The Bangladesh economy in the New Year: The opportunities and challenges

The economy of Bangladesh maintained its stable flow despite some unanticipated challenges like sudden upsurge of prices of rice and onions and inflow of more than half a million fresh inflow of Rohingya refugees from neighboring Myanmar. Thanks to the socio-political stability the economy moved on and recorded 7.28 percentage point of GDP Growth rate in the fiscal year 2017. 

This happened despite sluggish inflows of both remittance and export earnings in the last fiscal year. However, given upsurge in the private sector credit growth in recent months (expanding up to 18 percent) it may not be unwise to expect that the GDP growth rate at the end of current fiscal year may reach the Seventh Five Year Plan target of 7.4 percentage point. 

Of course, there is a flip-side risk of Election Year instability as well which normally dampens business confidence. Hopefully, the opposition politicians have learnt enough from the negative experience of violence 2014 national election and will not create similar barricades to businesses and other economic activities. 

The fallout of that year's election violence hurt them significantly in terms of regaining political trust of the entrepreneurs and ordinary citizens. So I have the hunch that the economic journey of the nation will continue without much interruptions this year. In addition, despite some threat of inflation spike the additional expenditures promoted by the election related activities will enhance the level of consumption throughout the countryproviding positive push to the growth process. 

Also the pre-election government expenditures to make most of the mega projects and other development activities more visible to the voters may add more value to the on-going vibrant growth process. 

It has been reported that in addition to the mega projects implementation of more than fifty large development projects will gather faster speed and become more visible in the New Year. The government will, hope fully, try to be more broad-based and inclusive to attract more votes from the bottom of the societal pyramid during the upcoming election.

All this may have some positive spin-offs for accelerating the GDP growth process in 2018. Given this context, let us review the indices of the economy of the year 2017 and predict some forecasts for the New Year along with the challenges

Economic Growth: As already indicated Bangladesh achieved a stunning GDP growth rate of 7.28 percentage point during the fiscal year 2016-17. The economy got a jolt 2017 due to rising rice price due to a flash flood in April-May in the haor(marshy areas) and a more than average flood in August- September. 

The later flood affected more than six hundred thousand hactres of paddy field causing a huge shortage of rice in the country. Also the regular food stock in government siloes fell much below the desired level due to very weak monitoring of the stock by the relevant directorate of the Food Ministry. Certainly, there was a serious lack of monitoring of the stock of rice by the relevant Directorate of the Food Ministry. 

This happened at a time when the usual 28 % tariff was still imposed on the rice import. As a result there was a severe shortage in the supply of rice and traders started hoarding the same to take advantage of the scarcity. The government, of course, removed the high tariff to facilitate private import of rice from the neighboring countries. All this took some time and the traders raised the price in anticipation of the supply shortfall.

The supply chain of rice faced additional pressure due to sudden inflow of six hundred thousand plus Rohingya refugees from Myanmar during August to October. As a result the price of coarse rice jumped from Taka 28 to Taka 50 plus over the year or so. Added to this woes was abnormal rise in the price of onions. 

Thanks to the government interventions, both the prices of rice and onions are coming down. Hopefully, this will fully stabilize in a few months when the boro harvesting will start. The onion price has already started coming down due to the start of its harvesting season. However, this upsurge in rice price may have affected the living condition of those who live near the margin of the poverty line. Some of them may have already been pushed down to the poverty trap due to this rising food inflation.

 It may be noted here that all the three sectors including agriculture, manufacturing and services, experienced better growth rates during the last fiscal year. It is expected that this trend will continue during current fiscal year as well. In addition, the government is planning to roll out 4G mobile spectrum early this year which will facilitate e-commerce and ICT-based businesses utilizing 'Mobile First' technology. The acceleration in the level of import of machineries and raw materials augurs well for the picking up of the manufacturing growth rate. All this indicates that the projected economic growth rate is achievable.

Savings and Investment: The buoyant savings and investment rates surely will support the desired GDP growth rate. The savings rate during the last fiscal year was 31plus percent of GDP. Given higher rate of release of foreign fund by various international development partners in recent time and more enhanced flow of remittances and export earnings in recent months the overall savings rate is ought to be higher in the near future.However, there is still a persistent positive savings-investment gap. 

This means we are still going through a phase of under- investment which deserves attention of the policy makers. The BIDA has started moving in the right direction by calling shots on reforms for greater ease of doing businesses and further liberalization of the foreign exchange regime.

This cannot be a short sprint. It will have to be a marathon involving all the related stakeholders both in the public and private sectors. Good news is that the investment has already started picking up. Thanks to a number of mega-projects like Padma bridge, Roopur Atomic Energy Project, Metro Rail and many others the public investment rate has started accelerating. The public investment to GDP ratio has increased from 6.66 %( June 2016) to 7.26 % (June 2017). FDI during the last fiscal year was also more than 2.5 billion USD, highest in recent years. 

The Japanese investors are showing greater interest to invest in Bangladesh. The Honda Assembly Plant is expected to be launched next year. Many other Japanese Corporates are queuing up to come to Bangladesh. So is the mood of the Indian investors, both public and private. The Indian Line of Credit is already robust enough and it is expected to expand further in the coming years. 

Both countries are engaging seriously in connectivity projects including operationalizing sub-regional power greed. The Chinese investment projects are also picking up, although their speed of project finalization is pretty slow. The global interest in Bangladesh for investment has further been accentuated by the Government's determination to establish hundred plus Special Economic Zones with all the infrastructural supports and business facilitation with participation of domestic and international private sector promoters. 

Some of these SEZs are already visible and many foreign and local entrepreneurs are moving into these special zones to establish factories for exporting and as well as for meeting local demand which has been growing with the steady rise in annual per capita income ( now 1610 USD). The ICT sector is attracting more investment from home and abroad as the Government has already been able to establish a few ICT parks with all the digital infrastructural support and needed trade facilitation. 

The Digital Bangladesh is indeed on fast track now. The low cost trained human resources and innovative drive of the tech-savvy young entrepreneurs have added fuel to this latest growth augmenting ICT related services in Bangladesh. The export of digital products and services has been increasing significantly in the recent years. Hopefully, this trend will gather more speed in the New Year. 

This hope is underpinned by recent gains in global GDP growth ( 3.6 %) and as well as trade growth(4.2%) as per estimates of IMF. The global growth in trade has been estimated to be higher than GDP growth for the first time in 2017 since the start of the global financial crisis in 2008. This buoyant global trade growth will have positive impact on our export demand pushing higher investment in manufacturing and related trade facilitating services.

Income Inequality: The higher GDP growth has certainly helped reduce poverty in Bangladesh. The moderate poverty has come down to 24.3 percent and extreme poverty to 12.9 percent by 2016. This may have come down further at the end of 2017. Yet, the challenge of reducing income inequality remains.

Although the World Bank Chief Economist Paul Romer complimented Bangladesh for simultaneously "growing and equalizing" the fact remains that top 5 percent of Bangladesh households accounted for 29.7 percent of national income as against bottom 5 percent households earning only 0.23 percent of it. Back in 2010 the corresponding figures for the same two groups were 24.61 percent and 0.78 percent respectively. 

However, the rural economy witnessed more dynamism due to growth in agriculture and no-agricultural incomes during this period. The growth in non-farm sector was, in fact, higher than farm sector due to inflow of remittances, growth in SMEs and speedy transmission of money through mobile and agent banking.

This has led to higher growth in consumption along with greater stability of the same. The real rural wage increased due to higher level of rural urban and foreign migration leading to tightening of rural labor market. As a result rural poverty has been reduced faster than urban poverty. (To be continued)
Source: https://dailyasianage.com

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