Bangladesh started the year 2014-2015 on a positive note and gained momentum on the macroeconomic front during the first half of the fiscal, according to half-yearly market update of Citi released on Wednesday. The economy witnessed improvement in capacity utilisation, and investments here were showing some signs of recovery. However, the economy was pulled back by the adverse impact of political unrest during the first quarter of 2015, which caused disruption in economic activities, said the report. According to the preliminary estimate from Bangladesh Bureau of Statistics, the GDP growth for the outgoing fiscal has been calculated at 6.51 percent, which is a commendable achievement. The estimated growth is higher than the World Bank forecast of 5.6 percent but falls short of the government’s target of 7.3 percent, Citi said. The agriculture sector registered 3.4 percent growth, while the industry sector and service sector grew at 9.60 percent and 5.83 percent respectively. The government has set 7.0 percent GDP growth target for FY16, the attainment of which hinges on increasing the investment to GDP ratio by another 2.0-2.5 percentage points from its current level of 26 percent. The measures from the government to boost investment through developing economic zones and ports, bringing in necessary policy and regulation changes and recent announcement to merge the Privatization Commission and Board of Investment are all steps in this direction. However, ensuring durable political stability, trade liberalisation and efficient implementation of energy and communication infrastructure investments remain the preconditions for Bangladesh’s accelerated, inclusive, and sustainable growth, according to Citi’s market update. Moderate prices of essential items in the domestic market and lower international oil prices helped in reducing the inflation rate considerably in FY15. The country’s 12-month average inflation came down to 6.40 percent in FY15 from 7.35 percent in FY 14 and thus beating the inflation target of 6.50 percent. The point-to-point inflation also came down to 6.25 percent in June 2015 from 6.97 percent in June 2014. Food inflation had been trending downward from the beginning of the fiscal, which however went up during the beginning months of 2015 due to supply chain disruption following strikes and blockades before moderating again at the end of the fiscal. Non-food inflation remained relatively stable during the first half of the year, experiencing a slight upward pressure in January and February due to higher medical care and transport cost. Government has set a target of containing inflation within 6.20 percent in the upcoming fiscal. Domestic production of rice and prices of fuel in the international market will be key determinants of whether the inflation target can be achieved. Furthermore, the new pay-scale for government workers, which is expected to be announced in the coming months, may also put upward pressure on prices. During FY 15, migrant workers sent home $15.31 billion in remittance, marking a 7.6 percent increase from $14.23 billion in the previous fiscal year. Increase in manpower export to the Middle Eastern countries played a large role behind the growth, which was also supported by Bangladesh Bank’s additional measures to facilitate remittance inflow through bank-led formal channel. Active management of the exchange rate of the local currency against US dollars by Central Bank also contributed to increased remittance inflow in the country. At present, majority of remittance inflows comes from largely unskilled work force working in Middle East countries. As remittance flow plays a vital role in the Bangladeshi economy, seeking new markets for manpower exports is of paramount importance. It is also important to equip Bangladesh’s workforce with the technical education and training demanded in prospective manpower markets. At the end of FY 15, Bangladesh’s foreign exchange reserve soared to $25.02 billion, which is 16.3 percent higher than the reserve at the end of FY 14 of $21.51 billion and 12.2 percent up from December 2014. Current reserves are sufficient to pay country’s import bills for 7 months. Solid growth of remittances has been pivotal in offsetting a large part of the trade deficit and keeping the current account deficit manageable. Increase in foreign direct investment and private sector’s foreign-sourced loans have resulted in financial account surplus and an overall balance of payment surplus of 3.59 billion as of May 2015. Private sector’s increasing dependence on loans from foreign sources at lower rates had a major role in the country’s soaring foreign exchange reserves figures. The private sector borrowed $4.89 billion from abroad in 2014, up from $4.06 billion and $1.79 billion in 2013 and 2012 respectively. The report said excess liquidity has been piling up in the banking sector due to stagnant investment and lack of credit demand as private sector has been borrowing primarily from foreign sources. Bangladesh Bank has been mopping up excess liquidity from the banking sector through its reverse repo operations and in recent months the amount of daily reverse repo has ascended to Tk 150-180 billion from Tk 100-120 billion earlier in the year. Citi also observed that given the present situation, the target set in the national budget by the government to borrow over Tk 385 billion from banks in FY16 is expected to emerge as a relief for the banking sector. The cabinet approved the draft ‘Foreign Exchange Regulation (Amendment) Act, 2015. The amended regulation would enable the government to ask both Bangladeshis and foreign nationals alike to furnish details of their foreign currency holdings, foreign securities, and property abroad. Aiming at creating an investment friendly system, the amendment has also waived the existing mandatory provision of taking Bangladesh Bank’s prior permission in the case of taking license of a foreign exchange agency and opening a branch or liaison office of any foreign organisation, said the report. Bangladesh Bank has also introduced large loan restructuring policy, according to which, the borrowers with outstanding bank loans worth minimum Tk 5 billion can now take maximum 12 years’ time to repay the money at discounted interest rates. Central bank has introduced this policy considering that distressed large borrowers have significant importance from the socio-economic and employment generation perspective and also to support the bank loan recovery efforts.
