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9 May, 2017 00:00 00 AM / LAST MODIFIED: 8 May, 2017 09:13:50 PM
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Assessing our evolving economic dynamics

The foreign community views investment in banks and financial institutions as the preferred areas of investment. They are also interested in investing in power and energy, pharmaceuticals, multinationals, telecom and IT. This implies that Bangladeshi stocks are being seen as a lucrative investment
Muhammad Zamir
Assessing our evolving economic dynamics

Misuhiro Furusawa, the Deputy Managing Director of International Monetary Fund (IMF) recently discussed about the economic prospects of Bangladesh through an article which appeared in IMF’s Official website. This was given extensive coverage by our national media. He addressed the issue of global growth’s evolving pattern through 2016 to 2017, the existing challenges which needed to be overcome and also the geopolitical factors that were relevant for Bangladesh. 
He identified that global economic activity is expected to accelerate in 2017 and 2018. In this context he recognized that the Bangladesh economy had undergone a major transformation in the recent past. He identified especially the industrial sector in general and the expanding garment industry for helping reduce poverty and raising the employment of women. He also acknowledged that poverty has not only been nearly halved over the last two decades but that inequality had also remained low and stable defying the regional trend. It was also agreed that indicators suggested that good progress had been achieved in the recent past in financial inclusion and in enhancing the access and usage of financial services. In his opinion, these elements had meant higher foreign exchange reserves, lower public debt as a share of GDP and lower underlying inflation. He however also identified some major challenges that needed to be addressed by the relevant authorities. He pointed out (a) the need to increase private investment and also enhance significantly public investment to maintain competitiveness and (b) pursuing capital market development to provide ‘new vehicles to channel savings toward long-term investments’. In this context it was also proposed that one way to achieve these goals for increasing investment should be to focus on raising revenues and lifting FDI. It was also reiterated that the VAT law be implemented. Consistent with his conservative approach it was reiterated that ‘policies to remove red tape and simplify the trade regime should be put in place’. This needed to be done on a priority basis alongwith structural reforms, strengthened institutions and capacity development. It was also underlined that sustaining strong medium-term growth will require “ a stable security situation.. to avoid adverse effects on market confidence.” 
One has to admit that this was a constructive appraisal that would work even better if we can continue strengthening institutional and human capacity.
This was followed by the IMF assessment in April that Bangladesh is likely to achieve 6.9% GDP growth in 2016-17 financial year (FY 17). It may be recalled that the World Bank has also recently projected a 6.8% GDP growth for Bangladesh in 2017, a slight fall from 7.1% achieved during last fiscal year. The Asian Development Bank in the first week of April also projected that there would be a 6.9% growth in our GDP this fiscal. It was explained that such a scenario was likely because of slower domestic demand and falling remittances. In response Finance Minister Muhith has however stated with optimism that there would be 7.4% growth during Financial Year 2018 (2017-18). This suggests that we will be able to overcome the evolving challenges in the coming months. Reality will of course be the deciding factor.
The Asian Development Outlook (ADO) report has also made some interesting observations. It has hit the nail on the head by pointing out that forecasts for 2017 and 2018 will be affected by the factor as to whether political calm will prevail within the country. In terms of sectoral forecast agriculture is expected to slow further to 2.4 per cent growth in FY 2017 and to 2.3 per cent in FY 2018 mainly because of limits on area expansion and productivity improvement. The possibility of this taking place has been further heightened now through the flash floods in the Haor region and a few aother areas which will definitely affect output. 
The ADO has also mentioned that growth within the industry sector is expected to decelerate to 10.6 per cent in FY2017 in tandem with domestic demand. However, hope has also been expressed that if there is higher export income and increase in remittances consistent with growth in employment opportunities abroad (increase of 48.2 per cent in 20117)  then domestic demand might rise and help growth in this sector. 
Another important forecast has been made in the ABO. It relates to inflation and its potential rebound in the second half of the FY2017. This is being expected because of likely higher prices for oil and other commodities, upward adjustments to natural gas and electricity prices (as the government tries to align prices with production costs), further implementation of salary hikes and the possible implementation of the 15% VAT scheme. As a result, economists are now assuming that inflation during FY2018 might edge up further to 6.3 per cent. 
At this juncture it will be essential to note that reports published at the end of the first week of April have indicated that exports in general have grown by 3.97 per cent to US$ 25.94 billion in the first nine months of the current financial year. It was US$ 24.95 billion in the same period during the last fiscal year. During this period of the current FY, March was pivotal. Export during this month rose by 9.83 per cent to US$3.10 billion as compared to the corresponding month during 2016. It would however be important to note here that overall export receipts from woven garments registered a marginal growth of 0.18 per cent while knitwear managed to grow by 4.85 per cent during the nine months under review. The President of the BGMEA has attributed this marginal growth situation to decline in global demand and fall in apparel prices. It has also been indicated that Bangladesh is losing its competitiveness in the international market due to devaluation of the Euro against the US Dollar and the continuing strength of the Bangladesh Taka as compared to currencies of our competitors.
There has however been a hopeful scenario in both the leather and jute sector. Leather and leather product exports have increased by 8.41 per cent to US$ 922.96 million during the current nine month period of FY2016-17 as compared to US$851.33 million during the same period of last fiscal. 
Similarly, jute and jute goods fetched US$ 731.02 million in the first nine months of this fiscal year. This was a welcome increase of 13.94 per cent over the matching period of last fiscal. This was particularly good news given the fact that jute exporters have faced difficulty in India with threats of anti-dumping regulations being put in place with regard to import of this item from Bangladesh. Exporters involved with the jute trade in Bangladesh have also faced severe difficulty because of the ongoing war situation in Yemen and recurring instability in Egypt and Sudan.
However while these aspects reflect a degree of positivity within the economic equation, it is also pertinent to point out that Bangladesh’s merchandise trade deficit with the rest of the world, according to the Bangladesh Bank  has reached US$6.08  billion during the first eight months of the current fiscal- 2016-17. This is an increase by US$ 1.90 in terms of trade deficit as compared to FY2015-16 for the same period. It has been pointed out that this rise in the deficit has resulted mostly because of higher import payments by 10.15 per cent- mostly related to capital machinery. One supposes that improvement in the quality of our products and the need for diversification in our exports have partially caused this paradigm.
This evolving matrix has been the source of introspection and discussion among economists in our country. Some have called the scenario as the glass being half-empty. Others have called it as half-full. Those terming it as half-full have also drawn the attention of others to the different MOUs signed during the recent visit of Chinese President XI Jinping to Bangladesh in October, 2016 and the visit of Prime Minister Sheikh Hasina to New Delhi in the first half of April, a few days ago. Those with a positive approach are pointing out the enhanced possibilities of Foreign Direct Investment in our infrastructure and the consequent benefits related to growth in employment and economic and trade related opportunities. In the meantime, on 19 April, it has also been revealed that FDI in the country has risen by 4.40 per cent in the last calendar year when it reached US$2.33 billion in 2016 against US$2,23 billion in the previous year- 2015. It is understood that the FDI increase was mainly due to fresh injection of foreign capital by a mobile phone operator. 
Analysis of the FDI flow has also revealed that of the three major components of FDI, investment through reinvested earnings of the existing multinational entities increased to US$ 1215.39 million in the past year from US$ 1144.74 during the previous year. Fresh investment or equity capital also increased from US$ 696.67 million to US$ 911.38 million during the period under review. In short the connotation is that faith in the potential of economic development in Bangladesh is slowly increasing. The denotation of such a scenario is also being reflected in net foreign investment in Dhaka Stock Exchange more than doubling to Taka 754.58 crore year-on-year in the first quarter of this year. Analysts are also concluding that injection of fresh funds into the secondary market by many international fund managers indicate that they consider the Bangladesh stock market as an emerging one in this region. It may also be pointed out here that the foreign community views investment in Banks and financial institutions as the preferred areas of investment. They are also interested in investing in power and energy, pharmaceuticals, multinationals, telecom and IT. This implies that Bangladeshi stocks are being seen as a lucrative investment.
No analysis of the evolving dynamics in the economic front can be complete without also referring to the shadow this casts on our social and human development index. It was revealed in the first week of April that Bangladesh has been categorized as a ‘medium human development’country for the 13th consecutive year in the Human Development Report, 2016 (unveiled by UNDP). Our social indicators depict that we are doing better in health, education and life-expectancy at birth and that our per capita income is moving upwards steadily. Interestingly, life expectancy at birth in Bangladesh today stands at 72 years, expected years of schooling at 10.2 years, mean years of schooling at 5.2 years (which needs improvement), adult literacy rate at 61.5 and gross national income (GNI) per capita at US$ 3,341. Not bad at all. 
We are moving forward. There can be no doubts about this.

Muhammad Zamir, a former ambassador, is an analyst specialised in foreign affairs, right to information and good governance.  He can be reached at muhammadzamir0@gmail.com

 

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Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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