to the WB, the govt. and the civil society should remain watchful and be prepared with a contingency plan to deal with the situation.
The WB was still against the idea of devaluation of Taka as suggested by the private sector. The macro-economic indicators like export, import, inflow of remittance and internal revenue mobilisation were favourable. Even the inflation rate has dropped to single digit. The IMF (International Monetary Fund) had projected 5.5 per cent growth in the last fiscal year due to slowdown, resulting from anti-corruption drive and crop losses due to floods and cyclone. But country's GDP grew at 6.2 per cent in 2007-2008, thanks to 15 per cent export growth, 30 per cent growth in remittance and good boro harvest.
The governor of Bangladesh Bank said that WB's projection on growth rate was not pragmatic and lacked rigorous analysis. According to him, the major strength of the Bangladesh economy is its strong macro-economic fundamentals. The potential and productive capacity is such that the economy will not really go downstream. The challenge for Bangladesh is to maintain price stability and maintain growth. Bangladesh Garments Manufacturers & Exporters Association (BGMEA) chief said that the WB comment might make buyers and bankers nervous in taking business decision. This, according to him, will ultimately help create negative impact on the industry. It has been suggested to arrange a formal meeting with the WB together with govt. policy makers, business leaders and others for detailed discussions on the country's growth projection.
Since August, 2008, the country's import payment has dropped substantially due to decline in international commodity prices, particularly those of petroleum products, wheat and edible oil. According to the WB report, continued robust growth of remittances, strong export growth and falling import payments have helped maintain sound external balances in the first two months of the current financial year. Import is probably the one channel through which Bangladesh is gaining due to lowering of prices of commodities in the international market.
The WB's view on Bangladesh economy has evoked sharp reaction from those who are concerned. It is not understood why the WB should have made the projection on hypothetical basis with no hard data on hand. Such prediction is likely to have dampening effect on our producers and exporters. The statistical data regarding export, remittance and even agricultural output are favourable. What we need now is to sustain the present trends. There might be pressure from foreign buyers to lower prices. Such pressure is already visible. We have to negotiate with these buyers carefully. In case, remittance goes down, we have to seek new destinations for manpower export with emphasis on skill development.
The global recession comes with both risks and opportunities. If we can improve infrastructures such as electricity, gas and road communications, there is no reason why productivity can not be increased. The global financial meltdown is taking its toll on sale and import of knitwear machinery. The knitwear manufacturers are shying off from bigger investment. This was quite evident from the recent international exposition that concluded in Dhaka. Many of the leading suppliers participating in the exposition portrayed a gloomy picture of the event. It is undeniable that the knitwear export is rising but behind the scene, the manufacturers are less confident about making big investments like buying new industrial machinery than ever before due to lack of bank support. The manufacturers are more busy making quick shipment of their products prior to the upcoming holidays than making new investment in machinery.
Meanwhile, the general index of the Dhaka Stock Exchange (DSE) shed nearly 500 points for about a couple of months with investors losing investments worth billions of takas. The investors are apparently failing to pinpoint factors that pulling the market down. Nobody can say for certain that the global financial meltdown is influencing the behaviour of the Bangladesh stock market. Barring occasional rise, the index has been falling continuously for nearly last two months. A good number of quality stocks have already hit the market in recent months and some more would be coming soon. The Securities and Exchange Commission(SEC) is now in the midst of drafting comprehensive rules for book building method which is expected to encourage more and more companies with strong fundamentals to go public. The investors would pin hope on the assurances coming from the finance adviser, central bank governor and business leaders, particularly the heads of BGMEA and Bangladesh Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA). Experts fear that spending for advertisement of different multinational companies may decline next year in the face of the ongoing global financial crisis. Many companies would cut their advertising cost that would eventually reduce the expenditure in Bangladesh.
The Asian Development Bank (ADB) warned on December 05 that the global financial hurricane would put a mild brake on Bangladesh growth pattern. To maintain the strong growth rate, steps will need to be taken to address shortages in power and gas supplies. The ADB commented about possible overseas job-losses by migrants, saying most workers are involved in low-end jobs, which are less likely to be seriously affected in the initial phase of a global downturn
Bangladesh's integration with the global economy is still limited and may not be part of the Asian gloomy picture presented in the IMF forecast. While watching the unfolding global financial meltdown, the technical committee will need to identify the nature of the impact of the ongoing crisis and recommend corrective measures. The govt. is planning to address the possible impact of global financial crisis on sectoral basis, instead of taking any macro-level measures.
(The writer is an economist and columnist)