• Tuesday, Nov 29, 2022
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MCCI: Political stability prerequisite for higher economic growth

  • Published at 04:03 pm November 15th, 2018
web-BNP-activist
The political landscape took a violent turn on Wednesday, as BNP activists vandalized vehicles including a police pickup truck and patrol car in Naya Paltan Mehedi Hasan/ Dhaka Tribune

Amid growth in export earnings, the country's trade deficit increased by 19.31% to US$2.107 billion in July-August of FY19, from US$1.766 billion in July-August of FY18

Political stability is a prerequisite for higher economic growth, observed a major business body of the country, saying that infrastructure deficits are undermining the performance of the economy.

“Infrastructure deficits and gas and power supply problems are now undermining the performance of all productive sectors of the economy,”according to comments of the Metropolitan Chamber of Commerce and Industry (MCCI) in its Economic Situation in Bangladesh review, July-September 2018. 

“The government should adopt adequate steps to overcome these problems, and achieve and maintain political stability, which are essential for creating an investment-friendly climate, so crucial to achieve higher economic growth.”

The review said Bangladesh’s economy is progressing well, but due to infrastructure bottlenecks and shortage of power and energy, its performance has remained below its true potential.

Quoting the government’s latest data, the MCCI said all major macroeconomic indicators like per capita income, foreign currency reserves, import and export, and foreign direct investment, depict a strong positive trend, including public sector revenue collection. 

In July-August of FY19, the net Foreign Direct Investment (FDI) increased by US$15 million or 7.46 percent, to US$216 million from US$201 million, in the corresponding two months of FY18, the review mentioned.

On the other hand, private sector credit registered 14.95 per cent growth during the 12-month period between August 2017 and August 2018, compared to the higher growth of 17.84 per cent during the past one year, between August 2016 and August 2017.

Amid growth in export earnings, the country's trade deficit increased by 19.31% to US$2.107 billion in July-August of FY19, from US$1.766 billion in July-August of FY18. 

Meanwhile, during July-August of FY19, the current account balance improved slightly, although it still remained in deficit. The current account deficit in these two months declined to US$60 million from US$369 million, due to an increase in remittance inflow, the review said.

On top of that, the disbursement of foreign aid has seen a significant rise in the first two months of the current fiscal year.

According to the Economic Relations Division (ERD) provisional data, in July-August of FY19, foreign aid increased by 19.07 per cent to US$589.08 million from US$494.72 million in the corresponding period of the previous fiscal year. 

After debt servicing of US$176.49 million, the net foreign aid disbursement stood at US$412.59 million during July- August of FY19, compared to US$340.39 million of July-August of FY18. 

Manpower export from Bangladesh has remained subdued in the last few years as the country faced difficulties following the suspension of labor import by various Middle-Eastern countries, the MCCI review mentioned.

However, remittance inflows in the first quarter of the current fiscal year increased by 13.68 per cent to US$3.856 billion, compared to US$3.392 billion in the corresponding quarter of the previous fiscal year.

The increase in remittance was mainly due to the rise in global oil prices, the stronger dollar against the taka, and the central bank's steps to encourage expatriates to remit funds through legal channels. 

In September 2018, expatriate Bangladeshis sent home over US$1.127 billion from US$857 million, an increase of 31.51 per cent year-on-year.

The Metropolitan Chamber said both public and private sectors are now trying to expand manpower export to certain other countries, including Thailand and Japan. Manpower demand from the Kingdom of Saudi Arabia (KSA), Kuwait, Qatar, Oman, Jordan, and Bahrain has shrunk. 

In the first quarter of the current fiscal, both exports and imports registered positive growth. 

According to Export Promotion Bureau (EPB) data, the country’s export earnings in Q1 of FY19 grew by 14.75 per cent to US$9.941 billion, from US$8.663billion in the corresponding period of the previous fiscal year. 

The growth of readymade garment (RMG) products played a major role in the overall increase in exports. RMG exports alone earned US$8.192 billion, or 82.41 per cent of total exports during the quarter under review, registering a 14.67 per cent growth from US$7.144 billion in Q1 of FY18. 

Import payments (C&F) during the first two months (July-August) of FY19, for which data are available, stood at US$9.538 billion, which is 5.66 per cent higher than import payments during the corresponding months of FY18. 

The Chamber said import payments increased mainly due to higher imports of petroleum and petroleum products and intermediate goods to meet the growing demand for these products.

Projections for second quarter of current fiscal

Based on the performance of major sectors and on the basis of observations in the preceding nine months, the Chamber has made its own projections on some selected economic indicators for the second quarter of fiscal year 2018-19. 

In its projection, the chamber assumed that the peaceful political situation that currently prevails will continue in the coming days.  In addition, exports, imports, and remittances are expected to increase. 

However, foreign exchange reserves will fall somewhat in November due to payments against imports, to the Asian Clearing Union (ACU).

The inflation rate is likely to go up in October because of the probable rise in some essential commodities. The inflation rate is expected to increase to 5.45% in December, predicted the MCCI.

Investment situation and impediments

The trade body suggested FDI is showing an uptrend but the inflow to Bangladesh is low compared to that in many countries at a similar level of development, due to infrastructure inadequacies. 

“Bangladesh’s low labor costs are generally believed to be attractive to foreign investors, but yet they hesitate to make fresh investments in the country because of the country’s underdeveloped infrastructure, and such other impediments as the shortage of power and energy, lack of consistency in policy and regulatory framework, scarcity of industrial lands, corruption, and political uncertainty,” said the MCCI. 

According to Bangladesh Bank (BB) data, in the first two months of the present fiscal (July-August of FY19), net foreign direct investment (FDI) increased by US$15 million or 7.46 per cent, to US$216 million, from US$201million in the corresponding two months of FY18. 

In order to encourage foreign entrepreneurs to invest in Bangladesh, the government pursues the most liberal investment policy in South Asia, the review said.

The policies include protection of FDI by law, incentives like generous tax holidays, concessionary duty on import of machinery, duty free import of raw materials, remittances on royalty, 100 per cent foreign equity, unrestricted exit policy, and full repatriation of dividend and capital on exit.

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