POST TIME: 6 August, 2018 11:47:38 AM
Performance of Bangladesh economy
The economists have raised concerns over increased rice import and soaring prices following two rounds of floods and lack of necessary supervision in the banking sector
Prof. Sarwar Md. Saifullah Khaled

Performance of Bangladesh economy

Amid a seemingly stable political atmosphere throughout the year, the key economic indicators did well in 2017. However, last year the economy took a hit on spiralling rice prices and a messy banking sector. In the 2016-2017 fiscal, the Bangladesh economy grew by a record 7.28 percent, beating the 7.0 percent target. This was possible due to the increased revenue collection, high foreign currency reserves propelled by a spike in export and remittance inflow. But the economists raised concerns over increased rice import and soaring prices following two rounds of floods and lack of necessary supervision in the banking sector.

However, the outgoing year’s economy was good on the whole. The country’s Gross Domestic Products or GDP had grown by over 7.0 percent for two years, economic indicators are doing well, the Padma Bridge construction is going ahead and the power generation has increased. These are all good signs and it is hoped that Bangladesh will march at double speed in 2018, though the soaring rice prices, however, left mid- and low-income group in trouble. The government failed to handle rice prices efficiently.

Thanks to its more than 7.0 percent growth in the last two fiscal years, the size of Bangladesh’s GDP is now US $249.68 billion. The per capita income stands at US $1,610. The foreign exchange reserves rose to a record high of US $33 billion in June 2017. Economists, underscoring the need to address inequality of income, are of the opinion that its benefits are yet to reach the public. In the financial year 2016-2017, registering a 19 percent rise, revenue collection rose to Tk 1.85 billion. In the 2017-2018 fiscal year, started from July 1, 2017 the government targets to raise Tk 2.48 billion and by the first five months, the National Board of Revenue or NBR reports that it has grown by over 18 percent compared with the same period in the last fiscal year 2016-2017.

The 2017-2018 fiscal years’ budget targeted to peg inflation within 5.5 percent. But by late 2017, it began to rise and is now over 6.0 percent. Point-to-point inflation rose to 6.4 percent in October 2017. Rice prices rose unexpectedly as the government was late to take import initiatives as well as to cut duty. The prices are still going up. Coarse rice is sold for Tk 50 a kilogram now from Tk 35 in the beginning of the year 2017. Finer varieties cost between Tk 60 and 80, up from Tk 42. Prices started to hike when un-seasonal floods in April 2017 damaged crops in the northeastern back swamps or Haors. During the monsoon, a second round of floods hit 2017 rice production badly with the government’s rice stocks depleting below 200,000 tonnes. The situation worsened with price-gouging by rogue traders. That forced the government to open import initiatives and revise down the duty twice.

Triggered by an unprecedented increase in bad debts, liquidity shortage and financial scams marred the new banks, cleared on political considerations, resulted in a severe governance crisis in the financial sector of the economy. Of the 57 banks operating in Bangladesh 13 are now on the regulators’ list of banks with bad financial state. Following irregularities in loan disbursement, the boards of the Farmers Bank and NRB Commercial Bank have recently been reconstituted. As per a government report The Farmers Bank has left the entire financial sector at a systematic risk. Despite fixing business goals, appointing observers or capping loans for the troubling banks, the central bank, however, failed to put a leash on the chaotic sector. As a Chattagram-based conglomerate took control of several banks in 2017 and hostile takeovers left private banks in panic. The Finance Minister recently admitted that there are weaknesses in the sector. Some economists commenting on the sector, suggested merger of those banks that are struggling financially. It happens in the whole world and Bangladesh will have to do it as well, they said. As the figure now tops Tk 803 billion, defaulted loans remain a major concern, accounting for almost 11 percent of the loans released.

As two bouts of flooding severely stymied rice production, the staple grain’s import shot up in the outgoing year. In 2017 imports of oil, capital machinery and industrial raw materials also soared. Import spending in 2016-2017, clocked US $47 billion. It rose by 29 percent year-on-year between July and October 2017. Exports, however, slowed in 2017, fetching US $34.85 billion to mark a 1.7 percent growth. Between July and November 2017, exports grew almost 6.9 percent. The readymade apparel entrepreneurs believe that it will be the case for the entire 2017-2018 fiscal. They say, global exports destabilised to some extent due to Brexit and some decisions by the US President Donald Trump. Apart from these, buyers have taken a cautious approach ahead of the Bangladesh general election due in late 2018. Anticipating political volatility while issues with power and gas supplies and port facilities persist, they have cut back on placing orders.

Remittances sent by expatriates have always been a key contributor to the foreign currency reserves. However, that dropped during the first half of the year, though bounced back with a 10.76 percent year-on-year rise to US $5.77 billion in July-November 2017 period. Bangladesh ended the fiscal year 2016-2017 with US $1.48 billion deficit in balance of payment or BoP. It rose by over two folds to US $3.31 billion in July-October 2017 period. Though it failed to allay concerns of the economists over the quality of the investment, private sector credit flow rose 19 percent. Bangladesh drew around US $3 billion in Foreign Direct Investments or FDIs in 2016-2017, 19 percent more than it did in the previous fiscal year 2015-2016. It rose by 10 percent year-on-year to US $1.15 billion in July-October 2017 period.

The performance of the economy in the financial year 2018-2019 with the general election due in late 2018 is unpredictable since it depends on the actions and reactions of the contending political parties both during and after the upcoming election.  

The writer is a retired Professor of Economics, BCS General

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