Row over growth rate and what's next?
Thursday, 9 April 2009
Shahiduzzaman Khan
Differences of opinions have surfaced over the country's growth rate projection for the current fiscal against the backdrop of economic meltdown now sweeping across the globe. Some economists of the country and the multilateral donor agencies have said that the macro-economic indicators are most likely to deteriorate gradually with the decline in remittances and exports. But most of them differ over the projected growth rate of the country's economy.
The Bangladesh Bank (BB) governor rejected the growth forecasts by the World Bank (WB) and the International Monetary Fund (IMF), saying the economy is poised to grow around 6.0 per cent this fiscal, despite global meltdown. The WB said Bangladesh would clock 4.5 per cent growth in the current financial year -- the lowest in seven years -- while IMF put the figure at around 5.0-5.5 per cent.
Earlier, the central bank projected the growth rate to be around 6.5 per cent before any impact of the global recession on the country's economy was visible. But still it is still upbeat about a steady growth, as it sees fewer bumps in the three remaining months of the current fiscal year. The latest assessment by the central bank, as reported in the media, is that the economy will achieve around 6.0 per cent growth in the current fiscal if the overall economic trend continues and the country does not face any major disasters.
But the multilateral donor agencies have stated in their latest reviews that the global economic recession is already having a knock-on effect on Bangladesh's two main economic levers -- exports and remittance -- with its recovery seeming to be unlikely before 2011. The BB has contested the WB's growth forecast, noting that the basis on which such a projection has been made should be made clear.
The key functionary of the central bank has suggested that the government should help out the sectors already affected by slowed-down export orders. He has disfavoured any blanket bail-out package for the overall economy. Remittance earnings have remained steady although new overseas employment opportunities, in absolute number, declined by 38 per cent in the first three months of 2009. March figure showed a record flow of remittance into the country.
Meanwhile, some renowned economists of the country have projected the growth of the gross domestic product (GDP) in Bangladesh at around 5.5 per cent this fiscal. They, along with the finance minister, have not agreed with the WB forecast. Prof Wahiduddin Mahmud said the growth could not dip in such a way in the remaining less than three months of this fiscal year that it would be only 4.5 per cent. Former finance minister M Syeduzzaman and immediate past chief economist of the central bank Mustafa K Mujeri held more or less the same view, stating that growth can in no way fall below 5.0 per cent. The WB, however, is yet to make any comment on these views.
Bangladesh achieved more than 6.0 per cent GDP growth on an average in the past five fiscal years since 2003-04 despite political uncertainties and natural disasters. The highest growth -- 6.63 per cent -- was achieved in 2005-06, and next to that 6.2 per cent in 2007-08. The world, especially the western nations, is facing a serious economic meltdown this year. Economic growth has slowed down significantly in many countries, including Asian giants Japan, China and India. The WB, ADB and IMF have predicted a lower growth for almost every economy in the wake of the global recession.
Whatever the growth rate projection is for the country, the government would certainly need to take some precautionary measures to stave off any severe adverse fall-out from the global meltdown on the Bangladesh economy. A flexible budget for the next fiscal year would be considered a befitting response to the looming economic challenges so that it could include priorities later to help offset any possible impacts of the recession. Indeed, no budget was prepared in the country's history under such uncertain circumstances.
It is expected that the government would take actions to streamline its expenditure to create more jobs to help poor get out of poverty. One of the development challenges of the government does unquestionably lie in raising public expenditures in the annual development programme (ADP). More funds do need to be channelised efficiently to the market. For that matter, the line ministries should have more institutional capacities to implement ADP and raise public sector infrastructure investment. Rural infrastructures including rural roads, irrigation facilities, and power and basic urban services are some of the areas where the government will have to increase its expenditure.
Social safety net programme could be linked to rural infrastructure and job-creating activities for long-term growth and poverty reduction. But targeting such a programme will be a critical area for action. All concerned would also expect it of the government to extend all possible supports to small and medium enterprises (SMEs) for rapid growth and job creation. Furthermore, farm productivity needs to be increased to maintain affordable price and face food security threat in the future. If power and gas crises are not addressed immediately, it would hurt domestic production and hold back medium term growth prospects. For this purpose, public investment in the power sector assumes a critical important as foreign direct investment in the sector is less likely during the recession. Revenue collection is likely to fall due to slower private sector activity and import. Undertaking further reforms in local governance and enhancing local government capacity should also merit a priority attention in order to ensure efficient use of public resources.
The country has so far remained largely unaffected by the global economic crisis, but nobody knows for certain as to what lies ahead. The country should prepare itself for any eventualities.
szkhan@thefinancialexpress-bd.com
Differences of opinions have surfaced over the country's growth rate projection for the current fiscal against the backdrop of economic meltdown now sweeping across the globe. Some economists of the country and the multilateral donor agencies have said that the macro-economic indicators are most likely to deteriorate gradually with the decline in remittances and exports. But most of them differ over the projected growth rate of the country's economy.
The Bangladesh Bank (BB) governor rejected the growth forecasts by the World Bank (WB) and the International Monetary Fund (IMF), saying the economy is poised to grow around 6.0 per cent this fiscal, despite global meltdown. The WB said Bangladesh would clock 4.5 per cent growth in the current financial year -- the lowest in seven years -- while IMF put the figure at around 5.0-5.5 per cent.
Earlier, the central bank projected the growth rate to be around 6.5 per cent before any impact of the global recession on the country's economy was visible. But still it is still upbeat about a steady growth, as it sees fewer bumps in the three remaining months of the current fiscal year. The latest assessment by the central bank, as reported in the media, is that the economy will achieve around 6.0 per cent growth in the current fiscal if the overall economic trend continues and the country does not face any major disasters.
But the multilateral donor agencies have stated in their latest reviews that the global economic recession is already having a knock-on effect on Bangladesh's two main economic levers -- exports and remittance -- with its recovery seeming to be unlikely before 2011. The BB has contested the WB's growth forecast, noting that the basis on which such a projection has been made should be made clear.
The key functionary of the central bank has suggested that the government should help out the sectors already affected by slowed-down export orders. He has disfavoured any blanket bail-out package for the overall economy. Remittance earnings have remained steady although new overseas employment opportunities, in absolute number, declined by 38 per cent in the first three months of 2009. March figure showed a record flow of remittance into the country.
Meanwhile, some renowned economists of the country have projected the growth of the gross domestic product (GDP) in Bangladesh at around 5.5 per cent this fiscal. They, along with the finance minister, have not agreed with the WB forecast. Prof Wahiduddin Mahmud said the growth could not dip in such a way in the remaining less than three months of this fiscal year that it would be only 4.5 per cent. Former finance minister M Syeduzzaman and immediate past chief economist of the central bank Mustafa K Mujeri held more or less the same view, stating that growth can in no way fall below 5.0 per cent. The WB, however, is yet to make any comment on these views.
Bangladesh achieved more than 6.0 per cent GDP growth on an average in the past five fiscal years since 2003-04 despite political uncertainties and natural disasters. The highest growth -- 6.63 per cent -- was achieved in 2005-06, and next to that 6.2 per cent in 2007-08. The world, especially the western nations, is facing a serious economic meltdown this year. Economic growth has slowed down significantly in many countries, including Asian giants Japan, China and India. The WB, ADB and IMF have predicted a lower growth for almost every economy in the wake of the global recession.
Whatever the growth rate projection is for the country, the government would certainly need to take some precautionary measures to stave off any severe adverse fall-out from the global meltdown on the Bangladesh economy. A flexible budget for the next fiscal year would be considered a befitting response to the looming economic challenges so that it could include priorities later to help offset any possible impacts of the recession. Indeed, no budget was prepared in the country's history under such uncertain circumstances.
It is expected that the government would take actions to streamline its expenditure to create more jobs to help poor get out of poverty. One of the development challenges of the government does unquestionably lie in raising public expenditures in the annual development programme (ADP). More funds do need to be channelised efficiently to the market. For that matter, the line ministries should have more institutional capacities to implement ADP and raise public sector infrastructure investment. Rural infrastructures including rural roads, irrigation facilities, and power and basic urban services are some of the areas where the government will have to increase its expenditure.
Social safety net programme could be linked to rural infrastructure and job-creating activities for long-term growth and poverty reduction. But targeting such a programme will be a critical area for action. All concerned would also expect it of the government to extend all possible supports to small and medium enterprises (SMEs) for rapid growth and job creation. Furthermore, farm productivity needs to be increased to maintain affordable price and face food security threat in the future. If power and gas crises are not addressed immediately, it would hurt domestic production and hold back medium term growth prospects. For this purpose, public investment in the power sector assumes a critical important as foreign direct investment in the sector is less likely during the recession. Revenue collection is likely to fall due to slower private sector activity and import. Undertaking further reforms in local governance and enhancing local government capacity should also merit a priority attention in order to ensure efficient use of public resources.
The country has so far remained largely unaffected by the global economic crisis, but nobody knows for certain as to what lies ahead. The country should prepare itself for any eventualities.
szkhan@thefinancialexpress-bd.com