Economy shows resilience: Citi | The Daily Star
12:00 AM, January 12, 2016 / LAST MODIFIED: 12:00 AM, January 12, 2016

Economy shows resilience: Citi

Economic fundamentals signify impressive growth prospects for Bangladesh, banking giant Citi said in its annual market update.

Showing resilience, the Bangladesh economy grew 6.51 percent in fiscal 2014-15, despite the political front presenting tough challenges at the beginning of 2015.

The services sector contributed the most -- 3 percent -- followed by the industrial and agricultural sector with 2.7 percent and 0.5 percent respectively, Citi said in its analysis yesterday.

Referring to the 7 percent GDP growth target for fiscal 2015-16, Citi said: “The economy gained momentum from the beginning of the new fiscal year and appears to have laid a solid foundation to meet the target.”

It said 2015 marked promising feats for Bangladesh with achievement of the millennium development goals and escalation from the low-income country status to lower-middle income country as per the World Bank's classification.

“With the country achieving growth in excess of 6 percent over the last five years, focus has now shifted towards moving to the next level, and stepping up the growth rate to 8 percent by 2020 as envisaged under the country's seventh five-year plan,” Citi said.

Annual average inflation decreased to 6.2 percent at the end of 2015, the lowest level since February 2013; point-to-point inflation hovered between 6 percent and 6.4 percent throughout the year before closing at 6.1 in December.

Food inflation slowed to 5.48 percent in December 2015 from 5.86 percent a year ago, whereas non-food inflation rose to 7.05 percent from 6.48 percent over the same period.

“The drop in food inflation is attributed to the increase in rice output during the harvest season, and fall in import prices of global agricultural commodities,” Citi said.

“The non-food inflation rate increase was driven by supply disruptions during the first quarter of 2015 and an upward adjustment of electricity and gas prices.”

Exports gained momentum after a slow start to fiscal 2015-16, rising by 7.8 percent in July-December to $16.1 billion and exceeding the $15.86 billion target for the period.

The growth was primarily driven by the apparel export growth of 9.2 percent during the same period. “At the current pace, the country is well on its way of hitting the export target of $33.5 billion set for FY16,” Citi said.

Referring to the government's export target of $60 billion by 2021, Citi said diversification and investment expansion are crucial to build a sustainable platform for the country's export growth.

At present, garment accounts for over 80 percent of total exports, which is facing challenges of faltering economic recovery of the eurozone, which is one of its major export destinations and also for the taka's appreciation against the euro.

“Decisions on setting up new country specific economic zones have been applauded by the business community. Infrastructure support in the form of power, ports, and improved transport facilities through better connectivity would help to have an edge over competing nations,” Citi said.

Import settlement during the first five months of the fiscal year has grown marginally by 2.48 percent to $16.6 billion from $16.2 billion in the same period last fiscal year. “The global oil price hitting record lows was one of the primary factors behind the fall in fuel import payments.”

Import remained sluggish in July-September, which picked up again October onwards with rising payments for the government's mega infrastructure projects, and rising capital machinery imports amid growing confidence.

The statistics showing high growth of capital machinery imports and rising import orders provide an indication of growing investments and an expansion of production capacity.

As import growth outstripped export growth by a significant margin in fiscal 2014-15, the country posted a trade deficit of over $10 billion.

But with remittance making up for the trade deficit, the current account posted a surplus of $1.06 billion during the first five months of the current fiscal year compared to the $1.65 billion deficit last year.

More than 500,000 Bangladeshi workers were able to land overseas jobs in 2015, reflecting a 30 percent growth over the previous year.

“A surge in the number of migrants entering Saudi Arabia, Malaysia and Kuwait has significantly contributed to the growth of overall migration,” said Citi.

However, it said the total remittance received during the period showed an increase of 2.47 percent to $15.31 billion.

“Most Bangladeshi workers are employed in the Middle Eastern and Asian countries, the currencies of which have depreciated against the US dollar, whereas the taka held strong, which resulted in workers sending home lower amounts in remittance,” it explained.

Reopening of the Saudi Arabian market, the government-to-government arrangement with Malaysia, FIFA 2022 World Cup related construction activities in Qatar and fiscal expansion in Gulf Cooperation Council countries present opportunities for growing jobs.


“The government's recent steps in setting up technical cooperation between the vocational training institutes of several countries with workforce requirement could yield positive results in the near future,” Citi hoped.

Foreign exchange reserves climbed to a record $27.45 billion at the end of 2015, marking an 18.7 percent year-on-year increase and 8.8 percent increase from the beginning of fiscal 2015-16.

After a long period of stability, the US dollar marked sharp gains against the taka from late October when it jumped from Tk 77.80 to Tk 78.95 by the end of November.

“This was primarily driven by sluggish export and remittance growth in the preceding months, coupled with large infrastructure related payments and foreign loan repayments,” Citi said.

The inter-bank call money rate fell sharply in 2015, as liquidity piled up in the banks. The weighted average call money rate, which was at 8.57 percent in January, plunged to 3.69 percent by the end of the year.

Private sector credit growth remained stable for most parts of the year, remaining within the 11-13 percent range before picking up October onwards and reaching 13.72 percent in November.

The performance of the country's premier bourse was uninspiring in 2015.

The benchmark index of Dhaka Stock Exchange, DSEX, which opened at the 4,900 level in 2015, came under heavy pressure on the back of nationwide strikes and blockades during the first quarter and dipped below 4,000 in April amid low investor confidence.

The market picked up in May and registered sharp gains in June, following a set of incentives for the capital market announced in the budget proposal. But the index closed at 4,629 points at the end of 2015, shedding 6.3 percent year-on-year.

Citi said 2015 saw a number of landmark reforms on the structural front and new policies being introduced. “The reforms have mostly been directed towards ramping up local and foreign private investment and promoting exports,” it said, referring to the new export policy.

Bangladesh Bank withdrew its mandatory guarantee provision against any foreign loan to be taken by a local firm following approval of the Board of Investment. As a result, the foreign loans approved by it will no longer require approval from Bangladesh Bank.

The Public Private Partnership Bill 2015 has been approved by parliament with an aim to attract more foreign and private investment in infrastructure and the services sector.

Other key initiatives to promote investment included the decision to set up 100 new economic zones by Bangladesh Economic Zones Authority and approval by Bangladesh Bank to extend mortgage loans in taka to non-resident Bangladeshis to purchase houses here.

In addition, the Financial Reporting Act 2015 has been approved in parliament to ensure more transparency and accountability in financial reporting activities and a separate regulatory body, Financial Reporting Council, is being formed.

Stay updated on the go with The Daily Star News App. Click here to download it for your device.

Grameenphone and Robi:
Type START <space> BR and send SMS it to 2222

Type START <space> BR and send SMS it to 2225

Leave your comments

Top News

Top News