Economy rides past strong 2008

The economy has passed a resilient 2008 despite an unfriendly domestic investment climate and fallout from the world economic meltdown.
Economic indicators such as private-sector credit growth, call money rate, foreign currency situation, foreign exchange reserves, inflation, exports, import and remittances -- all were positive through 2008.
Although the world credit market was the most direct victim of the sub-prime crisis in 2008, Bangladesh remained completely unaffected. Private-sector credit grew more than 26 percent in 2008.
Domestic credit recorded an increase of Tk 17,412.70 crore or 7.00 percent in July-October of 2008 against a rise of Tk 10,007.60 crore or 4.87 percent in the year-ago period.
The rise in domestic credit during the period was due to a significant rise in private-sector credit by Tk 10,370.40 crore or 5.45 percent, according to Bangladesh Bank data.
“Credit growth suggests that banks will be announcing good revenue growth,” said Muhammad A Rumee Ali, chairman of BRAC Bank and a former deputy governor of the central bank.
Ali however said profit margins have been under pressure towards the second half of 2008, paring down net profit.
“We have seen growth in 2008 despite a downturn in the global economy,” said Syed Abu Naser Bukhtear Ahmed, chief executive officer of Agrani Bank.
While the world currency market is still recuperating from the shock of the financial crisis, the taka showed impressive stability. The taka remained broadly steady at 68.50-69.50 against the dollar throughout the year.
Although the taka stood out of the league showing strong character against the dollar, other currencies in the region, such as PKR (Pakistan rupee) and INR (Indian rupee), lost ground against the greenback.
By the year-end, INR stood at 48.8 against the dollar, down 24 percent from the previous year. The PKR was down 28 percent to 78.80.
Non-US majors that include the euro and the pound were extremely volatile against the taka in tandem with their volatility against the US currency.
The euro went up to 111 against the taka in the middle of July and came as low as 88 against the Bangladesh currency in November before bouncing back to 100.
The pound went up as much as 141 against the taka in March but went down as low as 103 in November.
Although import growth outpaced exports, record high remittances eased the pressure, leading the rate to move within a limited range.
Import growth was 25.63 percent in fiscal 2007-08 against export growth of 15.70 percent, but remittance inflows grew 32 percent to $7.9 billion that gave a cushion to the balance of payments.
Exports receipts in July-October 2008 increased by $1,232.82 million or 30.68 percent to $5,251.49 million from $4,018.67 million in the same period of 2007.
Import payments in July-September 2008 rose by $1,637.20 or 34.93 percent to $6,324.70 million from $4,687.50 million in the same period of 2007.
Gross foreign exchange reserves stood at $5,245.40 million as of end-November 2008 against $5,095.31 million reserves as of end-November 2007.
The rate of inflation on the point-to-point basis also decreased to 6.12 percent in November 2008 from 7.26 percent of October 2008.
Bankers said less exposure to foreign debt markets has safeguarded Bangladesh from the impact of the financial crisis.
“It (less exposure) was a blessing in disguise,” said Nurul Amin, managing director of National Credit and Commerce Bank.
Bangladesh in many ways is not as closely integrated into the global economy as the more open economies are. For example, the country's capital outflows and foreign debt inflows are restricted by the forex regulatory guidelines, the capital market has very little foreign equity investments.
Exports remained largely unaffected because Bangladeshi products target lower-end markets in rich countries.
The local money market experienced some volatility in 2008. The market remained calm in 2007, helped by surplus liquidity in the system.
The scenario started changing from the third week of January 2008 and call money rates started rising. The central bank acted prudently and injected liquidity into the system, which helped stabilise the market. Call rates hovered mostly between 7 percent and 15 percent in 2008, compared to 6.5 percent and 9.5 percent in 2007.
To ensure adequate liquidity in the market, Bangladesh Bank used the repo route by allowing banks to borrow money against government-approved securities and buying back T-bills and bonds that were sold earlier.
Continuous liquidity support allowed banks to manage funding and help credit growth in the economy.
The central bank's steps to activate a deep secondary market for government bills and bonds yielded some initial results in 2008 with a significant rise in secondary trading led by primary dealer (PD) banks and some other non-PD banks. There is now a widespread understanding of bond trading dynamics and settlement processes among the banks.
The BB continued to publish semi-annual monetary policy statements adapting accommodative monetary stances. To keep inflation under control, the central bank hiked the repo rate (rate at which BB lends money to banks) and reverse repo rate (rate at which banks park surplus liquidity with the BB) to 8.75 percent and 6.75 percent from 8.50 percent and 6.50 percent respectively.
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