The ADB update on economy
Thursday, 2 August 2007
The Asian Development Bank (ADB) in its economic update of the Bangladesh economy, released last Tuesday, has not been pessimistic about its growth prospects in the current year. A number of developments are frequently cited by local economists as having created conditions for slow economic growth in the current fiscal year. While noting them and their consequences, the ADB update remains hopeful that the prevailing strong plus points in the macro economy would continue to lend strength and depending on appropriate policies and their execution, the economy may well post 7.0 per cent growth rate in the current fiscal year, which was projected by the Finance and Planning Adviser.
The ADB report has highlighted that the rise in the inflation rate in the country is largely demand driven. This contradicts the opinion of certain local think tanks who see the inexorable link between cost-push factors such as rise in the prices of utilities and inflation. But according to the ADB, the inflation rise is also considerably due to demand-pull factors. Demand in the economy has been strong and the upsurge of workers' remittances in recent months has helped to fuel this demand. The ADB update noted that following an upsurge in remittance inflows during 2006-7, gross national savings increased sharply to 29.2 per cent of the GDP. The higher than usual inflows of remittances are continuing and should help savings, investments and consumption activities in the economy. The growth in overall manufacturing activities and in the services sectors are continuing and these are the reasons for dispelling otherwise disconcerting analysis of the economy from other quarters, according to the ADB. Foreign exchange reserve at $5.007 billion at the close of June, 30, 2007 signifies an increase of over $1,593 million from the previous year. Based on the latest data, the current account surplus in the balance of payments is estimated at 0.7 per cent of GDP. The ADP update notes all of these positive features of the economy that would be a big source of support to work towards realising the 7.0 per cent economic growth target in the present fiscal year.
However, government must also give attention to certain areas related to income and costs of living to mitigate hardships of some sections of people. The adoption of a more cautious and contractionary monetary policy has been noted to be a step in the right direction. But that has to be balanced with policies aiming to keep the rate of borrowing reasonable for the private sector ; otherwise investment operations would be hampered. Construction or the real estate sector has been progressively contributing a larger share to the GDP. This sector has to be supported by official policies to maintain its dynamism which seems to be flagging now. There are many sub-sectors linked to the construction sector and these stand to be badly affected by sluggishness in the latter. Thus, it is important to give focused attention to the needs of this sector.
The eviction of hawkers and retrenchment of workers in public sector industries, is giving rise to unemployment problems. Rehabilitation activities of the hawkers and prompt settlement of the dues of retrenched workers, will help in the mitigation of their woes. Government must also brace up for coping with the consequences of the unfolding flood disaster with quick and effective post-flood recovery enabling activities .The government must also do its best to keep the political situation completely favourable for the economy by pursuing pragmatic policies. The readymade garments (RMG) sector must be helped in every way to maintain its competitiveness. Doing all of these things would be as important as further fine tuning the macro economy in the present year.
The ADB report has highlighted that the rise in the inflation rate in the country is largely demand driven. This contradicts the opinion of certain local think tanks who see the inexorable link between cost-push factors such as rise in the prices of utilities and inflation. But according to the ADB, the inflation rise is also considerably due to demand-pull factors. Demand in the economy has been strong and the upsurge of workers' remittances in recent months has helped to fuel this demand. The ADB update noted that following an upsurge in remittance inflows during 2006-7, gross national savings increased sharply to 29.2 per cent of the GDP. The higher than usual inflows of remittances are continuing and should help savings, investments and consumption activities in the economy. The growth in overall manufacturing activities and in the services sectors are continuing and these are the reasons for dispelling otherwise disconcerting analysis of the economy from other quarters, according to the ADB. Foreign exchange reserve at $5.007 billion at the close of June, 30, 2007 signifies an increase of over $1,593 million from the previous year. Based on the latest data, the current account surplus in the balance of payments is estimated at 0.7 per cent of GDP. The ADP update notes all of these positive features of the economy that would be a big source of support to work towards realising the 7.0 per cent economic growth target in the present fiscal year.
However, government must also give attention to certain areas related to income and costs of living to mitigate hardships of some sections of people. The adoption of a more cautious and contractionary monetary policy has been noted to be a step in the right direction. But that has to be balanced with policies aiming to keep the rate of borrowing reasonable for the private sector ; otherwise investment operations would be hampered. Construction or the real estate sector has been progressively contributing a larger share to the GDP. This sector has to be supported by official policies to maintain its dynamism which seems to be flagging now. There are many sub-sectors linked to the construction sector and these stand to be badly affected by sluggishness in the latter. Thus, it is important to give focused attention to the needs of this sector.
The eviction of hawkers and retrenchment of workers in public sector industries, is giving rise to unemployment problems. Rehabilitation activities of the hawkers and prompt settlement of the dues of retrenched workers, will help in the mitigation of their woes. Government must also brace up for coping with the consequences of the unfolding flood disaster with quick and effective post-flood recovery enabling activities .The government must also do its best to keep the political situation completely favourable for the economy by pursuing pragmatic policies. The readymade garments (RMG) sector must be helped in every way to maintain its competitiveness. Doing all of these things would be as important as further fine tuning the macro economy in the present year.