MDTA Recent Macroeconomic and PRGF Developments June 17, 2004 By IMF Dhaka office Do not quote.
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MDTA MDTA Recent Recent
Macroeconomic and Macroeconomic and PRGF DevelopmentsPRGF Developments
MDTA MDTA Recent Recent
Macroeconomic and Macroeconomic and PRGF DevelopmentsPRGF Developments
June 17, 2004June 17, 2004By IMF Dhaka officeBy IMF Dhaka office
Do not quoteDo not quote
Bottom Line• The economic recovery that started in FY03
strengthened further in FY04• Although inflation has picked up• Macroeconomic management remains
cautious and all quantitative benchmarks and PCs were met
• Good headway has been made on the structural agenda, but with some slippages in key areas
Production and Inflation
• Real GDP growth is likely to accelerate to 5.5 percent in FY04 from 5.3 percent in FY03
• Under program, this will be growth and inflation are targeted at 5.5 percent each
• Industrial production, services, and exports were main contributors to growth
• Mainly due to higher prices of imported items, inflation has gone up and will reach 6 percent (year average) in FY04
Industrial Production, 1998-2004(12-month running totals)
0.0
2.0
4.0
6.0
8.0
10.0
12.0M
ar '9
8
Sep
'98
Mar
'99
Sep
'99
Mar
'00
Sep
'00
Mar
'01
Sep
'01
Mar
'02
Sep
'02
Mar
'03
Sep
'03
Mar
-04
Yea
r-on
-yea
rpe
rcen
tage
cha
nge
Net Foodgrain Production1991/92-2003/04
15.5
17.5
19.5
21.5
23.5
25.5
27.5
90/9
1
91/9
2
92/9
3
93/9
4
94/9
5
95/9
6
96/9
7
97/9
8
98/9
9
99/2
0
20/0
1
01/0
2
02/0
3
03/0
4
Mill
ion
To
ns
-10.00
-5.00
0.00
5.00
10.00
15.00
Ch
an
ge
in p
erc
en
t
Productin in MTChange
National Consumer Price Inflation, 1998-2004('85/86=100 for Jul '98-'00; '95/96=100 as of Jul '00)
02468
101214161820
Jul '
98O
ct '9
8Ja
n '9
9A
pr' 9
9Ju
l '99
Oct
'99
Jan
'00
Apl
'00
Jul '
00O
ct '0
0Ja
n '0
1A
pl '0
1Ju
l '01
Oct
'01
Jan
'02
Apl
'02
Jul '
02O
ct '0
2Ja
n '0
3A
pl '0
3Ju
l ' 0
3O
ct '
03Ja
n ' 0
4A
pr '
04
12 m
onth
s, e
nd-o
f-per
iod
perc
enta
ge c
hang
e
General index Food Nonfood
Fiscal policies were tighter than programmed
• The budget deficit for FY04 targeted in the revised budget is 4.2 percent of GDP, and is likely to come out lower, against 4.8 percent in the program
• Revenues are falling short of the target, as do ADP spending and foreign financingb
Government Revenue and Expenditure, FY00-FY05
0
2
4
6
8
10
12
1999/00 2000/01 2001/02 2002/03 2003/04 2004/05
Per
cent
of
GD
P
Revenues (excl. grants)Revenue ExpenditureAnnual Development Program
b
Broad and Reserve Money Growth, 1999-2003(12 months, end-of-period, percentage change)
2468
1012141618202224
Jan'
99
Apr
'99
Jul '
99
Oct
'99
Jan
'00
Apr
'00
Jul '
00
Oct
' 00
Jan
'01
Apl
'01
Jul '
01
Oct
'01
Jan
'02
Apl
'02
Jul '
02
Oct
'02
Jan
'03
Apl
'03
Broad Money
Reserve Money
Monetary policy remains prudent
• This is appropriate in light of the increase in inflation
• Private sector credit has grown less than programmed, as has credit to government
Broad and Reserve Money Growth, 2001-2004(12 months, end-of-period, percentage change)
13579
111315171921232527
Jun
'01
Sep
'01
Dec
'01
Mar
'02
Jun
'02
Sep
t '0
2
Dec
'02
Mar
'03
Jun
'03
Sep
'03
Dec
'03
Mar
'04
Broad Money
Reserve Money
Bank Credit, 2001-2003(12 months, end-of-period, percentage change)
2
4
6
8
10
12
14
16
18
20Ju
n '0
1
Aug
'01
Oct
'01
Dec
'01
Feb
'02
Apl
'02
Jun
'02
Aug
'02
Oct
'02
Dec
'02
Feb
'03
Apl
'03
Jun
'03
Aug
'03
Oct
'03
Dec
'03
Feb
'04
Apr
'04
Pri
vate
Cre
dit
-15
-10
-5
0
5
10
15
20
25
30
35
Ne
t Cla
ims
on
Go
vt
Private CreditNet Claims on Govt
1-month T-bill rate, 2000-2004(in percent per annum; end-of-month)
2.02.53.03.54.04.55.05.56.06.57.07.58.08.59.09.5
10.0Ja
n '0
0
Apl
'00
Jul '
00
Oct
'00
Jan
'01
Apl
'01
July
'01
Oct
'01
Jan
'02
Apr
'02
Jul '
02
Oct
'02
Jan
'03
Apl
'03
Jul
'03
Oct
'03
Jan
'04
Apr
-04
2.02.53.03.54.04.55.05.56.06.57.07.58.08.59.09.510.0
The external sector is recovering
• From the start of FY04, exports grew by 15 percent through April and imports by 18 ½ percent through February
• Export is led by RMG and frozen food.• External debt management has been
prudent• Gross international reserves now
stand at $2.6 billion
5. Merchandise exports and imports, 1998-2003(12-month running totals)
-20
-10
0
10
20
30
40
Jul '
98
Oct
' 98
Jan.
99
Apr
'99
Jul '
99
Oct
' 99
Jan
'00
Apr
'00
Jul '
00
Oct
' 00
Jan
'01
Apl
'01
Jul '
01
Oct
' 01
Jan
'02
Apl
'02
Jul '
02
Oct
' 02
Jan
'03
Apl
'03
Jul '
03
Oct
' 03
Jan
' 04
Ye
ar
to y
ea
r p
erc
en
tag
e c
ha
ng
e
Imports Exports
Trade balance and workers' remittances, 1998-2004
(12-month running totals)
0500
1,0001,5002,0002,5003,0003,5004,000
Jul '
98Se
p '9
8N
ov '9
8Ja
n. 9
9M
ar' 9
9M
ayJu
l '99
Sep
'99
Nov
'99
Jan
'00
Mar
'00
May
Jul '
00Se
ptN
ov '0
0Ja
n '0
1M
ar '0
1M
ayJu
l '01
Sep
'01
Nov
'01
Jan
'02
Mar
'02
May
Jul '
02Se
ptN
ov '0
2Ja
n '0
3M
ar '0
3M
ayJu
l ' 0
3Se
p ' 0
3N
ov '
Jan
' 04
Mar
'
Tra
de d
efic
it (m
illio
n U
S$)
Trade Deficit
Workers' Remittances
International Reserves, 2000-2004(in millions of US$, weekly)
500
1,000
1,500
2,000
2,500
3,000
3,500
Aug
. 03'
00
Oct
. 12'
00
Dec
. 21'
00
Mar
. 01
, 01
May
. 10
' 01
July
19,
01
Sep
27
'01
Dec
06
'01
Feb
14
'02
Apr
24
'02
Jul 0
4 '0
2
Sep
t. 19
'02
Nov
. 28
'02
Feb
. 06
'03
Apl
. 17
'03
Jun.
26
'03
Sep
. 04,
03
Nov
. 13
' 03
Jan.
22
' 04
Apr
. 01
' 04
Jun.
10'
04
The exchange rate has become a bit more
volatile• In recent weeks, transient factors
have pushed down the taka.• The increase in volatility is a sign
of a maturing of the exchange rate market.
Exchange rates, 2003/4Taka per US dollar
54.055.056.057.058.059.060.061.062.063.0
Jan
'01
Jan
'31
Mar
'01
Mar
'31
Apl
'30
May
'30
Parallel market
Interbank market
Structural Conditionality:
Tax Administration• Set up CIU: delayed• Revamp bonded warehouse system: met• Expand audit program to 1,000
taxpayers: not met• Expand LTU system to VAT and
withholding tax: by end-September• Replace tax holiday system with rational
investment incentives: by next budget
Structural Conditionality: NCBs
• Contracting new management/support for NCBs: delayed
• Implement MOUs: met; continuous• Sign new MOUs with lending cap and recovery
targets: at final step• Adopt bank-by-bank resolution strategies: at
final step• Bring Rupali, Agrani, and Janata to the point of
sale: Rupali at end-1994, then Agrani and Janata
Structural Conditionality:
Others• Adjust NSC rates in line with
market developments: to be done• Adjust trade taxes: done in budget
One slide about MFA• MFA phase out is a major risk to the program• RMG exports have been buoyant due to
strengthened competitiveness, especially in the duty-free EU market
• But Bangladesh is vulnerable due to heavy reliance on quotas
• Without a policy response, the adverse impact on the BOP could be as much as $1 ½ billion in FY05-06, or 1 percent of GDP on average
• Attracting FDI, the flexible exchange rate regime, increased international reserves, liberalizing the regime for imports of RMG inputs, and measures to reduce the social impact should be part of an policy package
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