Slow remittance to weigh on consumption

Weakening inflows of remittances from workers overseas could hurt consumption in Bangladesh, said Moody's Investors Service in a report on Sunday.

Remittances from workers overseas contribute to Bangladesh's economic growth by supporting household income and consumption.

Remittances accounted for about 6.7 percent of the country's gross domestic product in the fiscal year of 2015-16. However, inflows dropped by 14.6 percent in the first eight months of the current fiscal year, driven by muted economic activity in Gulf countries.

“Moving forward, muted remittances growth could weigh on consumption,” said Moody's.

It however was upbeat about the growth prospect of the garment sector.

Bangladesh's sovereign credit profile, now Ba3 stable, is supported by the robust growth of an economy that is bolstered by garment manufacturing industry exports, said Moody's.

The garment industry makes up about 70 percent of Bangladesh's total merchandise exports, as measured in local currency terms, and also accounts for significant foreign investment inflows.

While the agricultural sector is still the biggest employer in Bangladesh, the garment industry employs over three million workers and offers continued opportunity for labour productivity gains that will support future economic development and growth.

"Bangladesh will continue to invest in its garment manufacturing sector to capitalise on its strong comparative advantage of abundant low-cost labour," said William Foster, a vice-president at Moody's.

"It will remain a leading global supplier of basic garments and the industry will continue to drive the nation's growth, exports and job creation."

The ratings agency said the country's focus on low-value garment exports helps insulate it from the impact of higher trade tariffs that could result from greater protectionism globally.

Nonetheless, while Bangladesh's garment industry benefits from some of the lowest wage levels in the world, the country's overall economic competitiveness lags behind that of its peers such as Vietnam (B1 positive), Cambodia (B2 stable) and Sri Lanka (B1 negative).

“When factoring in the quality of its physical infrastructure, skill levels and transparency of the business environment, the country's low competitiveness hampers the ability of its economy to absorb shocks.”