Infrastructure deficit continues to choke economic growth: MCCI

Inadequate infrastructure and a shortage of power and energy are the major impediments to economic growth, a leading chamber said yesterday.

“Bangladesh’s economy is progressing well, but below its true potential,” Metropolitan Chamber of Commerce and Industry said in its quarterly economic review.

Some development partners have revised down their forecast of Bangladesh’s GDP growth to between 6.3 percent and 6.8 percent for this fiscal year, against the government forecast of 7.05 percent, the chamber referred.

Also, a shortfall in revenue collection and weak ADP implementation are currently major worries for the economy, it said.

Adequate infrastructure, energy, policy continuity, skilled manpower and an investment-friendly climate are the key factors for higher economic growth, the MCCI said adding that the government will need to adopt suitable measures to remove these bottlenecks to growth.

Most importantly, the political harmony in the country should be maintained in order to achieve growth targets, it said.

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

The investment-GDP ratio should be 30 percent to achieve 7 percent growth, the MCCI said referring to the seventh five-year plan. “All-out efforts will be needed to encourage investment, including foreign direct investment in the country.”

Though the net FDI increased 27.19 percent to $1.45 billion during the first eight months of this fiscal year, it is not enough for the country's development.

Many prospective foreign investors have adopted a 'go-slow' strategy in making fresh investments since 2013. They consider the underdeveloped infrastructure, shortage of power and energy, lack of consistency in policy matters, procedural bottlenecks and lack of proper regulatory framework as major impediments to new investment.

They also indentify scarcity of industrial land, administrative weakness of the Board of Investment, lack of coordination among the government agencies and political uncertainty as the major barriers to new investment.

“The government needs to address these impediments to attract more FDI in the country,” the chamber said.

The chamber however found the overall economic situation positive as shown by steady improvements in the major economic indicators. “Although the progress made is below potential, the country experienced stable growth.”

“Inflation was under control, exchange rate remained stable and foreign exchange reserves rose to a comfortable level. The downward trend in oil prices in the international market benefitted the economy.”

The agriculture sector performed well, but continuous government support with inputs and finance will be needed to sustain the sector's growth, it said. “In particular, infrastructure deficit and gas and power supply problems were undermining the performance of all productive sectors of the economy,” the chamber said.

The services and manufacturing sectors are also doing well, but they will need government support in different fields, it added.

The MCCI said the rate of inflation may fall further in April-May period due to the decline in commodity and fuel prices in the global markets. “But then it may go up because of increased demand during the month of Ramadan,” it said.

The chamber also assumed that the current relatively calm political situation will continue in the last quarter of the running fiscal year. “Therefore, export, import, remittances, and foreign exchange reserve will increase.”

On the capital market, it said the market passed a gloomy period as trading activities were dull almost throughout 2015 as well as the third quarter of the fiscal year.

“Various efforts taken by the government and the regulators to shore up the market in the past five years since the 2011 debacle, virtually failed to bring any improvement in the capital market,” it said.

Broad money recorded a higher growth of 13.11 percent at the end of February, compared to 12.8 percent a year ago. Domestic credit, on the other hand, recorded 11 percent growth at the end of February, which was 10.64 percent a year ago.

The MCCI said the government achieved commendable success in short-term actions for power sector crisis management, but the long-term goals for sustainable power and energy supply issues remain unresolved.

“Specialists and investors have been systematically raising concerns for sustainable development of primary energy sources in the country and their focus is concentrated on local coal and gas developments.”

The power supply situation, however, improved in the quarter under review, but the demand for power, too, shot up more than ever.

As of March, total generation was 6,427MW during peak hours and 6,417MW during evening peak hours. The maximum generation in 2016 was 8,348MW on April 9 and it was the maximum generation in the country's history.

The chamber said manufacturing activities showed signs of improvement, thanks to some improvements in the power situation.