Economic indicators bright: MCCI

A leading chamber has projected a rise in some economic indicators -- exports, imports, remittance and foreign exchange reserves.

“It is assumed that the calm political situation at present will continue and export, import, remittance and foreign exchange reserves will increase,” Metropolitan Chamber of Commerce and Industry said in its quarterly review of the economic situation in Bangladesh for January-March.

The chamber said the rate of inflation can be expected to fall in April and May as the supply situation is likely to improve with further improvements in the political environment.

“But then it will go up because of increased demand during Ramadan.”

Food inflation rose to 6.37 percent in March from 6.11 percent in February. In contrast, non-food inflation slid to 6.12 percent in March from 6.20 percent in the previous month.

Exports grew by 2.99 percent during the first nine months of this fiscal year despite widespread political violence, while import payments fell 3.95 percent, mainly due to lower prices of petroleum products in the global market and prolonged political unrest in the country.

Remittance rose by 1.13 percent to $3.765 billion in the third quarter, and the foreign exchange reserve stood at $23.05 billion at the end of March. 

In the concluding observations, the MCCI said political violence in the third quarter disrupted economic activity and caused a loss of life and property, but with extensive government and private sector efforts, economic activities returned to normalcy.

“The overall scenario is encouraging although slower export growth and slowing private sector investment remain a major challenge. A shortfall in revenue collection and weak ADP implementation are also worrying for the economy,” it said.

The MCCI however saw some bright aspects, as internal demand remains vibrant riding on positive development in agriculture, dynamism in rural economy, healthy remittance inflow and a wage hike in the garment sector.

The fall in fuel prices in the world market has given fiscal space to the government; the plummeting fuel oil prices in the international market enabled the government to slash its subsidy expenditure and enhance public allocations to priority sectors in the economy, it said.

Bank interest rates along with inflation have seen downward trends with the currency exchange rates remaining stable, which are indicators of macroeconomic stability and preconditions for economic expansion, the MCCI said.

Besides, the chamber said, political stability would be vital to ensure sustainability of the growth process; the continuous efforts of the government to accelerate power, energy and transport sectors reforms would result in a better environment for investment in future.

Referring to Moody's rating on Bangladesh, it reflects the country's track record in macroeconomic stability, a modest debt burden, and limited external vulnerabilities with an ample foreign reserve buffer. 

“But a fractious political environment, narrow tax-revenue base, and low level of per capita income constrain the ratings,” it said.

Inadequate infrastructure, shortage of power and energy and political uncertainty have become serious impediments to growth of the economy, the MCCI said.

Some donor agencies have revised their forecast of Bangladesh's GDP growth down -- to between 5.6 and 6.1 percent -- against the government's original growth target of 7.3 percent. 

Bangladesh Bank, too, has revised down its growth projection to 6.5 percent for the present fiscal year.

“The key reasons behind the low growth forecasts are political unrest, weak external and domestic demand and poor infrastructure,” the chamber said.

It said there is no alternative to raising the level of investment, if Bangladesh is to attain the status of a middle income country by 2021.

The sixth Five-Year Plan (2011-15) targeted an eight percent GDP growth rate by its terminal year. “This would require the economy's total investment to grow from 26-27 percent of GDP at present to 32.5 percent by fiscal 2015. All-out efforts will therefore be needed to encourage private investment, enhance public investment and attract foreign direct investment.”

The agriculture sector performed reasonably well in the third quarter but farmers did not get back their proper production costs as they could not sell their produce in the market due to political unrest, the chamber said.

On the broad industrial sector, the MCCI said many industrial units were found operating below capacity because of an irregular supply of energy, both power and gas. “The sector also suffered heavily from the impacts of shutdowns and blockades.”

“Infrastructural bottlenecks, shortage of power and gas, lack of investment and a shortage of industrial land in export processing zones were affecting the performance of the sector. These problems persist today as well,” it said.

The power supply situation improved in January-March, but demand for power shot up more than ever due to the advent of summer, the chamber said.

As of March, total actual generation during day peak hours was 5,433 mw and evening peak hours was 6,644MW.

The capital market remained volatile during the quarter because of political unrest that dampened investor confidence in the stockmarket.

Political unrest in the third quarter also badly affected construction activities and the service sectors, the MCCI said.

Broad money recorded a lower growth of 12.8 percent year-on-year at the end of February, compared to 15.85 percent growth a year ago. Domestic credit, on the other hand, recorded 10.64 percent growth year-on-year at the end of February, which was 9.74 percent a year ago.