Poor performance in external sector causes declining growth in GDP

Unnayan Onneshan, a multidisciplinary think tank, in its current monthly issue of the Bangladesh Economic Update said continued declining growth in gross domestic product (GDP) has been caused by the recent underperformances in external sector due to falling investment demand, induced decreased import, declining remittance, lack of diversity in export and unsatisfactory inflow of foreign direct investment (FDI).
Urging for a thorough re-examination of the current trade and industrial policies to address the structural bottlenecks, the Unnayan Onneshan suggested adoption of a new policy regime, aimed at expansion of productive capacities of the country that enhances utilisation of productive resources through enhanced entrepreneurial capabilities and increased production linkages.
The monthly update found that continuity of contractionary monetary policy, coupled with inadequate supply of infrastructure, has depressed investment demand and led to decrease in imports of capital machinery and industrial raw materials in the last two fiscal years, resulting in declining growth in the manufacturing sector of the economy.
In fiscal year (FY) 2012-13, import payments were US$ 34084 million, which decreased by 4.03 per cent as compared to US$ 35516 million with a growth rate of 5.52 per cent in FY 2011-12.
The think tank observes that the manufacturing sector has been undergoing a declining rate of growth since the FY 2010-2011. While in FY 2010-2011, the rate of growth in manufacturing sector was 9.45 per cent, the rate decreased to 9.37 per cent and 9.34 per cent in FY 2011-2012 and 2012-2013 respectively.
Pointing out the decline of remittance inflow by 6.93 per cent during the July-February period of the current fiscal year compared to the corresponding period of last fiscal year (2012-13), the think tank says that total inflow of remittance during July-February of FY 2013-14 came down to US$ 9206.55 million from US$ 9891.95 million during the corresponding period of FY 2012-13.
"This declining trend in the inflow of remittance may exert adverse impact on rural economy causing increase in the incidence of poverty since remittance is one of the most significant sources of income in rural households and in 2010, 17.28 per cent of total income of rural households came from remittance."
Referring to falling rate of growth in the inflow of remittance, the Unnayan Onneshan observes that inflow of remittance is increasing at a decreasing rate since FY 2007-08 primarily because of the decrease in the labour migration to different destinations and decline in labour demand by the Middle East countries. The rate of growth in the inflow of remittance decreased by 7.02 per cent in the July-February period of current fiscal year from 17.44 per cent in the corresponding period of the previous fiscal year.
Observing the dominance of a single product in the country's export basket, the think ntank noted that the single-commodity export concentration represents structural weaknesses of the economy and put a risk on the country's growth path.
The export of readymade garments reached US$ 12233.23 million comprising 81.7 per cent of total export receipts during July-February of current fiscal year compared to US$ 10225.68 million comprising 80.2 per cent of total export receipts during the corresponding period of the last fiscal year.
Meanwhile, exports of raw jute and jute goods, frozen food and leather fetched US$ 527.38 million, US$ 354.88 million and US$ 321.01 million respectively during July-February of FY 2013-2014, whereas these earned  US$ 609.81 million, US$ 259.52 million and US$ 210.3 million during the corresponding period of FY 2012-2013.
In FY 2012-13, exports of readymade garments, leather and jute products increased by 10, 22 and 21 per cent respectively, whereas the growth of these products was 15, 11 and -1 per cent respectively in FY 2011-2012. Meanwhile, exports of raw jute, fish and shrimp decreased by 4 and 25 per cent respectively between FY 2011-12 and FY 2012-13.
The flow of FDI of Bangladesh has increased by an irregular trend over the last fifteen years. Although the amount of FDI has increased, it is still lower compared to other Asian countries, says the think tank.
In FY 2011-12, inflow of FDI increased to US$ 1194.88 million which is 53.38 per cent higher than that of the previous fiscal year. During the same period, major competitive countries like India, Indonesia, Vietnam and Pakistan, however, received FDI inflow of US$ 32000, US$ 19000, US$ 7000 and US$ 1300 million respectively.
"These inadequate inflows of FDI in Bangladesh in comparison with other countries of same economic characteristics can largely be ascribed to the lack of infrastructural facilities and recent political instabilities and uncertainties in the country," added the Unnayan Onneshan.