FROM March 2 ISSUE OF VIEWSWIRE OF THE ECONOMIST INTELLIGENCE UNIT
Bangladesh is in the fortunate position of having been far less exposed to the global recession than many other economies, but mild signs of weakness are emerging. Indeed, whereas a number of the Asian economies that contracted sharply during the past year can now expect to post robust recoveries in 2010—albeit from a low base—economic growth in Bangladesh in the coming fiscal year (which starts in July) will do no better than remain at roughly the same level as in 2008/09. Still, at close to 6%, the country's growth rate will remain healthy.
Unlike many economies in Asia, that of Bangladesh has shown remarkable resilience in the past year. Part of the reason is the fact that the export sector accounts for a fairly small proportion of GDP. In 2008/09 (July-June) exports of goods and services accounted for 20% of GDP, compared with more than 200% in Singapore and around 100% in Malaysia, meaning that Bangladesh has been less affected by the downturn in the global demand. Indeed, in real terms exports of goods and services surged by 12.2% in 2008/09, and the Economist Intelligence Unit expects them to grow by a still-respectable 5.6% in 2009/10.
In addition, inflows of workers' remittances have remained strong—although part of this strength is attributable to the repatriation of savings by skilled workers who have returned to Bangladesh after losing their jobs abroad, as well as to fresh remittances from Bangladeshis living overseas, who, prompted by fears of a collapse in the financial systems of their host countries, have sent savings back to Bangladesh. The agricultural sector has also played a part in the economy's relatively strong performance in the past year or so, reporting healthy rises in food production, and particularly in output of rice, the country's main staple.
However, the latest economic indicators also point to signs of weakness. The value of merchandise exports was down by 7.7% year on year to US$1.2bn in November 2009. On a cumulative basis, the value of exports declined by 6.9% year on year in the first five months of 2009/10. A breakdown of various export categories shows falls in the value of exports of frozen food, ceramic products and tea. But the decline in overall merchandise exports is largely attributable to a drop in the value of shipments of readymade garments, which account for more than 70% of total exports.
In the first five months of 2009/10 exports of knitwear fell by 5.7% year on year, while exports of woven garments declined by 7.9%. Exports also followed a downward trend in volume terms in the five-month period. But comments from members of the Bangladesh Garment Manufacturers and Exporters Association hint at a brightening outlook for the garment sector, with many members reporting a rise in orders in recent weeks.
The value of merchandise imports has also been falling, although this largely reflects lower global prices for energy and industrial raw materials compared with the highs of 2008. More worryingly, Bangladesh continues to import fewer items of capital machinery compared with the year-earlier period—a likely indication of weak business sentiment. Like exports, there are tentative signs of a rise in total imports in the months ahead.
The government expects imports of wheat to rise to 400,000 tonnes in April-May, as a result of an increase in consumption and stagnant local production. It also plans to import 300,000 tonnes of rice in 2009/10 to boost food stocks.
Outlook
We forecast that real GDP growth in Bangladesh will average 5.8% a year in 2009/10 and 2010/11 (the "forecast period"), underpinned by a steady expansion in private consumption and investment. The main determinants of private consumption will be the performance of the agricultural sector and remittances from the Bangladeshi diaspora and those working overseas. Although the agricultural sector accounts for only 20% of overall GDP at factor cost, it is still the country's largest employer and is the main source of income for around one-half of the working population. We expect the agricultural sector to grow by an average of 4% in the forecast period, a slightly slower rate compared with 2008/09, when bumper rice harvests resulted in a rise of 4.6%.
Inflows of workers' remittances will remain another source of growth in private consumption. Such inflows have been healthy in recent months, though the pace of growth in remittances will moderate in 2010 as the rate at which Bangladeshis take up positions abroad will remain relatively subdued. We expect private consumption to expand by an annual average of 5.6% in the forecast period, contributing an average of 3.7 percentage points a year to GDP growth.
We think gross fixed investment will add an average of 1.7 percentage points to the annual GDP growth rate in the forecast period. This component is dominated by the private sector, which accounts for 80% of gross investment. Private investment will be bolstered by improving business sentiment and government efforts to attract greater foreign direct investment from India and from members of the Bangladeshi diaspora residing in OECD countries.
Showing posts with label Bangladesh economy. Show all posts
Showing posts with label Bangladesh economy. Show all posts
Tuesday, March 16, 2010
Friday, February 27, 2009
Bangladesh's battered economy to take another hit
From the Economist
POLITICAL instability, natural disasters, and corrupt politicians: Bangladesh’s economy has withstood a lot in recent years. But the global economic crisis will test its resilience as much as any of its traditional afflictions. Both its main sources of foreign exchange, workers’ remittances and garment exports, are at risk.
By January 2007, when the army stepped in to install a two-year interim government of unelected technocrats, Bangladesh had topped international corruption rankings for five consecutive years. Yet the economy had grown at more than 6% a year since 2004, and poverty had fallen faster than ever. Donors called it the "Bangladesh paradox".
Of course, no one ever believed in such a paradox. It was a polite way of telling politicians that the country could do even better if they kept their hands out of the till. Think of the progress it could make if they tackled power shortages, invested in education and infrastructure, and improved farm yields!
One of the world’s poorest countries, only twice the size of Ireland, Bangladesh already finds it hard to feed its people. According to the World Bank, nearly 56m out of a population of 147m are still poor. There will be 100m more mouths to feed by the middle of the century. Bangladesh is trading its only abundant resource, labour. Clothing exports, which account for 75% of total exports, more than doubled in the past five years to nearly $11 billion a year.
Over the same period, annual remittances by 5.5m Bangladeshis nearly tripled to $7.9 billion, or 10% of GDP, among the highest share in the world. So the economy is heavily dependent on spending in the high streets of Europe and America and on the demand for labour in the Gulf. Both are dropping off alarmingly (see chart). A closed capital account has protected the financial system. But Bangladesh’s banks are far from robust. In February Fitch, a rating agency, called them among the weakest in emerging Asia.
Domestic policymakers, who long denied the crisis would have a big impact in Bangladesh, now acknowledge that its pricing advantage over rival garment producers counts for little as demand in the West plummets. Yet no one knows how bad things will get. The IMF has said it is ready to assist, but the government has responded that it does not need help. The central bank insists that GDP will grow by around 6% this financial year (ending in June), compared with a 4.8% forecast from the World Bank last November.
Social unrest in Dhaka and Chittagong, the two big cities that account for about 60% of GDP, is already a real concern. This week, the government announced that it would sell rice at highly subsidised prices to millions of garment workers. But a fall in exports alone is unlikely to trigger a balance-of-payments crisis, since it will be accompanied by a big fall in imported inputs. Foreign-exchange reserves, hovering between $5 billion-$6 billion, are enough to cover two to three months of imports.
And a sharp fall in food and oil prices has already considerably reduced the import bill. But remittances remain a worry. Last year 875,000 Bangladeshis took on jobs abroad. Saudi Arabia, the biggest employer, has hired only a few thousand workers since the start of the year. Airlines have already cut the number of flights ferrying workers to and from the Gulf.
Until the global financial crisis hit, Bangladesh was on track to meet the Millennium Development Goal of halving poverty by 2015. Progress on overall poverty reduction will depend on a number factors, including the birth rate. But "cash injections", either through microcredit loans or workers’ remittances, have hitherto played a huge role. Alas, it might not be long before this changes.
POLITICAL instability, natural disasters, and corrupt politicians: Bangladesh’s economy has withstood a lot in recent years. But the global economic crisis will test its resilience as much as any of its traditional afflictions. Both its main sources of foreign exchange, workers’ remittances and garment exports, are at risk.
By January 2007, when the army stepped in to install a two-year interim government of unelected technocrats, Bangladesh had topped international corruption rankings for five consecutive years. Yet the economy had grown at more than 6% a year since 2004, and poverty had fallen faster than ever. Donors called it the "Bangladesh paradox".
Of course, no one ever believed in such a paradox. It was a polite way of telling politicians that the country could do even better if they kept their hands out of the till. Think of the progress it could make if they tackled power shortages, invested in education and infrastructure, and improved farm yields!
One of the world’s poorest countries, only twice the size of Ireland, Bangladesh already finds it hard to feed its people. According to the World Bank, nearly 56m out of a population of 147m are still poor. There will be 100m more mouths to feed by the middle of the century. Bangladesh is trading its only abundant resource, labour. Clothing exports, which account for 75% of total exports, more than doubled in the past five years to nearly $11 billion a year.
Over the same period, annual remittances by 5.5m Bangladeshis nearly tripled to $7.9 billion, or 10% of GDP, among the highest share in the world. So the economy is heavily dependent on spending in the high streets of Europe and America and on the demand for labour in the Gulf. Both are dropping off alarmingly (see chart). A closed capital account has protected the financial system. But Bangladesh’s banks are far from robust. In February Fitch, a rating agency, called them among the weakest in emerging Asia.
Domestic policymakers, who long denied the crisis would have a big impact in Bangladesh, now acknowledge that its pricing advantage over rival garment producers counts for little as demand in the West plummets. Yet no one knows how bad things will get. The IMF has said it is ready to assist, but the government has responded that it does not need help. The central bank insists that GDP will grow by around 6% this financial year (ending in June), compared with a 4.8% forecast from the World Bank last November.
Social unrest in Dhaka and Chittagong, the two big cities that account for about 60% of GDP, is already a real concern. This week, the government announced that it would sell rice at highly subsidised prices to millions of garment workers. But a fall in exports alone is unlikely to trigger a balance-of-payments crisis, since it will be accompanied by a big fall in imported inputs. Foreign-exchange reserves, hovering between $5 billion-$6 billion, are enough to cover two to three months of imports.
And a sharp fall in food and oil prices has already considerably reduced the import bill. But remittances remain a worry. Last year 875,000 Bangladeshis took on jobs abroad. Saudi Arabia, the biggest employer, has hired only a few thousand workers since the start of the year. Airlines have already cut the number of flights ferrying workers to and from the Gulf.
Until the global financial crisis hit, Bangladesh was on track to meet the Millennium Development Goal of halving poverty by 2015. Progress on overall poverty reduction will depend on a number factors, including the birth rate. But "cash injections", either through microcredit loans or workers’ remittances, have hitherto played a huge role. Alas, it might not be long before this changes.
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