RMG export bracing for huge fall
The International Monetary Fund (IMF) yesterday forecast that the growth of garment exports from Bangladesh might drop to single digits in the current fiscal year (FY09) due to global economic turmoil.
It also said the country's GDP growth in the year would dip to 5.5 percent, which was projected at 6.5 percent by the present government.
The predictions came when a three-member delegation of the Fund met Finance Adviser Mirza Azizul Islam and Bangladesh Bank Governor Salehuddin Ahmed.
According to meeting sources, the IMF team said the outlook for garment exports looks bleak because of severe economic downturns in the US and Europe. The RMG export growth is likely to fall to 9 percent, and risks remain of even more adverse effects.
The last time the growth rate plunged below double digits was FY02-03 when it was recorded 9.39 percent. It ranged between 14 and 21 percent from FY04 to FY08.
Led by IMF Asia and Pacific Department Adviser Thomas Rambough, the team is visiting Dhaka to assess the impact of global economic recession on Bangladesh economy.
According to Export Promotion Bureau statistics, the country's overall exports grew by 42.85 percent in July and August of FY08-09.
During the period, RMG sector has clocked a significant growth in export. Sales of woven clothes to other countries grew by 35.55 percent and knitwear by 52.84 percent.
After the meeting, the BB governor told reporters that the IMF has asked them to stay alert to the possibility of garment exports being badly hit by the global slump.
In response to the concerns, Salehuddin said, “We are cautiously hopeful. The garment exports might not grow as fast as they are now, but they will not nosedive either.”
The finance adviser said the recession would not affect RMG exports unless it lingers and gets deeper. It would rather create some opportunities for Bangladesh.
The IMF delegation said the growth momentum heading into FY09 was strong, and it keeps backing up the economic activity.
“Available data indicate that exports and industrial activity have continued to increase, while reports on the coming Aman crop point to growth in agricultural production,” the sources quoted one visiting IMF official as saying.
However, given the domestic linkages of garment sector, the world economic meltdown might put a significant drag on the overall growth here and slow it down to 5.5 percent in FY09, the IMF delegation observed.
They said while lower commodity prices would help keep rises in the consumer price index (CPI) moderate, inflationary pressures would not slacken.
The central bank boss told reporters, “IMF said inflation will exceed 9 percent, but we said it will remain below that number.”
The delegation said remittance flowed in strongly till the end of October and is expected to be that way. However, the growth rate could still suffer from lower labour demand in the Middle East.
“Though the balance of payments is expected to stay in small surplus in FY09, downside risks on the export side suggest the need for flexibility in exchange rate policy might rise.”
Salehuddin said the Fund officials also asked them to remain cautious so that foreign currency reserves are not depleted.
The finance adviser said drops in remittance and exports would not affect the foreign currency reserves. “As prices of many commodities including petroleum, edible oil and steel continue to fall in the international market, our import bills will come down.”
The IMF team advised the government to have the small banks merged as it thinks an economy of Bangladesh's size does not need so many banks.
Mirza Aziz too admitted that the number of banks here is relatively high. “But we cannot shut them down. It is up to them whether they will merge or not,” he said.
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