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Tuesday, April 5, 2016

Economy in ‘sluggish’ ambience in 2015

Asjadul Kibria

Despite overcoming an initial setback, stemming from political turmoil in the first quarter of the year, country's economic activities navigated through a 'sluggish' ambience in 2015.

There were no thrills and spills felt. Inflation was on a downturn trend, giving some respite for the consumers, thanks to a glut of global commodity market and no major internal shocks. But a concomitant slowdown in private sector investment activities, industrial output and consumption demand, as reflected in low growth of revenue earning and external trade, flattened out the ease that could be derived.

Economists and businesspeople came to such conclusions while reviewing the trends of the economy in the year humanity is going to ring out.

They said private investment didn't pick up as required even after having favourable factors like fewer political disturbances, lower interest rates and easing of the power situation.

During January-March period of 2015, economic activities had been disrupted heavily due to continued hartal and blockade over the January 5, 2014 parliament elections. Several trade bodies at the time claimed businesses counted a per-day loss of over Tk 22.77 billion.

Centre for Policy Dialogue (CPD) analysis calculated that the loss incurred by the country's production sector in first two and a half months could come to 0.55 per cent of the country's Gross Domestic Product (GDP).

Economic activities, however, made a turnaround as the normalcy came back in the country in the second quarter. And there was no political turmoil for the rest of the year as political programmes disappeared in the wake of a preventive clampdown.  

Nevertheless, overall economy didn't move onto a higher trajectory in the last nine months of the year, as reflected in several indicators.    

"Private investment didn't pick up, which is reflected in moderate credit growth and low growth of import, especially of raw materials," said Dr Mirza Azizul Islam, former adviser of caretaker government.  

Credit to private sector increased by 13.22 per cent up to the end of October while the central bank's target is 14.3 per cent by the end of December.

Both opening and settlement of letter of credits (L/Cs) for importing industrial raw materials declined 0.14 per cent and 0.61 per cent respectively as of the end of October, according to Bangladesh Bank statistics.

"Without increase in private investment significantly, we can't achieve the target of 7.0 per cent or higher rate of economic growth in the coming days," he added.     

Dr Zahid Hussain, lead economist at the World Bank Dhaka Office, however, opined that there was a mixed scenario in investment.

"As no direct indictor or statistics on investment situation is available, we have to rely on different proxy indicators," he said while talking to the FE.

"Both industrial term loans and imports of capital machinery increased significantly last year that reflects some improvement in investment although."

Disbursement of industrial term loans increased 22 per cent in January-September period of 2015 over the same period of 2014, revealed the central bank statistics.

The value of both fresh and settled letters of credits (L/Cs) for importing capital machinery increased by 15 per cent and 25 per cent respectively up to the end of October.

"Although law-and-order situation improved significantly, investment situation was not up to the expectation in 2015," said Mr Manzur Ahmed, Adviser of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

"Without enough investment, there was a sluggish trend in employment generation."

Mr Ahmed was of the view that despite having a political stability and better electricity production, there was no investment boom due to gas crisis, lack of uninterrupted power supply to the industries and high interest rates.

"Almost no new investment took place and emphasis was on running the current operations with moderate expansion," the adviser of the apex trade body said about the state of economy in the outgoing year.

While total investment remains stable at around 28-29 per cent of GDP, private investment has been stagnant around 22 per cent for last three years.

The FBCCI adviser also pointed out deterioration of governance as another major hurdle, especially for small and medium enterprises (SMEs).

"Different regulatory authorities become extension of bureaucracy," he remarked. "From banking regulator to tax authority, everywhere businesses have to face hassle."

All of them also pointed out that export growth was slow while remittance slower in the passing year.

Export earnings increased around 6.0 per cent in January-November period of 2015 over the corresponding period. At the same time, growth in remittance inflow stood at 2.4 per cent.

They also found revenue earning also below the required level to reach the annual (fiscal year) target.

The National Board of Revenue (NBR) data showed revenue from income tax registered 9.5 per cent growth in January-September period while it was 8.0 per cent for local Value Added Tax (VAT).

"On the upside, inflation was low along with stable exchange rate, higher foreign-exchange reserves and lower interest rates in the outgoing year," added Dr Zahid Hussain.

"Inflation was lower mainly due to lower global commodity prices although people didn't get the benefit of the lower oil prices in the international market," he continued.

Global oil prices hit rock bottom, coming down to blow $40 per barrel in December from $50 per barrel in January 2015.

According to the International Monetary Fund (IMF), global commodity prices dropped 5.0 per cent in November in a slide that started in June.

"Consumption demand was subdued last year, which also contributed to pull-down of inflation," said Dr Aziz.

asjadulk@gmail.com


Source:  The Financial Express, 30 December 2015


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