Bangladesh economy underperforming for infrastructure deficits, gas-power problems

Published in The Financial Express on November 14, 2017

Bangladesh economy goes on underperforming for some limiting factors like infrastructure deficits, and gas and power problems, notwithstanding some progressive growth, says a premier trade body.

The Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) gave such findings in its Review of Economic Situation in Bangladesh for the first quarter (Q1) of the fiscal year (FY) 2017-18.

“Bangladesh’s economy is progressing well, but below its true potential. Infrastructure deficits and gas-and power-supply problems are undermining the performance of all productive sectors of the economy,” the MCCI said in the economic review for the July-September (Q1) period.

Keeping this in view, the MCCI suggested that the government should adopt adequate steps to overcome these bottlenecks, and achieve and maintain political stability for creating an investment-friendly climate, which is crucial to attaining higher economic growth.

According to the MCCI, despite having some risk factors like marginal growth in remittances, slower growth in the export receipts, and a higher rate of inflation, the country experienced stable growth during the quarter under review.

During the July-September period, agriculture, manufacturing and services sectors performed well. And the chamber suggested continuous government support for sustaining their growth.

Citing Bangladesh Bureau of Statistics (BBS) estimate, it said the country achieved a stable average annual growth of 6.16 per cent during the last 12 years (2004-2015) and the economy grew at 7.24 per cent in FY’17.

The chamber, however, said Bangladesh needs to significantly increase the rate of export growth, generate more investments, improve the overall infrastructure, in particular its roads, railways and port facilities, increase power and gas production, and remove all other infrastructure bottlenecks to help achieve a 7.40 per cent GDP (gross domestic product) growth per annum in order to get to the goal of becoming a middle-income country by 2021.

In sector-wise review, the MCCI said the country’s agriculture sector, which employs about 47.5 per cent of Bangladesh’s total labour force and accounts for about 14.79 per cent of GDP, recorded a higher growth of 3.40 per cent in FY17 compared to 2.79 per cent in FY16 due to strong government support in terms of timely availability of inputs and finances.

Industrial sector’s share in the GDP increased by 0.94 percentage point to 32.48 per cent in FY17 from 31.54 per cent in FY16.

Manufacturing sub-sector, on the other hand, grew by 10.96 per cent in FY17, some 0.73 percentage point lower than previous fiscal year’s 11.69 per cent, it mentioned.

Large-and medium-scale industries’ sub-sector grew by 11.32 per cent in FY17, compared to 12.26 per cent in FY16. The small-scale manufacturing industries performed better than in the previous fiscal, growing by 9.21 per cent in FY17 as against 9.06 per cent in FY16.

In its review for the first quarter, the MCCI said frequency of power outages across the country had been on despite a substantial increase in the country’s overall electricity generation.

“Unofficial estimate puts the current demand for electricity at around 10,000mw. The maximum generation in 2017 was 9,507 mws on 18 October 2017, which was also the maximum generation in Bangladesh Power Development Board’s (BPDB) history,” said the MCCI.

In October 2017, total installed capacity rose to 13,621 megawatts, and derated/present capacity to 12,922 mws, but production remained low because of gas shortages and also because of shutdown of some power stations for maintenance.

The growth in services sector in the country increased by 0.25 percentage point to 6.50 per cent in FY17 from 6.25 per cent in FY16, despite a sluggish investment situation prevailing in the quarter under review, according to the MCCI review.

Notable among the well-performing services sub-sectors in FY17 were wholesale and retail trade, hotel and restaurants, transport, storage and communications, real estate, renting and business activities, construction, and community, social and personal services.

Domestic credits, on the other hand, recorded a 13.66 per cent rise at the end of August 2017, while a lower rate of 12.94 per cent growth was recorded at the end of August 2016, it said.

Among components of domestic credits, private-sector credit registered a growth of 17.84 per cent during the period between August 2016 and August 2017, compared with a relatively lower growth of 16.21 per cent during the period between August 2015 and August 2016, according to the MCCI review.

Public-sector credit, on the other hand, recorded a negative growth of 8.08 per cent at the end of August 2017, compared with the decrease of 1.48 per cent at the end of August 2016, it said.

Total liquid assets of scheduled banks stood at Tk 2533.24 billion at the end August 2017 compared with Tk.2671.94 billion as of end June 2017, it said, adding that the minimum required liquid asset of the scheduled banks was Tk 1669.61 billion as of end August 2017.

Interest rates on bank deposits increased further in August 2017 following higher credit growth particularly in the private sector, according to the MCCI finding.

The interest rate on deposits rose to 4.93 per cent in August from 4.89 per cent in July 2017, it said, mentioning that the interest rate on lending had also decreased to 9.46 per cent in August from 9.51 per cent in July 2017.

Overall spread, however, decreased only slightly to 4.53 per cent in August 2017 from 4.62 per cent in the previous month as the banks slashed their interest rates on lending more than what they paid to their depositors, it added.

The disbursement of industrial term loans during April-June of FY17 also stood 12.9 per cent lower at Tk137.52 billion, compared to Tk157.83 billion during the immediate previous quarter (January-March) of FY17, said the chamber.

However, the recovery of industrial term loans also decreased by 21.3 per cent to Tk.114.46 billion during April-June of FY17 against Tk145.47 billion in the previous quarter.
In July-August of FY18, net inflow of Foreign Direct Investment (FDI) increased by 9.59 per cent to US$320 million from US$292 million in the same period of FY17, it said.

On the other hand, the country’s trade deficit increased over three times to US$1.810 billion in the first two months of FY18 due to lower export earnings and higher import payments.

Inflation in September hit a two-year high mainly due to an increase in the prices of some food and essential items as the food inflation increased by 0.55 percentage point to 7.87 per cent in September 2017 from 7.32 per cent in August.

As of 12 October 2017, about 328,000 tonnes of rice was imported by the public sector and the private sector imported about 822000 tonnes in that period. There was no rice import by the public sector while the private sector import of rice was 2.50 tonnes in the same period of last fiscal, said the MCCI.