GDP growth high in 46 yrs
But banking sector turmoil, commodity price hike, inflation threaten to eclipse gains
Published : Monday, 1 January, 2018 at 12:00 AM Count : 587
The economic situation of 2017 was stable and the growth rate rose to 7.28 per cent for the first time. The main reason for this is revenue collection, foreign currency reserves, export income and expatriate income.
On the other hand, the success of the whole year fades quite a lot due to some unstable conditions.
Especially, uncontrolled hike in rice and onion prices and mismanagement in the banking sector made the economic situation unsettling.
There is huge loss of crops due to floods in 29 districts in the country. The government had to import food grains to meet food shortages.
Meanwhile, Dr ABM Mirza Azizul Islam, former adviser to a caretaker government, told the Daily Observer on Sunday in view of the present economic challenges, the adoption of a medium-term strategy, encompassing employment enhancement actions that foster equality of opportunity in the society, higher revenue collection through expanding the tax base, institutional reform in financial sector, increased private investment through improved business climate and effective harmonization of macroeconomic policies.
According to the Bangladesh Bureau of Statistics (BBS), food production dropped by 943,000 tonnes last year.
Floods resulted in losses of food crops, vegetables, livestock and fish stocks, as well as household food reserves.
The 2017-18 budget targeted to peg inflation within 5.5 per cent, but by late 2017, it began to rise and is now over 6 per cent. Point-to-point inflation rose to 6.4 per cent in October last year.
"Retail prices of coarse rice (in Dhaka), the country's main staple, rose by at least 30 per cent since the start of the year, reaching record levels in September 2017, mainly as a result of the flood-induced crop losses of the 2017 main season and supply tightness associated with reduced imports and output in 2016," according to GIEWS Update Bangladesh of Food and Agriculture Organisation (FAO) of the United Nations.
Miniket and Najirshail rice were sold at Tk 52 to Tk 62 per kg while medium quality of Brridhan-28, Paijam, Lota and Parija were traded at Tk 45 to Tk 50 in the last week of April. Price of each kg of coarse variety of Swarna was sold at Tk 41to Tk 43 in retail markets.
But, price of coarse rice shot up between Tk 44 and Tk 46 per kg in the second week of September and rose to Tk 48 to Tk 52 by the end of September, according to a data of the Trading Corporation of Bangladesh (TCB).
According to sources, income inequality in Bangladesh has widened further despite decline in the rate of poverty, dropping to 24.3 per cent last year from 31.5 per cent six years back.
Official findings in the Household Income and Expenditure Survey (HIES) 2016 unveiled such a state of poverty, hunger and income of people in the country.
The survey, conducted by the state-run BBS, showed that the Gini coefficient, which measures income inequality within a country's population, increased to 0.483 from 0.458 in 2010.
According to the HIES 2016, the income inequality in the urban areas has risen faster than in the rural areas.
The onion price abnormally increased at the end of the year. Price of green chilli started to rise since September and it increased to Tk 200 to Tk 250 on October, while prices of eggplant, okra, pointed gourd, ridge gourd and leafy vegetables like red amaranth soared abnormally since September.
Prices of onion started rising since August and it skyrocketed to Tk 130 per kg in the first week of December to hit a record high due to heavy rainfall and flood triggering outrage among the consumers.
As regards the status of low Annual Development Programme (ADP) implementation and public investment has not been successful to create the much needed multiplier effects in the economy because of institutional inefficiency which results in poor quality of the investment.
Against the target of Tk 164,085 crore as ADP expenditure in FY 2017-18, 20.11 per cent (Tk 32,997 crore) of the total allocation was implemented during the first five months (July - November) of the current fiscal year.
A recent report by South Asian Network on Economic Modelling (SANEM), said incredible rise in price of rice has resulted in 5.2 lakh people becoming unable to afford the staple food. It has resulted in a 0.32 per cent increase in poverty rate, the report said.
According to SANEM, the amount of rice imported in last three months of the ongoing fiscal year is five times higher than the rice imported during the whole fiscal 2016-17.
The experts say, decline in the inflow of remittance coupled with recent inflationary pressure is likely to upset the rural economy since the remittance-recipient households in rural areas expend a significant portion of their income on consumption of food, health and education.
According to the sources, the Bangladesh economy grew by a record 7.28 per cent in the 2016-17 fiscal, beating the 7 per cent target, thanks to the increased revenue collection, high foreign currency reserves propelled by a spike in export and remittance inflow.
Analysts, however, raised concerns over increased rice import and soaring prices following two rounds of floods and lack of supervision in the banking sector.
Former governor Mohammed Farashuddin said, "The outgoing year's economy 'good on the whole."
"The GDP had grown by over 7 per cent for two years, economic indicators are doing well, the Padma Bridge construction is going ahead and the power generation has increased, which are all good things…Bangladesh will march at double the speed in 2018," said Farashuddin.
Ahsan H Mansur, Executive Director of the Policy Research Institute, told the Daily Observer on Sunday, soaring rice prices, however, left mid-and low-income group in trouble.
He said that the government failed to handle it efficiently.
The staple grain's import shot up in the outgoing year as two bouts of flooding severely stymied rice production. Imports of oil, capital machinery and industrial raw materials also soared.
In 2016-17, import spending clocked US$47 billion. Between July and October this year, it rose by 29 per cent year-on-year.
Exports, however, slowed in the outgoing year, fetching $34.85 billion to mark a 1.7 per cent growth in 2016-17.
The Unnayan Onneshan (UO), an independent multidisciplinary think tank, in its year-end assessment of the economy reveals that the growth narrative contrasts living standard of the masses.
The think tank shows that private investment as percentage of GDP has increased by less than one per cent on average during the period between FY 2010-11 and FY 2016-17. Private investment as percentage of GDP stood at 22.50, 21.75, 22.03, 22.07, 22.99, and 23.01 per cent in FY 2011-12, 2012-13, 2013-14, 2014-15, 2015-16, and 2016-17 respectively.
According to the latest statistics, total collection of NBR tax revenue in the first four months of FY 2017-18 has stood at Tk 58,897.49 crore against the four months' target of Tk 65,458.58 crore.
According to sources, a severe governance crisis in the financial sector, triggered by an unprecedented increase in bad debts, liquidity shortage and financial scams marred the new banks, cleared on political considerations.
Thirteen of the 57 banks operating in Bangladesh are now on the regulators' list of banks with bad financial state.
The boards of the Farmers Bank and NRB Commercial Bank have recently been reconstituted following irregularities in loan disbursement. The Farmers Bank has left the entire financial sector at a systematic risk, according to a government report.
The Bangladesh Bank, however, failed to put a leash on the chaotic sector despite fixing business goals, appointing observers or capping loans for the troubling banks.
Finance Minister AMA Muhith recently admitted that there are weaknesses in the sector.
The central bank, on numerous occasions, expressed concerns over the decreasing flow of remittance, which is one of the main driving forces behind Bangladesh's economy.
As the issue started showing signs of improvement, the central bank is optimistic that the remittance will again increase in 2018.
Executive Director of Bangladesh Bank Kazi Saidur Rahman said, "The dip in remittance flow may come down in 2018, as the central bank has taken several initiatives in this regard. Mobile banking is being regulated to curb illegal remittance."
According to Bangladesh Investment Development Authority (BIDA) country's foreign investment, especially in the export processing zones, is feared to face a gloomy state in the coming days due to a recent move of the concerned authorities which the investors termed as restrictive and anti-industries. BIDA sources said that the investment registration of only Tk 60 thousand crore in the first 6 months of the fiscal year has been registered.
Meanwhile the government has set up a total 5.33 thousand crore private investment in the current fiscal year.