Economy faces risks despite high growth

The country should prudently deal with the downside risks facing the economy in order to keep up the growth momentum, the Metropolitan Chamber of Commerce & Industry, Dhaka (MCCI) said yesterday.

In its review of economic situation in Bangladesh for April-June, the chamber said Bangladesh economy has achieved a lot of successes in recent times. The multilateral lenders that previously downgraded the country’s growth projection to below 7 percent have raised their projection to between 7.3 percent and 8 percent.

Although their projections are below the Bangladesh Bureau of Statistics’ estimate of 8.13 percent, the country’s achievement is immense compared with the GDP growth of many other developing countries.

While these achievements boost people’s confidence in the country’s ability to attain accelerated economic growth and emerge as a middle-income country by 2024, there are significant downside risks that pose threats to its economic growth.

“Power and gas shortage, insufficiency of investment and weak infrastructure are the major obstacles to growth, as they disrupt industrial production and also discourage new investment.”

The chamber said the overall economic situation is positive as indicated by steady improvements in the major economic indicators.

Steady progress in agriculture, moderately good growth in industry despite power sector crisis, decline in inflation, macroeconomic stability, build-up of a comfortable foreign exchange reserve, and good progress in achieving the Sustainable Development Goals boost people’s confidence.

Another laudable success of the government was to bring down the annual average inflation to 5.48 percent in the last fiscal year, comfortably way below the official target of 5.6 percent.

“However, despite the creditable performance of the economy in certain areas, overall achievements remain below their true potential,” the review said. 

The MCCI said inadequate infrastructure and lack of investor confidence in the economy discourage fresh investment. There is also weak implementation and ambiguity of regulatory and policy frameworks.

“These impediments must be removed to restore the confidence of the foreign investors as well as the country’s own business and investor community.”

The chamber said it is foreseen that the political situation will remain stable and peaceful in the coming days. Export, import, and remittances will, therefore, increase. The foreign exchange reserve is likely to fall in July and September due to payments to the Asian Clearing Union against imports.

The review expects that the upward trend in inward remittance will continue in the current fiscal year as the government has announced 2 percent cash incentive for remittance receipts.

The government has allocated Tk 3,060 crore as subsidies in the budget for this fiscal year to encourage expatriate workers to send money through legal channels. Besides, the strengthened surveillance of the central bank, as in the past, to check illegal transfer of funds should also contribute to raising the remittance inflow.

Foreign direct investment inflow, however, is low compared to many countries at similar level of development.

Bangladesh’s low labour costs are generally believed to be attractive to foreign investors, yet they hesitate to make fresh investments in the country because of underdeveloped infrastructure, shortage of power and energy, lack of consistency in policy and regulatory frameworks, scarcity of industrial land, and corruption.

“The government needs to address these impediments to attract more FDI.”