Slowdown in export, remittance will affect growth, says IMF
Friday, 3 April 2009
FE Report
The International Monetary Fund (IMF) has projected Bangladesh's economic growth rate at 5.0 to 5.5 per cent in calendar 2009 and 2010.
"Slowdown in export and remittance will affect the growth rate as pressure from the global recession continues to build," said Masato Miyazaki, adviser in the Asia and Pacific Department of the IMF at a press briefing on Thursday.
An IMF team, led by Mr Miyazaki, is here on a five-day visit to exchange views with the government and private sector.
Garment and other exports are slowing and garment export orders are declining, he said.
"Significant export slowdown will lead to reduction in demand for services, transport and construction," Mr Miyazaki said.
Remittance inflow is so far robust but the number of workers leaving Bangladesh has declined and number of workers returning from abroad has risen in recent months, he pointed out.
"The negative factors may put downward pressure on the current account balance and increase the need for polices to maintain the momentum of domestic demand," he said.
"There are some downside risks but it is uncertain that up to what extent the global recession will affect export and remittance inflow and it is wise to be conservative and take all necessary measures to face the challenges," he added.
He, however, said if certain conditions are met, the country could achieve growth rate of as high as 7.0 to 8.0 per cent and the conditions are better infrastructure, efficient ports, quality transport network and uninterrupted power supply.
The next budget will be a critical one as it is the first budget of the new government amid global recession, the IMF official said.
"Any policy direction in the budget to maintain sustainable development is welcome," he said.
Infrastructure and human resources are the two areas where development is needed to maintain sustainable development, Mr Miyazaki said.
The government must have included its philosophy of development in the upcoming budget, he added.
The IMF official said the revised budget for FY09 and next budget for FY10 should have contingency measures to help ease economic challenges.
"The government needs to continue its reform measures for better macroeconomic management," the IMF official said.
Tax reform is extremely important and the government should take drastic measures to increase revenue to face any challenge, he added.
"Revenue prospects are likely to be very weak in FY10 and the years ahead without appropriate changes in tax policy," the IMF official said.
Reforms of financial sector and state-owned enterprises (SoE) are important but one should remember that it is not possible to have everything overnight, he explained.
"The government should align efforts to set its focus so that people can get an idea of its direction," he said.
Reform of the state-owned enterprises is a big challenge for any country and Bangladesh is not an exception, he added.
"In democratic society, unsustainable enterprises will not continue their operations through artificial measures as taxpayers bear the ultimate brunt," he explained.
The real interest rate is very high as the financial market is distorted, Mr Miyazaki said.
"Fragmented market, no visible yield curve and national savings certificate (NSD) rate are the main reasons behind the distortion," he added.
The distortion can not be removed completely even if the government reduces the interest rate of NSD, he said.
Efficiency of financial markets is vital to bring down the cost of financing, he added.
He said: "Short-term liquidity will not help rate correction and market will determine the interest rate."
Expansion of secondary market for government bonds is a good sign as it should help emergence of yield curve that can be used to help develop corporate bonds and other debt instruments, Mr Miyazaki said.
The leader of the IMF team said the country is holding up and domestic economy has retained momentum from a favourable agriculture performance.
Fall in food, fuel and other commodity prices has helped bring inflation down to 6.0 per cent level.
The IMF team met finance minister AMA Muhith, planning minister AK Khandker, economic adviser to the prime minister Dr Mashiur Rahman, Bangladesh bank governor Dr Salehuddin Ahmed, National Board of Revenue chairman Md Abdul Mazid, finance secretary Mohammad Tareque, other senior government officials and members of the private sector and civil society.
The International Monetary Fund (IMF) has projected Bangladesh's economic growth rate at 5.0 to 5.5 per cent in calendar 2009 and 2010.
"Slowdown in export and remittance will affect the growth rate as pressure from the global recession continues to build," said Masato Miyazaki, adviser in the Asia and Pacific Department of the IMF at a press briefing on Thursday.
An IMF team, led by Mr Miyazaki, is here on a five-day visit to exchange views with the government and private sector.
Garment and other exports are slowing and garment export orders are declining, he said.
"Significant export slowdown will lead to reduction in demand for services, transport and construction," Mr Miyazaki said.
Remittance inflow is so far robust but the number of workers leaving Bangladesh has declined and number of workers returning from abroad has risen in recent months, he pointed out.
"The negative factors may put downward pressure on the current account balance and increase the need for polices to maintain the momentum of domestic demand," he said.
"There are some downside risks but it is uncertain that up to what extent the global recession will affect export and remittance inflow and it is wise to be conservative and take all necessary measures to face the challenges," he added.
He, however, said if certain conditions are met, the country could achieve growth rate of as high as 7.0 to 8.0 per cent and the conditions are better infrastructure, efficient ports, quality transport network and uninterrupted power supply.
The next budget will be a critical one as it is the first budget of the new government amid global recession, the IMF official said.
"Any policy direction in the budget to maintain sustainable development is welcome," he said.
Infrastructure and human resources are the two areas where development is needed to maintain sustainable development, Mr Miyazaki said.
The government must have included its philosophy of development in the upcoming budget, he added.
The IMF official said the revised budget for FY09 and next budget for FY10 should have contingency measures to help ease economic challenges.
"The government needs to continue its reform measures for better macroeconomic management," the IMF official said.
Tax reform is extremely important and the government should take drastic measures to increase revenue to face any challenge, he added.
"Revenue prospects are likely to be very weak in FY10 and the years ahead without appropriate changes in tax policy," the IMF official said.
Reforms of financial sector and state-owned enterprises (SoE) are important but one should remember that it is not possible to have everything overnight, he explained.
"The government should align efforts to set its focus so that people can get an idea of its direction," he said.
Reform of the state-owned enterprises is a big challenge for any country and Bangladesh is not an exception, he added.
"In democratic society, unsustainable enterprises will not continue their operations through artificial measures as taxpayers bear the ultimate brunt," he explained.
The real interest rate is very high as the financial market is distorted, Mr Miyazaki said.
"Fragmented market, no visible yield curve and national savings certificate (NSD) rate are the main reasons behind the distortion," he added.
The distortion can not be removed completely even if the government reduces the interest rate of NSD, he said.
Efficiency of financial markets is vital to bring down the cost of financing, he added.
He said: "Short-term liquidity will not help rate correction and market will determine the interest rate."
Expansion of secondary market for government bonds is a good sign as it should help emergence of yield curve that can be used to help develop corporate bonds and other debt instruments, Mr Miyazaki said.
The leader of the IMF team said the country is holding up and domestic economy has retained momentum from a favourable agriculture performance.
Fall in food, fuel and other commodity prices has helped bring inflation down to 6.0 per cent level.
The IMF team met finance minister AMA Muhith, planning minister AK Khandker, economic adviser to the prime minister Dr Mashiur Rahman, Bangladesh bank governor Dr Salehuddin Ahmed, National Board of Revenue chairman Md Abdul Mazid, finance secretary Mohammad Tareque, other senior government officials and members of the private sector and civil society.