Private consumption falls as remittance slows

The private consumption to GDP ratio fell 2.23 percentage points in the current fiscal year, mainly due to a decline in inward remittance, which took a hit from lower fuel prices in international markets.

Private consumption as a percentage of gross domestic product fell to 70.21 percent in fiscal 2015-16 from 72.44 percent last year, according to provisional data from Bangladesh Bureau of Statistics.

Over the past several years, the consumption to GDP ratio saw a gradual fall -- of less than 1 percentage point a year, as the savings ratio increased.

It fell more than 2 percentage points this fiscal year.

In the first nine months of the current fiscal year, remittance declined 1.82 percent compared to the same period last year, according to data from Bangladesh Bank.

Zahid Hussain, lead economist at the World Bank’s Dhaka office, attributed the fall in the consumption ratio to a decline in remittance.

According to central bank data, 59 percent of Bangladesh’s remittance comes from Middle Eastern nations, with 22 percent from Saudi Arabia and 18 percent from the UAE.

As of February, the average monthly remittance stood at $247 million from Saudi Arabia, compared to $279 million last fiscal year; it was $220 million from the UAE, down from $235 million last year.

Fuel prices fell by around 65 percent in the last two years, while the economies of the Middle East are dependent on fuel.

As a result, the Middle Eastern countries reduced their construction activities, which negatively affected Bangladeshi workers.

Remittance is a major source of consumption by the poor in Bangladesh. According to a BBS survey, 38.84 percent of remittance is spent on purchasing food, 38.86 percent on non-food items and 22.3 percent on durables and other items.

If the savings ratio increases, consumption will decrease. If the savings are converted to investment, it will help the economy.

The national savings ratio compared to GDP rose 1 percentage point in the current fiscal year to stand at 30.08 percent, according to BBS.

But the bad news is that private investment as a percentage of GDP in the current fiscal year decreased by 0.29 percentage point to 21.78 percent.

Zaid Bakht, former research director of Bangladesh Institute of Development Studies, said if savings are not transferred to investment, the economy may slow down. “It may hamper the growth momentum.”