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Thoughts on Economics Vol. 23, No. 01

The Performance of the Bangladesh Economy in 2012-13 and Future Prospects

Ayubur Rahman Bhuyan*[Abstract: Bangladesh’s economic performance in 2011-12 has earned global admiration but the targeted 7.2 percent GDP growth in the current fiscal may be difficult to achieve. Donor agencies have of late projected Bangladesh's economic growth at below 6.0 percent this year, attributing the low growth prospect to weak external and domestic demand, weak infrastructure, and domestic investment constraints. The macro economy is under serious strains due to large government subsidy, and mounting budget deficits. Power and energy shortage despite recent improvements, lack of accountability in administration, regulatory inefficiency, stagnant investment, and political gridlock have become serious impediments to the country’s economic growth. The challenges for the government will be to properly address these problems. The agriculture sector may grow well this year based on good crop sector growth, but structural impediments and the ongoing political unrest may pull down growth in industry and services sectors. Central bank’s monetary policy stance has been eased to some extent to encourage private sector credit growth but access to credit is still limited because of its high cost. Collection of public revenue has increased but remained below target. NBR’s tax effort should be intensified to bridge the revenue gap and achieve the annual revenue target. Likewise, ADP implementation should be enhanced significantly so that the ADP projects that remained unimplemented in the first half of the fiscal can be completed in the remaining six months of the year without, of course, sacrificing the quality of the projects. Exports are recovering well but export growth is likely to remain weak amid the Euro zone financial crisis, slow economic growth in USA, and the uncertainty over the continuation of the GSP facilities in the US and EU markets. Government should take up the GSP issue with all seriousness. Inward remittances have increased and the inflow of foreign aid has also gone up in the first half of the current fiscal, but new aid commitment has fallen sharply. FDI inflows have increased, but only marginally. The appreciation trend of the Taka has continued on the strength of higher remittance, increased aid flow, and decline in import. Trade deficit has narrowed down, and the deficits in the current account and the overall balance of payments have turned into surplus. Bangladesh Bank’s reserve position has improved significantly. There is, however, no reason to be complacent. The surplus in balance of payments may be wiped out if export growth remains low but development imports pick up to meet the needs of the

*Former Professor of Economics, University of Dhaka.

8 The Performance of the Bangladesh Economy ……………..

economy. The point-to-point inflation has been on a downward trend since January, 2012 but the general and the food inflation rates have of late started increasing mainly because of a rise in prices of some food items. The point-to-point non-food inflation has, however, maintained the downward trend. This paper contends that prolonged disruptions of economic activity caused by political violence, blockades and shutdowns may destabilize the economy, pull down the GDP growth rate, push the inflation rate in the coming days, and prevent reaching the inflation target of 7.5 percent this year.]1.0 Introduction Growing consistently at above 6.0 percent in the past years, Bangladesh economy has shown its resilience in the face of the global economic slowdown. The economy grew by 6.3 percent in the 2011-12 fiscal. Although it missed the 7.0 percent growth target, the realized 6.2 percent growth in the fiscal was no mean achievement when we consider that the world GDP growth in 2012 stagnated at 2.2 percent, GDP in South Asia grew by only 4.4 percent, and growth in India slowed down to 5.5 percent from the robust 9.6 percent growth two years back in 2010.1 In fact, Bangladesh has made tremendous strides in economic and social fields over the past few years despite the world economic slowdown and various domestic challenges. It has achieved successes in areas of food security, macroeconomic stability, and in building a comfortable foreign exchange reserve. It has already achieved or is on track to achieve most of the MDG targets. It has reached the target of halving poverty, and also improved its record in school enrolment and gender parity in primary education as well as in bringing down the child mortality rate. At present the country’s deficits in MDGs are mostly related to hunger, water supply and sanitation, which the country is diligently striving to meet ahead of the 2015 timeline. These achievements boost people’s confidence that the country can attain accelerated growth of 8 percent a year to emerge as a middle income country by 2021. However, considering the present reality of slow global economic growth and consequently the likely slowdown in the growth of exports, foreign aid and investment, as well as problems of weak physical infrastructure and acute energy crisis, government has set a lower target of 7.2 percent GDP growth for FY2012-13.This paper presents a critical review of the country’s economic performance during the first few months of FY13. In the Sections that follow, it focuses on the state of the real economy, growth of GDP and its component sectors, monetary and credit developments, public revenue and expenditure, external sector developments, and inflation. Section 2 evaluates the performance of the major sectors of the economy and also presents the outlook for GDP growth in the present fiscal. Developments in money and capital markets are highlighted in Section 3. The section also appraises the Bangladesh Bank’s latest monetary policy statement and also points out some weaknesses in the banking sector policy regime that need to be addressed by the central bank. Developments in

1 United Nations. World Economic Situation and Prospects 2013.

Thoughts on Economics 9

public revenue and expenditure are discussed in Section 4 and external sector issues of export, import, aid, foreign investment, remittances, and exchange rate are discussed in Section 5. More importantly, concerns over the GSP issue are highlighted in this section. The situation of prices and inflation is discussed in Section 6, and some concluding observations are made in the 7th and final Section. 2.0 Performance of Major Economic Sectors2.1 AgricultureAgriculture plays a vital role in the economy, providing food and nutritional security as well as supplying raw materials to domestic industries. The sector employs about 44 percent of the country’s total labour force and accounts for 19.3 percent of its GDP. Its importance in poverty reduction is evident from the fact that agriculture is primarily a rural activity and 83 percent of the country’s poor live in rural areas. Moreover, many rural non-farm and informal services are directly and indirectly linked with agriculture. However, it is admitted on all hands that the country’s agriculture sector lacks dynamism. The undiversified character of the sector and its heavy dependence on food production make it vulnerable to the vicissitudes of nature. The rice-centric agriculture growth may potentially undermine the long-run food security of the country. To ensure adequate food security, a sustained growth in rice production is essential, which will call for improvements in the genetic materials, rationalization of seed production, and better nutrient mixes. Diversification of the crop basket and enhancing the scope of non-farm agriculture should also be seen as important factors for the development of both agriculture and the rural economy of the country.The agriculture sector depicted a lower growth rate of 2.53 percent in 2011-12 compared to 5.13 percent in the previous fiscal. The slow growth of the broad agriculture sector was due to the abnormally low growth experienced by crops and horticulture (0.94 percent) in 2011-12, compared to the robust 5.65 percent growth witnessed in fiscal 2010-11. But because of the importance of agriculture in the economy, government must seriously address all problems faced by the sector. In order to enhance the sector’s growth and achieve the targeted food production (Table 1), government must ensure adequate and timely supply of agricultural credit, fertilizers, quality seeds and other agricultural inputs. There is the need to provide support services to help accelerate production and marketing of agro-products. Government policy should be directed to enhance production, facilitate marketing of products, and ensure a reasonable profit margin for the growers. In particular, government should continue to provide, and, if necessary, enhance the prevailing subsidies on fertilizer, diesel and electricity to this sector and ensure their proper utilization. Government should also encourage farmers to grow more profitable crops as an alternative to only rice-rice cropping patterns, which would significantly contribute to enhancing productivity, production, and value added in agriculture. 2.1.1 Food grains Situation


Domestic Production For FY13, the DAE set the food grains production target at 354.6 lakh metric tons (lmt). Production targets for individual crops are 133.0 lmt for aman, 23.7 lmt for aus, 187.6 lmt for boro, and 10.3 mmt for wheat (Table 1).2 The FY13 production target is 1.7 percent higher than the actual food grains production of 348.8 lmt in FY12, which also exceeded the previous year's production of 345.1 lmt by 1.1 percent.

Table 1: Food situation (in lakh metric tons)

Fiscal Year

Gross Production target

Actual Domestic Production (gross)

Net Domestic Production*

Food grain Impo-rts

Public Domestic Procurement

Public distribution

Food grain Stock (end June)

2009-10 350.51 332.26 292.39 34.55 8.05 19.61 5.31

2010-11 360.65 345.13 310.62 57.04 4.62 22.91 8.87

2011-12P 357.25 348.80 313.13 22.90 14.26 20.95 12.48

2012-13T 354.60@ 31.00 15.00 27.70

Source: Bangladesh Food Situation Report, FPMU, Ministry of Food & Disaster Management, Government of the Peoples Republic of Bangladesh; Bangladesh Bank, Major Economic Indicators: Monthly Update, December, 2012.Note: P = provisional T = Target @ Targets for aman, aus, boro, and wheat are 133.0, 23.7, 187.6, and 10.3 lakh metric tons, respectively.* After 12% deduction for FY10 and 10% deduction for other years for seed, feed, waste etc. According to BBS estimate, Aus production during the FY13 Aus season slipped 7 percent to 21.6 lakh metric tons. The output of Aman rice, the second biggest crop after Boro, was 128.9 lmt, falling 3.08 percent short of the production target of 133 lmt. However, aman production in the 2012-13 season was higher, though very slightly by 0.7 percent, than the production of 128.0 lmt in the previous season of 2011-12. According to BBS, this is the highest ever yield during the aman season due to farmers’ growing interest in a new high-yielding variety of aman rice, the production cost of which is lower than that of boro. Adequate rains saved irrigation costs during the aman season and new modern varieties have also encouraged farmers to allocate more lands to aman farming.3 Apart from the increase in the plantation area and favourable weather, special incentives provided by government through supplying HYV seeds and fertilizer benefited the farmers.

2 The boro production target in FY13 was subsequently raised by 1.33 percent to 187.6 lmt. 3 Some 30,000 hectares of additional land came under rice farming during the last aman season.


The country is expecting another bumper wheat output this cropping season, thanks to favorable weather in the major wheat growing districts, increased acreage, and also the introduction of improved seeds by government research organizations. As estimated by the Department of Agricultural Extension (DAE), the area under wheat cultivation rose by 23 percent to 4.42 lakh hectares in the current growing season from 3.58 lakh hectares last year. According to BBS, wheat production was 9.95 lakh metric tons last year, up 2.57 percent from the previous year’s 9.71 lakh metric tons. Production may increase by 30 percent and reach 13 lakh metric tons this year.Currently, boro, the principal rice crop, is at the maturity stage (end March), and harvest is likely to begin after the third week of April. The boro cultivation area shrank this year because many farmers shifted to wheat, potato, maize and mustard, frustrated by the low price of paddy last year.4

Reportedly, a large number of farmers in several northern districts have already switched to wheat production on lands where they usually cultivate irri-boro paddy. This is because wheat is easy to cultivate and requires lesser irrigation and has lower production cost than that of irri-boro.Food grains ImportThe government has decided to import 31 lmt of food grains in FY13, comprising of 4.1 lmt of rice and 26.9 lmt of wheat. This compares with total food grains import of 22.9 lmt in FY12, in which the import of rice was 5.2 lmt and that of wheat was 17.7 lmt. Between July and 10 January, 2013, only 15.8 thousand metric tons of rice was imported. Over the same period last year, total import of rice amounted to 478.6 thousand metric tons. Bangladesh’s annual demand for wheat is about 30 lakh metric tons, two-thirds of which is met with imports. In July-February of the current fiscal, 10.47 lakh metric tons of wheat have been imported. In the same period last year, wheat import amounted to 11.16 lakh metric tons. The private sector was the main importer of wheat. Domestic ProcurementThe government set a target to procure 15 lakh metric tons (lmt) of food grains, rice and wheat, during FY13.5 The boro rice procurement target in the May-September, 2012 procurement season was set at 10 lmt. The procurement period was extended by one month till 31October, 2012. According to a BBS report, 8.68 lmt of boro rice was purchased during the extended procurement period, which fell short of, but was quite close to, the annual target. The government also set the aman procurement target at minimum 300 thousand metric tons (tmt) of rice (250 tmt of parboiled and 50 tmt of white rice) to be procured from the domestic market to provide price incentive to farmers amid a continued fall in the price of rice. The drive began on 9 December, 2012 and

4 Some 4.75 million hectares of land came under boro cultivation in the 2012-13 season, as reported by the DAE. According to BBS, boro acreage was 4.77 million hectares, and output was 87.6 lmt. in the previous season (2011-12).5 Food grains procurement during FY12 was 1.43 million metric tons, of which 1.33 million metric tons was rice and 0.10 million metric tons was wheat.


was to continue till 28 February, 2013. As of 10 January 2013, 3.2 tmt of rice was procured and 275.0 tmt was contracted.Public DistributionIn view of the high price of food grains in the market, the government has enhanced its efforts to ease poor households’ hardship by distributing subsidized grains through OMS and Fair Price Card (FPC) channels. In FY13, government has a plan to distribute a total of 27.7 lmt food grains to poor households as against the actual distribution of 20.95 lmt in FY12. As of 10 January, 2013, a total of 878.9 thousand metric tons of food grains was distributed through the public food distribution system (PFDS). The OMS drive, which resumed in major cities and districts of the country, continues, with rice being sold at Tk.24 per kg and atta at Tk.20 per kg.Public StockAccording to the Directorate General of Food, as of 10 January 2013, the public food grains stock stood at 1.298 mmt of food grains, including 1.086 mmt of rice and 0.212 mmt of wheat.Food SecurityGovernment has remained keen to enhance food security by providing necessary support toward raising domestic production, importing food grains, when necessary, to build an adequate stock of food grains, and distributing food grains among the poor through safety net programmes like, test relief (TR), food for work (FFW) etc.Concern with food safety is now widespread. Food adulteration with health-hazardous chemicals has become rampant in the country, threatening the health of the people. Fish sellers spray their fish with formalin – which is usually used for preservation of tissues – so that they look fresh and do not quickly perish. Almost everything – from vegetables, milk, beverages, sweetmeat, ice cream to spices – is adulterated. Carbide is used to ripen fresh fruits like mango, banana, and papaya, which allows them look fresh and also prevents rotting. In the wake of the failure of related authorities in checking widespread adulteration of food items and enhancing food safety, the Ministry of Food has drafted a bill proposing the establishment of an agency called ‘Bangladesh Food Safety and Quality Control Authority’ and stipulating a provision for a maximum of three years’ imprisonment for an offence under the proposed law. The move that came amidst growing concern about the sales of chemical-mixed food items, exposing humans to serious health hazards, is a step in the right direction. 2.1.2 Fisheries, Livestock and PoultryThe fisheries sector contributes 4.4 percent, and livestock and poultry sectors contribute around 2.6 percent to GDP. These two subsectors respectively account for 22 percent and 13 percent of the total agricultural GDP. Fisheries. The fisheries sector supports the livelihood of nearly 2 million people and it is also the country’s third largest export earner. In 2011-12,


export earnings of fisheries was $598 million which was about 2.5 percent of the country's total export earnings. The sector meets about 58 percent of the total protein demand and produced around 3.2 mmt of different varieties of fish in FY12. The production of fish was 3.1 mmt in FY11. This sector thus performed reasonably well in the last fiscal year maintaining about 5.38 percent growth as against 5.25 percent in FY11. Much more needs to be done, however, to increase the production of fish in the country. According to the Department of Fisheries, the total demand for fish in the country is 3.27 million tons but actual production was 3.20 million tons in the last fiscal year. Livestock. The growth of the livestock sector decelerated to 3.39 percent in FY12 from 3.48 percent in FY11, and likewise its contribution to GDP also declined to 2.50 percent in FY12 from 2.58 percent in FY11. However, there seems to have been a significant turnaround in livestock production in the past year as indicated by the huge supply of local breeds of cattle in the local markets for consumption during Eid festivities. Yet the country has a big deficiency in the supply of meat. According to the Department of Livestock Services (DoLS), with per capita daily demand for meat at 120 gm, the annual demand for meat in Bangladesh is 6.4 million tons, but it produced only 1.98 million tons last year, leaving a shortfall of nearly 4.4 million tons. Around 3.7 million cattle (and buffaloes) are slaughtered annually in the country, a fifth of which are imported. There is also a significant shortfall in the supply of milk in the country. Daily per capita daily demand for milk in the country being 250 milliliter, the annual demand for milk is nearly 13 million tons, but the country produced only 2.3 million tons of milk last year.The demand for cattle meat and milk is growing with the growth of population, and cattle rearing and cow fattening has increased significantly across the country as a growing source of income of the rural people. The growth of the livestock sub-sector in the coming days should therefore be several times higher than the trend growth till last year. Concerted effort will be needed by government and livestock farms to increase livestock production by arranging for smooth supply of fodders and control of cattle diseases.Poultry. The poultry industry has expanded in the country but there is a large deficiency in egg production. According to the DoLS, the country has a demand for nearly 15 billion eggs annually but the annual production is not more than 1.3 billion. The poultry sub-sector has been a regular victim of bird flu diseases over the past few years. Besides, recent cold wave in the country took a heavy toll on the poultry industry as thousands of birds died after being hit by the record low temperature. According to the Bangladesh Poultry Industries’ Association (BPIA), around 1.5 lakh birds, most of them layer chickens, died in the week long cold spell across the country, which also caused significant production fall in egg in the country. The total production loss of egg would be around 30 million pieces during this time. To overcome the recent crises in the poultry sub-sector, local farmers have sought government support for rescuing it from collapse. Due to mismanagement in the industry, the once-vibrant sector is now struggling for survival. They urged the government to introduce vaccine and other necessities like poultry


insurance, bank loan with lower interest rates, and tax exemption on poultry feed for smooth operation and expansion of the industry. In fact, the livestock and poultry sub-sectors can contribute significantly to agricultural growth and thus to the growth of the economy. Increasing livestock and poultry output will require modern methods of production, improved technical skills, and a supportive infrastructure.2.2 Industry The industry sector, which includes mining and quarrying, manufacturing, construction, and power, water and gas, grew by 9.47 percent in FY2011-12, a respectable 1.27 percentage points higher than the 8.20 percent growth recorded in the preceding fiscal, and its share in the country's GDP also increased to 31.26 percent in FY12 from 30.38 percent in FY11.6 But for the glaring energy and infrastructural constraints, the sector could have occupied a higher share in GDP. It is not clear if the industry sector has been able to sustain the growth rate observed in FY12. One might say that the performance of the sector has improved in the present fiscal so far since there has been a significant improvement in power supplies. On the other hand, there is strong apprehension that a drastic fall in the private sector credit and in the settlement of LCs for industrial imports, coupled with the impact of the financial crises and slow growth in the developed countries on the country’s export of manufactures, might have had an adverse effect on production in all industrial sub-sectors. Multilateral donor agencies have projected a much lower growth of the industrial sector in the current fiscal than in the past year because of stagnant domestic and foreign investment in the country and the fall in the demand for exports in the wake of the slow growth and financial turmoil in the western economies.2.2.1 Manufacturing The manufacturing sub-sector grew by 9.76 percent in FY12 compared to 9.45 percent in FY11 and its share in GDP rose to 19.01 percent in FY12 from 18.42 percent in FY11. The overall growth was mainly due to the contribution of small industries, which grew at 7.18 percent in FY12 as against 5.84 percent in FY11. The large and medium industries' growth decelerated from 10.94 percent in FY11 to 10.78 percent in FY12.There are signs of deceleration in the growth of the manufacturing sector in the present fiscal. The quantum index production (QIP) in medium and large scale manufacturing in July-August of FY13 stood only marginally higher at 595.82, recording a paltry 4.9 percent growth over the same period of FY12. Individual industries that recorded positive growth in the first two months of the fiscal are: fabricated metal product (29.99%), food beverages & tobacco (15.12%), chemicals, petroleum & rubber (13.26%), paper and paper products (10.24%), basic metal products (6.89%), and non-metallic products (3.47%)

6 The share of different sectors in GDP and their annual growth rate are shown in the Appendix Table.


compared to the same period of FY12. On the other hand, quantum indices declined for wood product, including furniture (by 5.66%), and jute, cotton, apparel & leather (by 1.12%) in July-August of FY13 compared to the corresponding period of FY12. In general, production in export-oriented industries depicted lower growth as the delayed recovery of the global economy affected exports and production, while output in domestic market-oriented industries such as food, beverage and tobacco, and certain construction-related materials as well as chemical products, showed higher growth. In order to sustain the growth of these industries, appropriate fiscal policy support and the provision for easy access to credit will need to be ensured. Small and medium scale industries, which account for 27.7 percent of manufacturing production, 5.3 percent of gross domestic product, and 16.8 percent of industrial GDP, can be expected to improve their growth performance in the present fiscal, compared to the preceding year, amid increased availability of SME finance in these industries. While a favourable external environment is essential for achieving a high growth in manufacturing production, the major impediments to a faster growth are largely indigenous, viz., under-developed physical infrastructure, insufficient and irregular power and gas supply, high interest rates on bank loans, and a host of non-economic factors like poor law and order conditions. In particular, the slow growth of electricity and the severe gas crisis pose a threat not only to industrial growth but also to the development of all other sectors of the economy. Every conceivable action will need to be taken to remedy these problems. 2.2.2 ConstructionThe construction sector grew by 8.5 percent in FY12 compared to 6.5 percent in FY11. The increase in public sector rehabilitation of roads and highways in the first six months of the present fiscal indicates that construction activities are growing faster than in the past fiscal. Faster implementation of the government’s ADP projects relative to the previous fiscal, and speedy work on a number of ongoing flyover and other construction projects in Dhaka and Chittagong have given a big boost to the construction sector, which has also resulted in higher production and consumption of steel and cement.Apart from government projects, rising inflows of remittances by migrant workers also pushed up construction of houses in sub-urban and rural areas. However, construction activities in the private sector are at a disadvantage because of the scarcity and high price of land and the rising cost of construction materials that has significantly raised the construction cost and hence the price of apartments. Apartment construction has also slowed down due to a shortage of electricity and gas connections to the already-built apartments. Some 70 percent of new apartments remain unsold because of a lack of utility connections. However, the real estate companies have sold 595 flats and 652 plots worth Tk.6.20 billion in the recently concluded REHAB Fair 2012. The participating


companies at the fair also got bookings for plots and flats worth Tk.9.52 billion. The sale of new flats will increase significantly if the government can give new gas and electricity connections and help arrange home loans at reduced interest rates.2.2.3 Power There has been a significant addition to the power generation capacity in the past four years and the power supply situation has greatly improved. The sector grew by 14 percent in FY12, at more than twice the rate experienced in FY11 (6.6 percent). The frequency of load-shedding is less than before. It could be that some rental power plants that were asked to go off the stream were back in operation. But yet the performance of the power sector remains well below the expected level. The availability of power is grossly insufficient to meet the overall demand. In fact, the shortage of power now poses the biggest threat to Bangladesh’s economic growth as many newly-built industrial units, homes and other establishments have long been deprived of power connections. Increasing electricity generation capacity has been a major focus for the current government. When the present government assumed power in January 2009, the effective capacity of power generation stood at around 3,500 megawatt (mw). The government has added more than 4,000 mw in various forms, including liquid fuel-based, gas-based and dual fuel plants. The BPDB's power generation report shows that in 2012, the total generation capacity stood at more than 7,700 mw, while the actual generation has been between 4,000 mw and 6,350 mw. The present demand generally varies from 5,500 mw to 6,500 mw daily but it goes up to maximum 6,700 mw to 6,800 mw during peak-summer. The estimated demand supply gap currently is thus around 800 mw in peak hours. Gas shortage accounts for at least half of this gap. The highest electricity generation was recorded at 6,350 mw on 4 August 2012 and it was the maximum generation in history. On 31 December 2012, power generation was 4,621 mw, according to BPDB website. To combat the acute power shortage, the government plans to increase power generation to around 7,000 mw by the end of 2013 and 10,000 mw by 2015. Electricity generation is likely to exceed demand by the end of the present year as 18 under construction power plants will start feeding the national grid a total of 2147 mw in phases, bringing the much expected respite to the people. As per the plan, installation of 18 large, medium and small power plants with power generation capacity from the minimum 50 mw to maximum 335 mw will be completed by 2013 boosting the power generation capacity of the BPDB to 8,497 mw from the existing 6,350 mw.The government plans to make use of ‘Export Credit Agencies (ECAs)’ loan to set up state-owned big power plants at Sikalbaha (225 mw), Bhola (225 mw), Barapukuria (250 mw), and Ghorasal (300-450 mw). Compared with the rental and quick rental power projects, this is a good enough initiative, even though the cost would be more than the World Bank's or Asian Development Bank (ADB)’s debt. The BPDB has so far planned to set up 13 big power


stations to generate 3,210 mw combined capacity electricity, but most of these projects are being delayed due to fund crunch. Besides, work under another 5 large power projects with a combined capacity of 3,700 mw is getting delayed due to lack of funds. The government, however, has undertaken these projects under joint venture with private investment. It needs about US$18 billion, US$2 billion and US$4 billion, respectively, for generation, transmission and distribution, to install 13,000 mw power projects and supply power to end users.The government also planned to set up 13 coal-fired power plants across the country with 7,800 mw generation capacity by 2015 in public and private sectors. All these plants will be operated by imported coal. These include two plants in Khulna of 600 mw capacity each, two 600 mw capacity in Chittagong, one 600 mw plant in Chittagong South, four 600 mw capacity plants in Matarbari (Cox’s Bazar), one 600 mw plant at Meghnaghat near Dhaka, two 600 mw capacity plants in Mawa near Dhaka and one 600 mw plant in Zajira (Shariatpur).Electricity Tariff: As part of its efforts to slash government subsidies in the power sector, the Bangladesh Energy Regulatory Commission (BERC) increased retail electricity prices to Tk 6 per unit from Tk 3.76 in six phases since March, 2010. The bulk power prices have also been doubled from Tk.2.37 per unit to Tk.4.70 per unit in six phases since February 2011. Despite the repeated increase in electricity tariffs in recent months, current tariffs are not sufficient to offset the average power generation cost, which has more than doubled, from Tk.2.59 per unit to Tk.5.57 per unit, in the last four years. Government's annual subsidy in power generation has in fact been increased more than four times, from Tk.9.00 billion to Tk.38.50 billion. According to the Power Division, the amount of subsidy would cross Tk.70.00 billion in the current fiscal to increase power generation from rental plants during the boro season. Further increases in power tariff are therefore on the card as the BERC has received proposals for a big hike in retail electricity tariffs from all state-run power distribution companies.2.3 Services SectorAs per the BBS estimate, the services sector recorded a slightly lower growth of 6.06 percent in FY12 compared to 6.22 percent in the previous fiscal. The lower growth was mainly due to the lower growth in agriculture and large-scale industry, and slower expansion in trade activities. A much faster growth of the overall services sector is possible in the present fiscal if production in real sectors increases at a greater pace. The broad services sector has nine sub-sectors, all of which apparently were performing well in the first half of the current fiscal, some of them doing better than others. There are indications that real estate, transport, storage & communication, telecommunications, wholesale & retail trade, education, health, public administration, and hotels & restaurants were doing well in first few months of the fiscal. However, activities that perhaps recorded slower


growth are banking and financial intermediation, reflecting the fallout of the Hallmark loan scam, and community & social services.The situation, however, abruptly changed with the advent of the second half of the fiscal when protracted conflicts among political parties, and long days of hartal coupled with deadly clashes claiming lives and destroying public and private properties affected all business and productive sectors of the economy. Wholesale and retail markets have been worst hit. So is the business of hotels and restaurants. Health and education sectors have suffered because of the shutdown. Both external and internal trade is affected. Disruption in the import of raw materials and capital machinery is having its toll on industries. Exporters are finding it difficult to maintain schedules because of disruption and delays in shipment. Because of the blockade of roads and destruction of transport vehicles, vehicular transportation has virtually come to a halt. Another victim of the long days of hartal is tourism. The sufferings of thousands of tourists in different tourist spots and the cutting off of road links with the capital and other cities are sending wrong signals to prospective tourists about Bangladesh as an attractive tourist destination. In a word, the growth of the services sector, which generates about a half of the country’s GDP, will decelerate significantly in the current fiscal if the politics of destruction, vandalism, arson and terrorism is not stopped forthwith. 2.4 Projected GDP GrowthPerformance evaluation of different sectors of the economy leads to the conclusion that GDP growth in the current fiscal may fall short of the 7.2% target set in the FY13 budget. The agriculture sector receives a lot of policy support, including the increased availability of credit, and hence is likely to achieve good growth, led by the crop sector. It is therefore quite reasonable to forecast the sector’s growth at close to 4.0 percent in this fiscal. The industry and services sectors, on the other hand, are very unlikely to sustain the last year’s growth. The increase in investment required to achieve a fast growth of these sectors is unlikely to materialize because the private sector credit growth programmed in Bangladesh Bank’s latest monetary policy statement does not seem sufficient to meet the credit need of industry and business. Investment may not increase also due to sluggish global economic growth, domestic infrastructural constraints, and above all, prolonged political violence, blockades and shutdowns that disrupt all types of economic activity in the country. Continuous declines in the import of capital machinery, industrial raw materials and intermediate goods throughout the past one year are also indicative of a slowdown in the growth of the industrial sector. Moreover, a delayed recovery of the world economy will adversely affect Bangladesh’s exports of manufactures, and thus the growth of export oriented manufacturing industries, notably the garments sector, which generates nearly 80 percent of the country’s exports. The growth of the services sector, which accounts for nearly a half of the country’s GDP, cannot be expected to maintain, let alone exceed, last year’s growth, because of destruction of infrastructures and disruptions of economic


activity caused by continuous hartals and associated acts of vandalism, arson and terrorism, of which transport services, hotels and restaurants, wholesale and retail trade, financial intermediation, and education are the major casualties. Considering all these factors, the industry and the services sectors can, respectively, be expected to grow at most by 7.90 percent and 5.90 percent in the present fiscal as against the past year’s 9.47 percent and 6.05 percent growth. With these assumptions, the overall GDP growth could be about 6.14 percent this year, compared to last year’s 7.2 percent. Yet, even this reduced growth of 6.14 percent may appear respectable, when the world GDP growth is forecast at 2.4 percent, growth in South Asia at 5.0 percent, and India’s GDP growth at 6.1 percent in 2013.7

3.0 Money and Capital MarketSince the first monetary policy statement (MPS) was prepared and formally announced by Bangladesh Bank (BB) in January 2006, BB has been regularly publishing it on a half-yearly basis, announcing BB’s monetary policy stance for every six months. The MPS issued in January, 2013 outlines the BB’s monetary policy stance for the second half (January-June) of the 2012-13 fiscal year. As in the previous statements, BB’s policy is purported to support government's policy of attaining faster economic growth by ensuring adequate private sector credit growth and at the same time keeping inflation under control. The key challenge for the BB would be to ensure sufficient credit growth to the productive private sector to help attain the desired 7.2 percent GDP growth and bring down the inflation rate to the targeted 7.5 percent in the current fiscal year. To that end, BB has made a half-yearly policy review of the July-December, 2012 period and proposed some well thought-out changes in monetary aggregates for the January-June period (second half) of the current fiscal year (Table 2). Before making a critical analysis of BB’s monetary policy stance in the second half of the 2012-13 fiscal year, it would be worthwhile to present the movement of monetary aggregates in the first half (July-December) of the fiscal. As can be seen in Table 2, broad money (M2) recorded a 19.0 percent increase at the end of December, 2012, almost similar to the 19.1 percent increase at the end of December, 2011. Domestic credit recorded a much lower growth of 14.6 percent at the end of December, 2012 compared to 25.9 percent growth at the end of December, 2011. The y-o-y decline in domestic credit growth at the end of December, 2012 was due to the lower growth in both public and private sector credit. Thus, private sector credit grew by 16.6 percent as against 19.5 percent at the end of December of the previous year. Credit to government and public sector increased by 7.6 percent as against 54.4 percent in the previous year. In July-December (first half) of FY13, domestic credit growth of 6.2 percent was lower than the growth rate recorded in the corresponding months of FY12. In line with the lower overall domestic credit growth, credit to the private sector, too, registered a lower growth of 6.1 percent during that period (Table 2). The growth of overall domestic credit

7 United Nations, World Economic Situation and Prospects 2013, New York.


and private sector credit was 11.1 percent and 9.0 percent, respectively, during the July-December period of the preceding fiscal.8

Table 2: Monetary Aggregates (year-on-year growth in percent

Items Actual July, ’12 MPS Prog.

January,’13 MPS Prog.

FY10 FY11 FY12 July-December, 2012

December, 2012 over December, 2011

December, 2011 over December, 2010

June, 2013 June, 2013

Net Foreign Assets

41.0 6.2 11.7 26.0 48.6 -5.33 0.9 14.0

Net domestic Assets

19.0 24.7 18.5 6.5 14.2 24.34 19.0 18.4

Domestic Credit

17.5 28.2 19.6 6.2 14.6 25.94 18.6 18.9

Credit to Public sector

-4.2 38.3 19.0 7.5 7.6 54.39 20.8 20.3

Credit to Private Sector

24.2 25.8 19.7 6.1 16.6 19.47 18.0 18.5

Broad Money (M2)

22.4 21.4 17.4 9.4 19.0 19.1 16.5 17.7

Reserve Money

18.1 21.0 9.0 9.4 15.6 13.8 16.1

Source: Bangladesh Bank, Monetary Policy Department, Monetary Policy Statement, January-June 2013; Idem, Major Economic Indicators: Monthly Update, February 2013, Vol. 02/2013.3.1 Broad Features of FY13H2 MPSBB formulated its monetary policy stance for the second half of FY13 drawing on lessons from the outcomes of its previous monetary policy statements. In FY10 and FY11, BB eased its monetary policy stance significantly in order to cushion the impact of the global economic crises. This monetary easing helped the economy to emerge relatively unscathed from the global economic crisis and grow over 6.0 percent in those years. The situation was different in FY12. The inflation rate was high and the economy was under severe balance of payments pressure. To face these challenges, BB took a more restrained monetary policy stance to bring down the inflation rate, while accommodating a near 20% private sector credit growth. The core objectives of the July 2012 MPS (for H1 of FY13) were to (i) limit domestic credit growth to levels consistent with the 7.5% inflation target, (ii) ensure that productive activities are not hampered by inadequate access to credit, and (iii) preserve external

8 Bangladesh Bank, Major Economic Indicators, Monthly Update, February, 2013.


sector stability, including the building up of a comfortable level of foreign exchange reserves. Data for the first half of FY13 indicate that these objectives were largely on track. The average inflation rate came down to 8.74% in December, 2012 (see Tables 18 and 19 below), and the level foreign currency reserves increased considerably. In this backdrop, BB announced its monetary policy stance for FY13H2, which seeks to ensure sufficient credit flow for productive sectors and also bring down inflation to 7.5 percent by the end of the current fiscal. BB has also cut all repo and reverse repo rates by 50 basis points, for the first time in 4 years, which will help commercial banks borrow money from the central bank at a cheaper rate (Table 3).9 The move signals an expansion of credit flow aimed at accelerating investment and achieving higher growth.

Table 3: Interest Rate (weighted average) movements in FY12 and FY13 (in %)

Month Repo Reverse Repo Lending Rate Deposit Rate Interest Spread

FY12R

July 6.75 4.75 12.55 7.32 5.23

September 7.25 5.25 12.72 7.42 5.30

January 7.75 5.75 13.43 7.86 5.57FY13P

July 7.75 5.75 13.77 8.30 5.47

December 7.75 5.75 13.80 8.47 5.33

January 7.75 5.75 13.73 8.60 5.13

February 7.25 5.25 - - -

Notes: P=Provisional, R=Revised Source: Bangladesh Bank, Statistics Department.BB has also revised its monetary programme with a broad money growth of 17.7 percent in June, 2013 compared to the earlier MPS programme of 16.5 percent growth, and the actual growth of 17.4 percent in FY12. The BB has also revised upward the private sector credit growth target to 18.5 percent for the second half (H2) ending in June, 2013 from 18.0 percent in the original programme. The MPS for FY13H2 states that the purpose of the new private sector credit growth envelope is to encourage banks to use the space for extending credit to the private sector for productive, not speculative, purposes. The MPS said that financial sector stability is important for effective monetary policy and as such BB will continue its intensified focus on bolstering 9 The last time BB slashed its interest rate on repo and reverse repo was on 11 March, 2009, aiming to offset the impact of global recession through fresh investment. Before the cut in February, 2013, BB had raised these rates by 325 basis points in total since August, 2010. On 8 January, 2012, repo and reverse repo rates were fixed at 7.75 and 5.75 percent, respectively. These rates remained unchanged till 1 February, 2013.


financial sector soundness and stability. Recent measures in this regard include tightening loan classification and provisioning requirements towards convergence with global best practice standards, introducing online supervisory requirements on financial transactions, and strengthening onsite and offsite vigilance on risk management, internal controls and internal audit in banks and financial institutions. The central bank has strengthened its supervision capacity. Related to this, various measures have been implemented to detect frauds. BB will focus on improving the quality, timeliness and transparency of reporting from the financial sector. It will continue to encourage banks to focus on productive sectors and limit the share of consumer credit. Bank lending and practices that contribute to asset bubbles, e.g., in land prices, will be closely examined and discouraged.3.2 A Critique of the FY13H2 MPSA careful evaluation of the BB’s monetary programme under the January, 2013 MPS (for FY13H2) indicates that BB’s monetary policy stance for the current fiscal remains the same as outlined in the July MPS for the first half of the fiscal. There are some adjustments in the new programme but the basic characteristics of the existing policy virtually remain the same.The first major step in the new policy is to reduce the policy rates by 50 basis points to bolster investment, which BB considered necessary to overcome the risks to output growth due to uncertainties around the global economy. The reduction should indeed enhance the availability of banks’ funds for lending to business, but given that the rates were raised to very high levels in the past few years, these rates could have been reduced a bit further in order to encourage investment. Secondly, the proposed new private sector credit growth envelope of 18.5% in June, 2013 proposed in the January, 2013 MPS does not offer much opportunity for any big expansion of private sector credit, because the proposed 18.5% growth target in fact happens to be lower than the actual credit growth in the immediate past year, and much lower than in the preceding two years. The growth of private sector credit in FY10, FY11, and FY12 was 24.2%, 25.8%, and 19.7%, respectively. The 18.5% credit growth target does not, therefore, signal any easing of private sector credit and may not lead to growth in investment. BB could in fact have raised the credit target to 20-21 percent to help small and medium enterprises to grow.Interest Rate Spread. There are certain other issues of great import, which have hitherto received insufficient attention of the monetary authorities but which need to be addressed with all seriousness now. A prime issue is the prevailing the high spread between deposit and lending rates of commercial banks. The weighted average spread between lending and deposit interest rates offered by the commercial banks has marked a declining trend in the recent months, falling to 5.13 percent in January, due to continued pressure from the BB, but the spread is still quite high (Table 3). International standards allow a


maximum spread of 4 percent, although Bangladesh has set the ceiling at 5 percent, considering management inefficiency of the banking industry.10 The present interest spread of 5.13 percent does not give a true picture because the spread in private and foreign banks is much higher than that in other banks. The average spread of state-owned commercial banks (SCBs) was 4.01 percent in January, 2013, and that of private commercial banks (PCBs) and foreign commercial banks (FCBs) was 5.26 percent and 8.65 percent, respectively.11 BB governor warned the banks against the high spread, especially the foreign ones, to bring it down to 5 percent by the end of March. High interest spread hurts industry and business badly and BB should not hesitate to take penal action against banks having higher spread. It is desirable that banks reduce the spread by lowering their lending interest rates, not by cutting down the interest rate on deposits. The return to deposits must not be lower than the going inflation rate, because in that case the depositor’s real worth will be eroded. On the other hand, banks’ high lending rates are due to their high operating costs, due mainly to the inefficiency of management. By improving management efficiency, banks can reduce their operational expenses and thereby be in a position to reduce their lending rate, leaving the deposit interest rates unchanged. Default Loans. Bangladesh’s banking sector has achieved a notable success in the first half of FY13 in bringing down the credit-deposit ratio (CDR) to a safe level,12 but the growing default loans in the banking sector has remained a major cause of concern. Banks’ non-performing loans (NPL) doubled in 2012 over the previous year, mainly due to scams, and loans stuck in some sectors like real estate, stock market, shipbuilding and commodity sectors. According to BB data, banks’ NPLs stood at Tk 42726 crore or 10.03 percent of their outstanding loans on 31 December, 2012. In December, 2011, defaulted loans were Tk 22644 crore or 6.12 percent of outstanding loans. The NPLs of the country’s public commercial banks vastly outnumber those of the private banks. Thus, while the NPLs of the private commercial banks are only 3.7 percent of their total loan portfolio, it is 20.5 percent for public commercial banks and 24.6 percent for public specialized development banks. In 2012, default loans in public commercial banks rose by Tk 12344 crore, by Tk 5833 crore in private banks, by Tk 219 crore in foreign banks, and by Tk 1685 crore in specialized banks. Among public sector banks, Sonali Bank was

10 See Sajjadur Rahman’s column “Foreign banks’ spread widens far beyond limit set by BB” in Star Business, The Daily Star, 7 March, 2013.11 Ibid.12 Bangladesh Bank rules do not permit banks to invest more than 85 percent of their deposits (90 percent for Islamic banks), but yet the CDR was well above that ceiling in 2011, for which reason the BB started strict monitoring to restore discipline. On 31 December, 2013, the CDR of banks, on average, came down to 76.30 percent, from more than 85 percent in the same month in the past year. Banks were able to bring down the CDR within the limit because their overall deposits increased by 20.22 percent in one year through December, 2013, while their credit grey by 15.31 percent. See Star Business Report, The Daily Star, 17 March, 2013.


at the top, whose default loans rose due a huge amount entangled in the Hallmark scam. The high share of infected portfolio of public banks is a serious problem for the banking sector. Large NPLs are not only a threat to the stability of the banking sector, but also pose a major fiscal risk for the government. BB will therefore need to strengthen its monitoring over the increasing debt default of the state-owned banks and their classified loans, especially to release the reserves made against such loans that impact on the overall liquidity of the banking sector.Banks’ Exposure to Stock Market. The MPS states that BB will discourage bank lending for unproductive or high risk uses. Since investment in the stock market is generally regarded as speculative and non-productive, BB is going to lower the banks’ exposure to the capital market to 25 percent of their regulatory capital. The existing law allows banks to invest 10 percent of their deposits in the stock market. BB’s initiative to limit the banks’ exposure to the stock market is perfectly all right since it has been taken to reduce risks of the banks and their depositors. On the other hand, BB has reportedly assured a coordination committee on the capital market of reviewing its recommendations that include enhancing bank loans to stock dealers and brokers.13 The coordination committee called upon the central bank to allow banks to increase their exposure to the stock market, which is now suffering from a shortage of liquidity. The committee in fact requested the central bank to raise the credit limit of stock dealers/brokers up to Tk 20 crore from the existing Tk 1 crore. We would, however, urge upon BB to support mainly the real sectors that create jobs and income, not the stock market, which does neither. Compliance of State-owned Banks. The compliance of state-owned banks with prudential regulation is very weak because they are not within the purview of BB’s regulations. In order to ensure stability and orderly functioning of money and credit markets and keep under constant watch the capital adequacy, liquidity, asset quality and provisioning requirement of these public banks, which account for more than a third of the total assets and liabilities of the banking system, they should be brought under effective supervision of the BB. The IMF has long been advising the central bank to regulate and discipline all public commercial banks like all private commercial banks. In that regard, BB’s supervisory capacity over banks should also be enhanced significantly.Problem of Capital Adequacy. The scheduled banks’ risk-weighted capital asset ratio (RWCAR) has been shrinking continuously and has fallen below the minimum requirement of 10 percent under the Basel II capital adequacy framework. A bank’s capacity to meet the time liabilities and other risks is determined by its capital adequacy ratio, but Bangladesh’s banking sector as a whole is not compliant with the Basel II requirements. Only foreign commercial banks meet or exceeded the Basel II requirement. Adequate

13 See Star Business Report, The Daily Star, 5 March, 2013. The coordination committee consisting of eight members was formed by the DSE on 29 January, 2013 to solve problems faced by the stock market.


capital provides cushion against unexpected shocks and protects the interest of banks’ depositors and other lenders. In order to boost people’s confidence in the banking system and promote financial stability, BB will need to gear up its monitoring of the scheduled banks and ensure their strict adherence to and compliance with the Basel II requirement of maintaining capital adequacy. 3.3 Institutional LendingDisbursement of industrial term loans, and credit to SMEs and agriculture, including non-farm rural sector, in FY13 together with the disbursements made in the recent quarters is described in the following.Industrial Term Loans. Data on industrial term loans are available only up to the first quarter of FY13. As expected, large-scale industries are the major recipients of industrial term loans. Medium-scale and small-scale industries together get about a third of the disbursed loans. Other than that, there has been no regular pattern in term loan disbursement as can be seen in the data for the successive five quarters starting from July-September, 2011 (the first quarter of FY12). Thus there have been large increases or decreases in disbursement from one quarter to next (Table 4). However, while the disbursement of term loans in Q1 of FY13 was 4.9 percent lower than in the immediate past quarter, the disbursement in Q1 of FY13 stood 30.7 percent higher at Tk 9720 crore, as compared to Tk 7437 crore during the corresponding quarter of the previous fiscal year (Table 4). The loans went mostly to energy and power, telecommunications, pharmaceuticals, textile, housing, construction and transportation sectors. The recovery of industrial term loans also increased by 20.3 percent to Tk 8192 crore during July-September of FY13 against Tk 6811 crore during the same period of FY12.

Table 4: Disbursement and Recovery of Industrial Term Loans

Quarter Disbursement (in crore Tk) Recovery (in crore Tk)

LSI MSI SSCI Total LSI MSI SSCI Total

July-Sept of FY12R

5019 1875 543 7437 3817 2492 502 6811

Oct-Dec of FY12R

5706 3469 693 9868 (32.7) 4803 2713 845 8361

Jan-March of FY12R

5250 1993 512 7755 (-21.4) 4552 2119 505 7176

April-June of FY12R

5942 3632 644 10218 (+31.8) 4806 2592 491 7889

July-Sept of FY13P

6185 2906 629 9720 (-4.9) 5231 2376 585 8192

Note: LSI = Large Scale Industry, MSI = Medium Scale Industry, SSCI = Small Scale and Cottage Industry;


P = Provisional; R = Revised. Figures in parentheses indicate percentage change over the previous quarter. Source: Bangladesh Bank

SME Loans. Total SME loans disbursed by all banks and non-bank financial institutions (NBFIs) increased by Tk.21622 crore or 27.6 percent to Tk.100002 crore at the end of September, 2012, as compared to Tk.78380 crore at the end of September, 2011 (Table 5). Among the total SME loans disbursed, 63.6 percent went to the trade sector, 31.5 percent went to the manufacturing sector, and the rest 4.9 percent went to the service sector. The manufacturing sector of SMEs was deprived of adequate loan in the period because a large portion of loans was disbursed to the trade sector. Banks and NBFIs were reluctant to disburse SME loans to the manufacturing sector as the credit risk in the sector was higher than in the trade sector. The women entrepreneurs also did not get the required SME loans in the period as banks and NBFIs disbursed only Tk.1724 crore among them, which was just 3.5 percent of the total disbursed loans.

Table 5: Disbursement of SME Loans (in Crore Tk)

Quarter Ending

Loans State-owned Banks

Private Banks

Foreign Banks

Specialized Banks

Non-Bank Financial Institutions Total

September 2011

Total LoansSME Loans

7902122291(28.21)

22742446121(20.28)

207591996(9.61)

225115017(22.29)

198772955(14.87)

36959278380(21.21)

December, 2011


8140523244(28.55)

24433648429(19.82)

211662086(9.85)

229944768(20.74)

208272571(12.35)

39072881099(20.76)

March, 2012


8390922768(27.13)

25524156046(21.96)

223762137(9.55)

236004969(21.05)

215482750(12.76)

40667588670(21.80)

June, 2012 Total LoansSME Loans

8694924334(28.10)

26826358421(21.78)

230942196(9.51)

259835204(20.03)

225722893(12.82)

42686293148(21.82)

September 2012P


8771524398(27.82)

27684964.910(23.45)

233062048(8.79)

266705567(20.88)

232053078 (13.27)

437744100002(22.84)

% change of SME loans at the end of Sept. 2012 over Sept. 2011

9.46 40.74 2.61 10.96 4.18 27.59

Source: SME & Special Programme Department, Bangladesh Bank. Note: Figures in parentheses denote SME loans as percentage of total loans. P = provisional.

All institutional providers, viz. the foreign commercial banks (FCBs), the state-owned commercial banks (SCBs), the specialized Banks (SBs), private commercial banks (PCBs) and non-bank financial institutions (NBFIs) now provide credit support to the SME enterprises. According to the BB data, the percentage share of SME loans in total loans for each category of institutions


at the end of September 2012 was as follows: SCBs 27.8 percent, PCBs 23.5 percent, SBs 20.9 percent, NBFIs 13.3 percent, and FCBs 8.8 percent. Compared to September, 2011, the institutional category-wise SME loans increased at the end of September, 2012 by 40.74% in private banks, 10.96% in specialized banks, 9.46% in state-owned banks, 4.18% in NBFIs, and 2.61% in foreign banks. It is noticeable that the disbursement of SME loans was 22.84 percent of total loans disbursed by Banks and the NBFIs in September, 2012, which is an improvement from 21.82 percent in June, 2012. Access to SME credit to rural areas has been far lower than that in urban areas in January-September of 2012 calendar year. The SMEs in urban areas received 70 percent of the loans while only 30 percent of loans went to rural areas. So, the SME entrepreneurs in rural areas were deprived of proper loan facilities from banks and NBFIs. The disbursement of total SME loans during January-September of 2012 was Tk.49603 crore, of which, the rural SMEs received only Tk.15326 crore or about 31 percent of the total. By contrast, the disbursement of SME loans in rural areas in 2011 was Tk.14390 crore, or 26.6 percent of the total SME loans of Tk.54000 crore disbursed in that year. For the first time in the country, the BB recently disbursed loans among the new SMEs with the aim to enhance their sustainable growth and also expand credit to manufacturing and service sectors. According to BB data, banks and NBFIs disbursed Tk.2227 crore among 12698 new enterprises during July-September of 2012. Of them, 602 enterprises in the service sectors received up to Tk 128 crore, 10845 enterprises in trading sector received up to Tk 1627 crore, and 1,251 enterprises in the industries sector received up to Tk 472 crore. Agricultural Credit. The BB has set a target of Tk.14130 crore of agricultural credit and non-farm rural credit for FY13, which is 2.4 percent higher than the previous year. In the first seven months of FY13, all banks disbursed Tk.7724 crore, or 54.7 percent of the target. To achieve the annual target, the BB has asked commercial banks to expedite farm loan disbursement. The BB has also strengthened its monitoring and supervision to ensure the credit facilities for each interested farmers across the country without any harassment.

Table 6: Disbursement of Agricultural Credit and Non-Farm Rural Credit (in crore Tk)

July-January, 2012-13P July-January, 2011-12R

Disbursement Recovery Disbursement RecoveryA. Agricultural Credit

6761 (+17.38) 7190 (+17.17) 5760 (-0.56) 6137 (+8.72)

B. Non-farm 963 (+5.15) 762 (-21.16) 916 (-30.66) 967 (-16.46)


Rural CreditA+B. Total of All credits

7724 (+15.72) 7953 (+11.95) 6675 7104

Memo Items:At the end of January, 2013 At the end of January, 2012

TotalOutstanding (Crore Tk)

28287 23773

Overdue (Crore Tk)

5897 6550

Overdue as % of Outstanding

20.85 27.55

Source: Bangladesh Bank, Agricultural Credit & financial Inclusion Department. Note: P = Provisional; R = Revised; Figures in parentheses indicate percentage change over the corresponding period of the preceding year. Table 6 shows that the disbursement of agricultural credit during July-January, 2013 was higher by 17.38 percent and recovery was higher by 17.17 percent relative to the corresponding period of last year. Disbursement of non-farm rural credit (loan for the poor rural people for income generating activities) during the same period increased by 5.15 percent, and their recovery declined 21.16 percentIn respect of all types of credit (agricultural and non-farm rural credit) taken together, both disbursement and recovery increased in the July-January period by 15.70 percent and 11.95 percent, respectively.As gathered from BB sources, the total outstanding agricultural and non-farm rural credit at the end of January, 2013 was Tk 28287 crore, of which the overdue amount was Tk 5897 crore, or 20.85 percent of total outstanding. This compares favourably with the overdue-outstanding ratio of 27.55 percent at the end of January of the previous year.3.4 Capital Market Bangladesh capital market passed another gloomy year for investors. Government and the market regulator took numerous steps and assured investors of bringing back stability, but the market continued to remain depressed. The restructuring of the Bangladesh Securities and Exchange Commission (BSEC), legal actions against the manipulators, decision to demutualize the stock exchanges, and amendments to the securities rules and regulations, failed to bring back investors' confidence. All market related indicators declined. The DGEN dropped by around 370.03 points or 8.1 percent to 4219.31 points on 30 December 2012 from 4589.34 points on 1 October 2012. In the same period, total market capitalization of all shares and debentures of the listed securities lost about Tk 151 billion, dropping to Tk.2403.56 billion from Tk 2554.82 billion. To bring back stability and restore investors’ confidence in the stock market, policymakers may consider the following measures. First, the DSE and merchant banks will need to be more active to bring more private issues in the


market. Second, the DSE may persuade big listed companies to offload a bigger percentage of their shares to meet the growing demand for shares in the market. Third, brokerage houses and merchant banks can do a lot to instill confidence among investors. They may educate retail investors through orientation or training programmes for prudently managing their share portfolio. Finally, the press, the electronic media and market analysts do have a moral responsibility to present objective reports on capital market developments and carefully avoid expressing views that may be misinterpreted by the uninitiated and send wrong messages to potential investors about the market.4.0 Public Finance4.1 Public RevenueGovernment set the annual revenue collection target for the National Board of Revenue (NBR) at Tk 112259 crore for FY2012-13. Of the target, a major share of 36 percent is expected to come from Value Added Tax (VAT), followed by 31.5 percent from income tax, 12.9 percent from import duty, and 17.8 percent from supplementary duty (SD). Growth in revenue collection has, however, remained below target so far. Against the target of Tk 65484 crore for the July-January period of FY13, the NBR collected Tk 53740 crore (Table 7). There has thus been a shortfall of Tk 11744 crore in the first seven months of the fiscal. The NBR revenue collection in July-January, 2012-13 achieved 47.87 percent of the total target of Tk112259 crore for FY2012-13. In these seven months NBR revenue grew by 15.13 percent, and in order to achieve the FY13 revenue target, it will now need to grow by at least 22 percent over the previous year’s collection.

Table 7: Government Tax Revenue Collection (in crore Taka)

MonthNBR Non-

NBR GrandTotal Customs

DutiesVAT Income

TaxOthers* Total

FY13P

July 1131 2834 1410 1031 6405 363 6768August 943 2710 1431 1231 6305 221 6527September 1096 2884 2744 1474 8197 327 8525October 1093 3128 2119 1389 7729 299 8028November 1091 3163 2105 1397 7757 307 8064December 968 3089 2989 1315 8361 - -January 1207 3717 2384 1677 8985 - -July- Jan. 7530

(+3.69)21515(+17.23)

15181(+27.52)

9513(+3.90)

53740(+15.13)

- -

FY12R

July 907 2339 1177 1250 5673 307 5980


August 1090 2324 1254 1359 6027 223 6251September 957 2324 2056 1189 6525 255 6781October 1059 2654 1613 1377 6704 290 6994November 996 2723 1628 1328 6674 252 6927December 1035 2871 2327 1280 7513 289 7802January 1218 3118 1849 1374 7559 338 7897July - Jan.

7262(+17.22)

18352(+12.30)

11905(+25.37)

9156(+14.85)

46676(+16.67)

1955(+13.39)

48631(+16.54)

Notes: P=Provisional; R=Revised, *=include supplementary duties and travel tax. Figures inparentheses indicate percentage changes over the corresponding period of the previous year.

Sources: NBR and Office of the Controller General of AccountsNBR officials attribute the revenue shortfall to declining import and sluggish local and foreign investment in the country. The import of capital machinery has declined significantly, affecting revenue from import-related duties and taxes, which increased by only 3.69 percent in the July-January period of FY13 as against 17.22 percent increase in the corresponding seven months of FY12. Also, the collection of SD increased by 3.90 percent compared to 14.85 percent increase in the corresponding period of FY12. The unstable political situation has also affected businesses, causing a slowdown in revenue collection from consumption taxes. The revenue shortfall was the same Tk 11744 crore in the first six months of the fiscal, but it could not be offset in January because there has been no improvement in revenue connection due to the political gridlock in the country.NBR officials are, however, optimistic about achieving the annul target as the Board has taken a number of steps to accelerate revenue collection from untapped sources. Already in January, 2013, revenue collection increased by 18.87 percent compared to January, 2012, and by 7.36 percent over December, 2012. Although the collection of income tax from large taxpayers may remain somewhat problematic because of the decline in the profits of major corporate taxpayers in 2012, NBR authorities expect to offset the revenue loss as they have taken moves to find out the concealed incomes of big companies. They have also intensified the move to realize the stuck-up taxes through Alternate Dispute Resolution (ADR). A total of Tk 15000 crore is currently stuck up against 16000 cases pending before the High Court and Appellate Divisions of the Supreme Court. To expand the tax net, the NBR has also started sending letters to the owners of household properties to ascertain whether they are on the list of existing taxpayers.14

Data on non-NBR revenue collection is available for only the first five months till November, 2012. Total tax collection (NBR and non-NBR together) up to November, 2012 (the first five months of FY13) stood at Tk 8064 crore, which is 16.41 percent higher than the collection of Tk 6927 crore in the

14 See the article by Doulat Akter Mala in the Financial Express (a Dhaka Daily), 26 February, 2013, pp. 1 and 7, for greater details.


corresponding five months of FY12. The collection of non-NBR revenue in the five-month period up to November, 2012 was Tk 1517 crore, which is 14.23 percent higher than Tk 1328 crore collected in the corresponding months of 2011. The rate of growth in tax collection from non-NBR sources was thus lower than that of NBR revenues.4.2 Public ExpenditureThe implementation of the annual development programme (ADP) remains sluggish even though the rate of implementation rose 4 percentage points year-on-year in the first seven months of the current fiscal year. According to IMED sources, all government ministries and divisions together have utilized Tk 21039 crore in July-January of FY13, which is 38 percent of the total ADP outlay of Tk 55000 crore for the year. The rate of ADP implementation was 34 percent in the corresponding seven months of the previous fiscal year (FY12). Of the total ADP spending in July-January, 67.6 percent came from government funds and the remaining 32.4 percent from foreign aid. The mobilization of foreign aid has gone up this year. Altogether, Tk 21500 crore was allocated for ADP projects for FY13, of which 32.4 percent has been used up in the July-January period. Only 24 percent of the foreign allocation was utilized in the same period last year. Progress in the ADP implementation cannot be called at all satisfactory for the simple reason that the implementing ministries and agencies will need to implement 62 percent of their annual target in the remaining five months of the fiscal year, which will not be an easy task. As past experience tells us, attempts to complete the projects in hot haste to keep the target might cause waste of money and result in poor quality development work. The ADP utilization of different implementing agencies was pretty uneven. Ten of the 53 ministries and divisions, to which Tk 55000 crore of ADP was allocated, received 72 percent of the sum. These 10 ministries and divisions are: road and power divisions, local government division, energy and mineral resources division, and the ministries of primary and mass education, education, health and family welfare, railway, industries, and water resources. Most of these implementing ministries and divisions or their agencies failed to spend their allocation due mainly to inefficiency. The roads and power divisions utilized their funds the most, spending 54 percent of their allocation in the first seven months of the fiscal. Other notable performers were the ministry of mass and primary education that utilized 51 percent, local government division 49 percent, and the education ministry 45 percent. Of the poor performers, the health and family welfare ministry utilized 28 percent of its allocation, railway ministry 20 percent, industry ministry 11 percent, energy and mineral resources division 36 percent, and the water resources ministry 33 percent. According to the IMED data, four ministries and divisions had implemented below 10 percent of their annual target. These ministries and divisions are: the ministry of foreign affairs with only 4 percent


utilization, internal resources division of the ministry of finance 6 percent, ministry of information 7 percent, and statistics division 8 percent. As regards the implementation of Government’s revenue (non-development) budget, latest available data shows that a sum of Tk 51091 crore or 37.4 percent of the total allocation in the FY2012-13 budget was spent in the first six months of the fiscal.5.0 Performance of the External Sector5.1 ExportsTotal export receipts during July-January, the first seven months of the current fiscal year 2012-13, grew by 8.83 percent over the same period of the last fiscal year. In July-January of FY2011-12 export growth was 14.28 percent. Growing by a low 2.06 percent in the first three months of the current fiscal, exports recovered strongly and grew by 14.21 percent in the next four months till January, raising the growth rate for the first seven months of the present fiscal to 8.83 percent (Table 8). In particular, export earnings in January, 2013 (US$ 2554 million was 18.81 percent higher than the export earnings in January, 2012. The latest available data (for July-December, 2012) on category-wise breakdown of exports are shown in Table 9.

Table 8: Trends in Exports (in Million US$)

Particulars FY2010-11 FY2011-12FY2011-12July-January

FY2012-13July-January

Total Exports 22928 (+41.49) 24302 (+5.99) 13924P (+14.28) 15154P (+8.83)Source: Export Promotion Bureau. Note: Figures in parentheses indicate percentage change over the corresponding period of the previous year. P = Provisional

The export target for the July-January period is US$ 16333 million.15 The actual export earnings during this period were, however, US$ 15154 million, falling 7.22 percent short of the target. The 8.83 percent export growth in the first seven months of FY13 has been low by historical standard, even though, after declining in the earlier months of the fiscal, exports made a dramatic rebound in December, 2012, rising by 39.7 percent, mainly due to the rise in agricultural exports. Export growth was sluggish in certain major products such as knit garments, jute goods and leather. For several products such as, raw jute, tea, frozen food, and chemical products, export growth was negative (Table 9). However, the recovery of exports amid constraints of inadequate gas and power, higher bank interest rate and weak infrastructure is pretty encouraging. An increase in exports to some new markets like Russia, Japan, South Korea, Australia, Mexico, Brazil, Chile, Malaysia, South Africa, and New Zealand has also contributed to overall export growth.

Table 9: Category-wise breakdown of Exports (in Million US Dollars)

15 The export target for the current fiscal year was set at US$ 28000 million.


Particulars July-December, 2011

July-December, 2012

percentage change during July-Dec, 2012 over July-Dec, 2011

1. Raw Jute 125.37 117.74 -6.092. Jute goods, excl. carpets 351.73 384.65 +9.363. Tea 1.78 1.33 - 25.284. Frozen food 362.65 289.73 -20.115. Leather 155.22 166.74 +7.426. Woven garments 4456.97 4971.06 +11.537. Knitwear 4791.53 4975.89 +3.858. Chemical products 65.43 48.22 -26.309. Agricultural products* 206.84 257.44 +24.4610. Eng. & Electric goods 155.57 177.27 +13.9511. Others** 1101.51 1209.66 +9.82Total 11774.60 12599.73 +7.01

Source: Export Promotion Bureau. * includes vegetables, fruits and tobacco. ** residual items.Nevertheless, Bangladesh is likely to miss its FY13 export target of US$ 28000 million. In the first seven months ending in January, 2013, the country managed merely 8.83 percent export growth against the growth target of 15.2 percent during the year. Woven and knit RMG exports grew by a modest 7.6 percent during that period against the yearly target of 12.8 percent. The non-RMG sector, whose share in the country's total export is 21 percent, grew by a lowly 5.0 percent during this period against the yearly target of 24 percent. In main, the Euro zone crisis and slow recovery of the US economy have affected the country's merchandise exports. There is an added uncertainty about the growth of exports because of the US threat of reviewing the GSP privileges Bangladesh’s exports currently enjoy in the US market, which may mean anything from retention to withdrawal or suspension of GSP benefits for Bangladesh. 5.1.1 The GSP Issue and Bangladesh’s ConcernsBangladesh enjoys duty-free market access/GSP facilities from several countries like EU-27, Canada, Australia, New Zealand, and Japan. Bangladesh enjoys GSP facilities in the US market as well, although the volume of exports to that country under GSP is very small. Bangladesh also enjoys duty free market access to EU countries under the 'EBA initiative’. Both the EU countries and the USA are now very much concerned about safety of work places, trade union rights, and adherence to compliance requirements in Bangladesh. The recent move by the US to review the GSP facility for Bangladesh has not come all on a sudden. For many years the United States has been advocating trade unions in Bangladesh garment factories and making repeated requests to address the issues of labour rights, better working condition for workers, workplace safety, wages etc. The EU, too, holds similar views on labour


standards and worker rights in Bangladesh but these requests have never been seriously heeded by government or by the related industry. The devastating fire accident at Tazreen Fashions at Ashulia on 24 November, 2012 sent a negative signal to US buyers, which might impact garment imports from Bangladesh. In fact, the Tazreen fire has given the US textile lobby and the Congress a strong proof of unacceptably poor worker safety conditions and exploitative labour market practices to justify their long-held opposition to garment imports from Bangladesh. They are now lobbying for imposing sanctions against Bangladesh’s garment exports. At the least, the larger buying houses may now be hesitant to import or delay their purchase decisions unless they are satisfied that the Bangladesh garment sector has taken convincing steps to improve its labour market practices. In such a charged environment, the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) must immediately take adequate steps to improve employment practices and safety standard in factories of all its member firms as per internationally acceptable workplace safety standards. The garment entrepreneurs must also rethink about their private profit motive and take due care of workers by suitably increasing their compensation and benefits that are essential for maintaining peace and workplace discipline, which is also crucial for raising worker productivity and with that the profit of the enterprises. It goes without saying that the flexibility of labour market has given Bangladesh’s garment sector a competitive edge over many other countries, but inadequate public policy and regulations in respect of workers’ wages and benefits has resulted in an utter neglect of worker’s interest by most entrepreneurs, driven by pure short-term greed. While apparel makers are making fortunes, their workers are poorly paid, earning as low as $37 a month, though they helped bring home $19 billion in apparel exports in 2011-12, about 79 percent of Bangladesh’s total export earnings.Government provides duty and tax benefits to factory owners. Industrial police has also been constituted for protecting the sector. When the industry receives so much incentive from the state, giving workers poor wages and benefits cannot but be called sheer irresponsible behaviour on the part of the entrepreneurs. Weak public policy relating to health and safety standards at the workplace, compounded by irresponsible entrepreneurial behaviour, has led to serious downside risks in terms of health and loss of life. The Tazreen Fashions fire on November 24 is a stark example. The European Union is very much concerned about compliance and safety issues in Bangladesh’s garment factories. They blame factory owners, government inspectors, and buyers for the poor safety measures at the factories. The Ashulia incident is a wakeup call for both the garment sector entrepreneurs and the government. This is indeed an immediate development risk to Bangladesh, and if it is not properly handled through appropriate public policy and the adoption of industry-wide responsible employment practices, the future of the sector can be in jeopardy. Already in the US and the Western


European nations, badly bruised by the 2007-08 global financial crises and the ongoing European debt crisis, there is a growing opposition to foreign trade and investment in the name of protecting domestic jobs. These domestic economic developments in the US and the EU coupled with the inadequate safety standard and the perceived exploitation of workers in Bangladesh may pose serious risk to the country’s garment sector. Government should therefore urgently review its policy for protecting the health and safety of workers at the workplace and ensure that workers get a decent minimum wage and benefits which are necessary to keep them in good health and fit for work. At the political level, Government should quickly resolve the outstanding differences with the US over the issue of the proposed Trade and Investment Cooperation Framework Agreement (TICFA) and sign the Agreement. The United States has long been asking Bangladesh to sign the TICFA agreement, and on quite a few occasions the US Government complained of the lack of seriousness on the part of Bangladesh to sign the TICFA, which contains strict provisions relating to workers’ protection. Also, it is said that the US authorities have recently given to understand that better market access facilities, including the continuation of GSP privileges, will be contingent on Bangladesh's signing the TICFA. Experts conversant with US diplomacy and politics are hopeful that the signing of the TICFA will soften the attitude of the US hardliners opposed to importing garments from Bangladesh. They also believe that TICFA would serve the long-term interest of Bangladesh exports in the US market. Government should take note of the position taken by EU and US and take quick decision on the matter. Not only the garment sector, but private sector industry and business as whole should take adequate steps to improve employment practices and workplace safety of globally acceptable standard. Industry and business leaders of the country should take note of the predicament of the country’s garments sector because of the uncertainty over the continuation of GSP benefits in US and EU countries, generated by non-compliance of workplace safety standard and worker rights by most of the country’s garment factories.5.1.2 The Need for Export Diversification to Enhance Export GrowthBangladesh’s exports are heavily concentrated in a narrow range of products. Apparel products alone account for 78.5 percent of the country’s exports. Jute and jute goods, leather, frozen fish and home textiles contribute another 12.0 percent, raising the total to 90.5 percent (Table10). Just as exports are concentrated on a narrow range of products, these are also concentrated in a limited number of destinations. About 82 percent of the country’s exports go to five major destinations, viz., EU, USA, Canada, Turkey and India.The high commodity and country concentration makes exports vulnerable to often adverse international circumstances. Diversification of export products may enhance opportunities to increase export earnings from the traditional as well as new export markets. Product diversification will also open opportunities for availing GSP facilities in US and EU markets. Currently, only 0.5 percent of Bangladesh’s exports to the US enter duty-free under the


GSP facility, although the US allows duty-free import of some 4800 products under its GSP scheme. Product diversification beyond ready-made garments will enable Bangladesh products enter the US market in a big way under the US-GSP facility, and the EU market under its EBA (everything but arms) initiative as well as its recently relaxed Rules of Origin. Similarly, country diversification will enable Bangladesh enter the markets of a growing number of fast growing emerging economies with rising incomes and increased import demand and thus lessen the dependence on the traditional trading partners in the West where incomes are growing slowly and import demand remains stagnant.

Table 10: Share of Commodities and Countries in Total Exports, 1972-73 and 2011-12

(Value in Million US$)

Commodity and Country 1972-73 2011-12Commodity Export Value Share(%) Export Value Share (%)Apparel 0.00 0.00 19089.73 78.55Jute and jute goods 313.10 89.86 973.61 4.01Frozen Fish 3.06 0.88 598.42 2.46Leather and Leather Goods 16.20 4.65 429.52 1.77Home Textile 0.00 0.00 906.07 3.73Sub-total 332.36 95.39 21997.35 90.52Other 16.06 4.61 2304.55 9.48Total 348.42 100.00 24301.90 100.00CountryUSA 71.39 20.49 5100.91 21.00EU Countries 114.96 32.99 12740.33 52.46Canada 7.03 2.02 993.67 4.09Turkey 0.19 0.05 551.88 2.27India 7.71 2.21 498.42 2.05Sub-total 201.28 57.76 19885.21 81.87Other 147.14 42.24 4416,69 18.13Total 348.42 100.00 24301.90 100.00

Source: Export Promotion Bureau.

In this backdrop, export diversification is essential to increase Bangladesh’s export earnings. At the same time it is necessary to improve competitiveness of the country’s products. To make the most of its trade opportunities, Bangladesh needs to follow a strategic game plan, invest in infrastructure, technology and skills development, streamline policies, and improve quality and safety standards. Bangladesh should go for a comprehensive and pragmatic policy to become a more competitive trading country by broadening the production range, and creating favourable conditions that would facilitate the expansion and diversification of exports.16

16 See the article by Shubhashish Bose, “Influence and Necessity of Product and Market Diversification as Means of Export Growth of Bangladesh.” The Daily Star, 1 January, 2013.


5.2 ImportsImport payments in the first six months (July-December) of FY13 decreased by 7.62 percent to US$ 16442 million from US$ 17799 million in the corresponding months of the previous fiscal. Import payment in December, 2012, the last month of the first half of the present fiscal, declined by US$ 339 million or 11.64 percent to US$ 2890 million, from US$ 3141 million in the previous month (November, 2012). This was also 11.07 percent lower compared to the position in December, 2011 (Table 11). According to BB data, import payments declined due to lower import of all categories of goods. Imports of capital machinery decreased by 23.68 percent, that of petroleum & petroleum products by 5.96 percent, industrial raw materials by 5.30 percent, machinery for miscellaneous industries by 9.88 percent, intermediate goods by 9.94 percent, consumer goods by 4.48 percent, and the residual imports by 29.44 percent.17

Table11: Import Payments, Import L/C Settlement and Import L/Cs opened

Month Import Payments (c&f) Import L/C Settlement Import L/Cs opened

July-JuneFY2010-11 FY2011-12 FY2010-11

FY2011-12

FY2010-11FY2011-12

33658(+41.79)

35516(+5.52)

31953(+38.61)

34815(+8.95)

38582(+34.04)

37036(-4.01)

FY2011-12R FY2012-13P FY2011-12R FY2012-

13P FY2011-12R FY2012-13P

July 2934 2835 2790 2836 3171 2865

August 2555 2520 2690 2537 3182 2614

September 3298 2969 3071 2730 3462 3269

October 2977 2639 3540 2653 3214 2777

November 3141 2909 3286 2589 2687 2675

December 2890 2570 2486 2604 2505 2854

July-Dec.17799(+16.81)

16442(-7.62)

17863(+18.99)

15949(-10.72)

18221(-5.75)

17054(-6.41)

Notes: P=Provisional, R=Revised. Figures in parentheses indicate percentage change over the corresponding period of the previous year.

Source: Bangladesh Bank: Statistics Department, Foreign Exchange Policy Department.

Lower imports do, of course, lessen pressures on the balance of payments, but a fall in development imports (capital machinery, intermediate inputs and raw materials for industries) can hurt economic growth. The reported declines in these essential imports in July-December of the present fiscal do not,

17 Bangladesh Bank, Statistics Department.


therefore, bode well for the country’s economic activity and growth in the short and the medium term. In July-December, 2012 major declines occurred in the import of capital machinery for export-oriented industries, such as, leather, shipbuilding, packaging, information technology (IT), jute, food processing, and textile.18 The leather industry registered the biggest year-on-year decline in capital machinery import, by 75.36 percent, followed by shipbuilding (64.05 percent), packaging (42.74 percent), IT and data processing (39.66 percent), jute (30.33 percent), food processing (25.28 percent), and textile (12.72 percent). Imports of capital machinery by the garment industry, which accounts for nearly four-fifths of the country’s export earnings, increased by a modest 4.29 percent. However, for certain domestic market-oriented industries the import of capital machinery increased significantly. For example, the import of capital machinery for electronics industry rose by 184.25 percent, for ceramics and melamine (108.44 percent), printing (63.26 percent), plastics (47.35 percent), steel & engineering (40.33 percent), and telecom (39.93 percent). On the other hand, machinery import by the power and energy sector declined by 49.58 percent.19 In line with the decline in import payments, the settlement of import L/Cs underwent a 10.72 percent decline during July-December, 2012 (Table11). The L/C settlement for the import of capital machinery by the garment industry, however, increased by 4 percent during this period. Import L/Cs worth US$ 15949 million were settled during these six months compared to US$ 17863 million during the corresponding six months of 2011. Total L/C settlement in the month of December, 2012, of course, increased over the previous month, but a paltry 0.5 percent increase during the month does not indicate a reversal of the declining trend that set in since the beginning of the present fiscal year. Fresh opening of import L/Cs during July-December, 2012 decreased overall by 6.41 percent to US$ 17054 million compared to the corresponding period of the previous fiscal (Table 12). In July-December of the previous fiscal year, the fresh opening of L/Cs declined by 5.75 percent. The negative growth in L/C opening indicates that import payment may not shoot up in near future to put pressure on balance of payments and the exchange rate.20 However, while the fresh opening of L/Cs, overall, declined in July-December, 2012, disaggregated data show an increase in L/C opening in

18 Bangladesh Bank, Foreign Exchange Policy Department.19 Ibid. See also the paper based on BB data by Rejaul Karim Byron in Star Business, The Daily Star, 18 March, 2013.20 Bangladesh Bank. Major Economic Indicators: Monthly Update, February 2013.


certain categories of imports and decline in others. Thus, while fresh opening of L/Cs decreased for the import of consumer goods, industrial raw materials, petroleum & petroleum products, new L/Cs opened for the import of intermediate goods, capital machinery, and machinery for miscellaneous industry increased in July-December, 2012 (Table 12).21 A further break-up of L/Cs opened for different categories of imports, as evident in BB data, shows that L/C opening in July-December, 2012 for machinery import increased by 258.28 percent for the packaging industry, 76.56 percent for the pharmaceutical industry, 50.09 percent for the garment industry, and 12.87 percent for the textile industry. On the other hand, the opening of fresh L/Cs for imports of capital machinery fell significantly for two export-oriented industries, viz. leather industry (57.53 percent), and jute industry (39.28 percent). Among domestic market-oriented industries, big declines in L/C opening occurred in electronics (65 percent), and ceramic and melamine industries (59 percent).22 Weak investor confidence in the economy amid the uncertainty generated by the volatile political situation in the country could be responsible for lower imports and low volume of import L/Cs opened by business and industry.

Table 12: Sector-wise Fresh opening of Import L/Cs and Sectoral Distribution of L/C opening

Sector Fresh L/C Opening (in US$ million)Sectoral Distribution in L/C Opening (in %)

July-Dec, 2011

July-Dec, 2012

Change(%)

July-Dec, 2011

July-Dec, 2012

Consumer goods 2124 1662 -21.78 11.66 9.74

Intermediate goods 1382 1536 +11.08 7.59 9.00

Industrial raw materials 7181 6890 -4.05 39.41 40.40

Capital machinery 1074 1092 +1.64 5.90 6.40

Machinery for Misc. Industry 1742 1745 +0.19 9.56 10.23

Petroleum & petroleum products

2316 1986 -14.24 12.71 11.64

Others 2402 2144 -10.74 13.18 12.57

Total 18221 17054 -6.41 100.00 100.00

Source: Bangladesh Bank, Foreign Exchange Policy Department.

5.3 Remittances

21 For capital machinery and machinery for miscellaneous industry, the percentage increase in opening of L/Cs was, however, quite low, 1.64% and 0.19%, respectively.22 Bangladesh Bank, Foreign Exchange Policy Department.


Inward remittances from migrant workers working abroad remained strong in July-January, 2012-13 and continued to play an important role in strengthening the current account balance and foreign exchange reserves of the country. Total remittance receipts during this period increased by 19.67 percent to US$ 8724 million as against US$ 7290 million during July-January, 2011-12 (Table 13). The remittance in January, 2013 was US$ 1327 million higher by 3.51 percent from the month of December receipts. It was also 8.68 percent higher than the US$ 1221 million received in the month of January last year (2012). The remittance in December, 2012 was also 16.33 percent higher over the previous month of November of the year. The December, 2012 remittance was also 11.78 percent higher than the inflow in the month of December, 2011. The rise in the remittances, despite the continuous appreciation of the Taka against the US Dollar, is quite encouraging. In order, however, to maintain a steady inflow of remittances the Taka should not be allowed to appreciate further.

Table 13: Inward Remittances in Bangladesh (in million US$)Year July August Septembe

rOctober November December January July-

Jan

2011-12

1016 1102 855 1039 909 1147 1221 7290(-2.08)

2012-13P

1201 1179 1179 1454 1102 1282 1327 8724(+19.67)

Source: Bangladesh Bank, Foreign Exchange Policy Department. Not: P = Provisional. Figures in parentheses indicate percentage change over the corresponding period of the previous year.

Most private commercial banks along with the state-owned ones are sincerely trying to increase the flow of inward remittances from the Middle East, the United Kingdom, Malaysia, Singapore, Italy and the United States. Among commercial banks, the Islami Bank Bangladesh Limited received the highest amount of remittance (US$353.04 million) in December 2012. Among the state-owned banks, the Sonali Bank Limited received the highest amount, US$153.52 million, in remittance from the expatriate Bangladeshis.

5.4 Foreign Aid and Foreign Direct Investment (FDI)

Foreign Aid. Government received gross foreign aid worth US$ 1481.92 million in July-January of the current fiscal, which was US$ 450 million or 43.61 percent higher than US$ 1031.92 million received in the corresponding


period of FY12 (Table 14). Of the total US$ 1482 million disbursed in July-January of FY13, US$ 1050 million was in the form of loan and the rest was in grant. The ADB was the single biggest multilateral donor agency and disbursed US$ 382 million, and the World Bank disbursed US$ 343 million. JICA, Bangladesh’s largest bilateral donor, disbursed US$ 222 million, the United Nations system disbursed US$ 222 million, and China disbursed US$ 94 million during the period. The government repaid US$ 611.10 million during July-January of FY13 toward repayment of principal for its outstanding loans, as against the repayment of US$ 481.58 million during July-January of FY12. Net receipt of foreign aid during July-January, 2012-13 stood higher at US$ 870.82 million, which was 58.36 percent higher than in the corresponding months of the previous fiscal.

Table 14: Foreign AidPeriod Food

AidProject Aid

Total Aid

Repayment(Principal)

Net Aid

Food Aid

Project Aid

TotalAid

Repayment(Principal)

Net Aid

FY2011-12 FY2012-13JulyJanuary

30.84 1001.08 1031.92 481.58 550.35 0.00 1481.92 1481.92(+43.61)

611.10 870.82(+58.36)

Source: Economic Relations Department, Ministry of Finance. Note: P = Provisional. Figures in parentheses indicate percentage change over the corresponding period of the previous year.

However, while aid flows increased in the July-January period of FY13, fresh donor commitment marked a sharp decline in the same period as major donors, including the World Bank and ADB, were cautious in lending to Bangladesh. According to ERD sources, donors committed US$ 2290 million in loans and grants during the July-January period of FY13, which was US$ 1710 million less than the commitment of US$ 4000 million in the corresponding period of FY12. Of the US$ 2290 million aid commitments received in the first seven months, US$ 1860 million is in the form of loans and US$ 430 million in grants. The ERD is hopeful of receiving the remainder of the committed aid during the remaining period of the current fiscal.Foreign Direct Investment (FDI). The inflow of foreign direct investment (FDI) witnessed a slight improvement in the first six months of the current fiscal (see Table 15). According to BB data, FDI inflow in July-December, 2012 was US$ 750 million as against US$ 698 million in July-December, 2011. The Board of Investment (BoI) received 1,855 investment proposals worth Tk.713.48 billion in 2012, of which 200 proposals were joint venture & foreign investment proposals worth Tk.212.70 billion. The BoI received the highest number of investment proposals from the service sector entrepreneurs


(62.0% of all), followed by textile sector (13.0%), agriculture industry (9.4%), other industry (7.9%), and chemical sector (7.7%). The investment proposals could generate employment for a total of 84,842 people. It is to be noted, however, that the reported figures are merely proposals. The reality may be different because many foreign investors that show preliminary interest to invest in Bangladesh may ultimately hesitate to invest because of many inherent problems. During January-December, 2012, India, South Korea, Singapore, UAE, USA, UK, Malaysia, Japan, Norway, KSA and the Netherlands appeared on the BOI's list as major FDI providers to Bangladesh. Some other countries such as China, Germany, Hong Kong, and Sri Lanka are also showing interest to make fresh investments in this country. A good number of foreign businesses have started to make feasibility studies about the investment potential in Bangladesh. Bangladesh has immense potential to attract large amount of FDI by virtue of its cheap labor cost, adequate manpower and attractive incentives provided by the government, but due to the confrontational politics and political uncertainties in the country, intending foreign investors may be hesitant to invest in the country.Besides political uncertainties, lack of security, shortage of energy, and poor transportation infrastructure, there are several other notable obstacles that impede the inflow of FDI into the country. To name a few, the obstacles are: complex regulatory process that delays project approval, uncertain legal protection because of very long time taken in settling industrial disputes, outdated Companies Act, VAT laws and income tax ordinance, inadequate IPR protection, congestion in ports, high cost of local financing, frequent change in policies related to import duties on raw materials, machinery etc., lack of clarity on many laws affecting industries, and so on.23 Because of these negative factors, the actual inflows of FDI in Bangladesh have always remained small and never rose to even close to 1 percent of GDP. Net FDI rose to US$ 750 million in July-December of FY13, up 7.44 percent from US$ 698 million in the corresponding period of FY12, but the country needs a big jump in FDI inflows to supplement domestically available resources for investment.5.5 Balance of PaymentsTrade balance recorded a lower deficit of US$ 3675 million in the first half (July-December) of FY13 compared to the deficit of US$ 5580 million in the corresponding period of FY12. The lower trade deficit, coupled with the large inflow of workers’ remittances contributed to a current account surplus of US$

23 These impediments to FDI were cited in the report prepared by the Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka, on the performance of the Bangladesh economy during the Second Quarter (October-December) of FY2012-13.


850 million during July-December of FY13. This, together with the strong financial account surplus of US$ 1920 million, resulted in a surplus of US$ 2426 million in overall balances during July-December of FY13 against a deficit of US$ 998 million during July-December of FY12 (Table 15).

Table 15: Balance of Payments (in million US$)Items July-December,

FY12RJuly-December

of FY13PFY13

Projection*

Trade Balance -5580 -3675 -8637Services -1626 -2105 -3802Primary Income -779 -1032 -1829Secondary Income 6339 7662 15343Official Transfers 52 18Private Transfers 6287 7644Of which: Workers’ Remittances 6016 7331 14769Current Account Balance -1646 850 1075Capital Account 287 237 650Financial Account 781 1920 501Foreign Direct Investment (net) 698 750 1250Errors and Omissions -420 -581 0.0Overall Balance -384 1923 2226Source: Statistics Department, Bangladesh Bank. Notes: P=Provisional; R=Revised; *Bangladesh Bank’s projection appearing in Monetary Policy Statement, January-June 2013.

5.6 Exchange Rate and Foreign Exchange Reserve

Exchange Rate. As data in Table 16 will show, the Taka appreciated by 2.57 percent in terms of US dollar in 2012 calendar year due to higher remittance, increased foreign aid flow and decline in import. However, very recent trend shows that the rate of appreciation of the Taka has slowed down. Thus, while at the end of January, 2013 the Taka appreciated by 0.70 percent from its level at the end of December, 2012, the Taka appreciated by a lower rate of 0.45 percent in February from its January level. The appreciation of Taka against US dollar has continued despite the BB’s purchase of the US currency to stabilize the foreign exchange market.

Table 16: Monthly Exchange Rate

MonthFY12R (Taka per US$) FY13P (Taka per US$)

Month Average End Month Month Average End Month

July 74.4835 74.7478 81.7715 81.6049


August 74.4497 74.0920 81.5160 81.7199

September 74.5746 75.2999 81.7286 81.5900

October 75.7187 76.2000 81.3123 81.2005

November 76.4780 76.9221 81.4540 81.3811

December 76.6659 81.9894 80.5349 79.7521

January 83.4233 84.4405 79.5484 79.2000

February 83.0925 81.8480 79.0000 78.8500

March 81.7064 81.8295 - -

April 81.8160 81.8995 - -

May 81.8498 81.9400 - -

June 81.8200 81.8064 - -

Notes: P=Provisional; R=Revised; Exchange rate represents the mid-value of buying and selling rates. Source: Bangladesh Bank, Statistics Department and Monetary Policy Department.

Foreign Exchange Reserve. BB's gross foreign exchange reserves stood higher at US$ 13076 million (with ACU liability of US$ 430.65 million) as of end January, 2013, against US$ 12751 (with ACU liability of US$ 589.14 million) at end December, 2012 (Table 17). The gross foreign exchange reserves, without ACU liability, is equivalent to import payments of 4.44 months, calculated on the basis of average monthly import of US$ 2846.62 million in the preceding 12 months (January-December, 2012). The reserves increased mainly due to the rise in inward remittances and foreign aid as well as lower import pressure. The BB has continued purchasing US dollars from the commercial banks directly, which has also contributed to the increase in the foreign exchange reserve.

Table 17: Gross Foreign Exchange Reserve of Bangladesh Bank (in Million US$)A. Outstanding Stock at the end of the year

2009-1010750

(+43.89)

2010-1110912(+1.51)

2011-1210364(-5.01)

B. Outstanding Stock at the end of the month

Month / Year 2011-12R 2012-13P

July 10381 10570August 10932 11435

September 9884 11256October 10338 12339

November 9285 11754December 9635 12751January 9386 13076


Source: Bangladesh Bank, Statistics Department. Notes: P=Provisional; R=Revised.

According to Bangladesh Bank data, the gross foreign exchange balances held by commercial banks abroad stood higher at US$ 1303.19 million at end December, 2012 against US$ 692.84 million at end November, 2012. This was also higher than the balance of US$ 930.81 million at the end of December, 2011.

6.0 Price Situation

Calculated by using the old base year 1995-96, the 12-month average annual inflation rate moved downward over the past few months (Table 18). The overall (general) inflation rate declined by 2.76 percentage points from 10.96 percent in February, 2012 to 8.20 percent in February, 2013, largely due to the increased supplies of food grains but also reflecting in part the impact of monetary policy. Food inflation declined most spectacularly by 5.59 percentage points between January, 2012 and January, 2013. Non-food inflation, however, was consistently rising during the second half of FY2011-12 and the first half of FY2012-13. From 7.61 percent in January, 2012 non-food inflation rose to 11.45 percent in December, 2012, mainly because of the increase in the price of electricity, house rent and other non-food items, but began moving downward from January, 2013.

The point-to-point inflation, too, according to the old base year of 1995-96, maintained its downward trend from January, 2012 to January, 2013. In this one year period, the overall inflation rate declined from 11.59 percent to 7.38 percent, food inflation declined from 10.90 percent to 7.21 percent, and non-food inflation declined from 13.16 percent to 7.79 percent.

However, the general inflation rate rose by 0.49 percentage points to 7.87 percent in February, 2013 from 7.38 percent in the previous month, mainly because of the rise in food prices. In February, 2013, food inflation surged 1.13 percentage points to 8.34 percent. Non-food inflation, however, maintained the downward spell and declined to 7.12 percent in February from the previous month’s 7.79 percent.

The rise in food inflation may be related to supply disruptions caused by violent political clashes across the country but there may be other causes as well. The rise in transportation costs due to the rise in fuel prices in January may have caused the increase in the price of rice in February. The increase in the rural people’s purchasing power in recent times due to remittances by expatriate workers to their families might also have contributed to the rise in food inflation.


Table 18: Inflation Rate (%) at National Level (Base: FY1995-96 = 100)

Period

Twelve-Month Average Basis Point-to-Point BasisGeneral Food Non-

foodGeneral Food Non-

food2011-12December 10.71 12.83 6.83 10.63 10.40 11.38January 10.91 12.73 7.61 11.59 10.90 13.16February 10.96 12.39 8.38 10.43 8.92 13.57March 10.92 11.91 9.19 10.10 8.28 13.96June 10.62 10.47 11.15 8.56 7.08 11.722012-13P

July 10.37 9.87 11.57 8.03 6.30 11.54August 10.08 9.41 11.62 7.93 7.10 9.59September 9.69 8.77 11.70 7.39 6.16 9.95October 9.33 8.16 11.81 7.22 5.57 10.46November 8.98 7.68 11.71 7.41 6.45 9.31December 8.74 7.43 11.45 7.69 7.33 8.43January 8.40 7.14 10.99 7.38 7.21 7.79February 8.20 N.A. N.A. 7.87 8.34 7.12

Source: Bangladesh Bureau of Statistics. Note: P = Provisional

The decline in non-food inflation is welcome news and is also in line with the central bank’s monetary policy goals, but a further increase in the price of electricity, gas and fuel oils, which is now being contemplated by government under donor pressure, may fuel non-food inflation.

In July 2012, the BBS started calculating inflation by using 2005-06 as the new base year replacing the previous base year of 1995-96. According to the new base-year, the point-to-point non-food inflation maintained its downward trend, falling from 11.28 percent in October, 2012 to 8.44 percent in February, 2013. However, the general and the food inflation rates started increasing since September, 2012, the only exception being in January when they dropped to 6.62 percent and 5.02 percent, respectively. In February, the general inflation rate rose to 7.84 percent, and food inflation rose to 7.45 percent (Table 19).

Table 19: Inflation Rate (%) at National Level on Point-to-Point Basis (Base: FY2005-06 = 100)

2012-13P

General Food Non-foodJuly 5.21 2.23 9.94August 4.97 2.25 9.29September 4.96 1.75 10.18


October 5.86 2.51 11.28November 6.55 3.94 10.68December 7.14 5.28 10.03January 6.62 5.02 9.09February 7.84 7.45 8.44

Source: Bangladesh Bureau of Statistics. Note: P = Provisional

Meanwhile, a report by Bangladesh Bank for the second quarter of FY13 expressed optimism that the inflation rate will remain in single digit in FY2012-13 if there is a stable food supply. The report, however, adds that the possibility of upward adjustment of fuel prices and volatility in the global commodity market or other prolonged disruptions of economic activity caused by political violence, blockades and shutdowns may push the inflation rate further in the coming days and prevent reaching the inflation target of 7.5 percent this year. There are also other risks at work that may prevent achieving the FY13 inflation target of 7.5 percent. The high remittance inflow may put an upward pressure on asset prices and non-food inflation. A possible rise in global food prices may influence the domestic prices of food. Oil prices may remain volatile if political conditions, in particular the geopolitical uncertainty centering on Iran, worsen in the Middle East. 24

The point-to-point inflation, according to the old base year of 1995-96, has maintained its downward trend since January, 2012. According to the new base-year, the point-to-point non-food inflation has maintained the downward trend, but the general and the food inflation rates started increasing since September, 2012.7.0 Concluding ObservationsBangladesh’s economic performance in 20011-12 was better than many other countries at comparative levels of development in coping with the adverse effects of the global economic crisis. A recent UN report considered Bangladesh's growth performance as the second best in South Asia, growing at 6.2 percent just behind Sri Lanka in that year, despite infrastructural constraints, energy crises, and political chaos and uncertainty.25 This means that Bangladesh economy could perform much better if there were no infrastructural constraints and political frictions and if governance were a trifle more efficient and responsive to people’s needs.

24 See Star Business, The Daily Star, 8 March, 2013.25 United Nations. World Economic Situation and Prospects 2013.


In the present fiscal, government has set the GDP growth target at 7.2 percent and the inflation target at 7.5 percent. However, given the weak external impetus to growth due to slow growth of exports, aid and foreign investment, and because of the prevailing socio-economic and structural impediments, in particular weak infrastructure, administrative incompetence, pervasive corruption, and weak investment climate, it may not be very easy to achieve the GDP and inflations targets. Government is, however, strongly committed to overcoming the identified obstacles to growth. The agriculture sector has shown signs of good growth thus far in the present fiscal, and government has also assured continuing support with inputs and finance to carry forward the sector’s growth, but growth of industry and services sectors will perhaps remain below last year’s. The performance of these two sectors must be improved by removing bottlenecks in physical infrastructure and the persistent crisis in power and energy sectors. There are no doubt strong official commitments to find solutions to these problems, but there should be equally strong efforts needed to match these commitments. Also there is the need for close surveillance of macroeconomic developments, and for creating policy space by pressing ahead with tax reforms, harnessing concessional external resources, and improving public expenditure management. Different donor agencies have projected Bangladesh’s economic growth to be below 6.0 percent. Even the country’s own central bank has projected the GDP growth to be between 6.1-6.4 percent.26 Considering all available opportunities as well as the prevailing constraints to growth, this paper concludes that the country should be able to achieve a 6.14 percent GDP growth in the present fiscal.27 This rate of growth, if it can be achieved, will be quite respectable when we consider that world GDP growth is forecast to grow by just 2.4 percent in 2013, and India’s GDP is forecast to grow moderately to 6.1 percent from 5.5 percent in 2012, and most developing countries are forecast to grow even lower. There is, however, the caveat that prolonged disruptions of economic activity in Bangladesh caused by political violence, blockades and shutdowns may make even the lowered-down estimate of 6.14 percent GDP growth very difficult to achieve. The political unrest is also very likely to push

26 Bangladesh Bank, Monetary Policy Statement, January-June 2013, p.5.27 See the Appendix Table for the expected growth in different sectors and sub-sectors of GDP.


up the inflation rate and prevent reaching the inflation target of 7.5 percent this year.In the face of prolonged global recession that affects exports, aid and foreign investment, Bangladesh will have to substantially rely on domestic sources for accelerating economic growth. In fact, as mentioned in the UN report cited earlier, strong growth in private investment and consumption, backed by a steady increase in remittances, contributed to economic expansion in Bangladesh during the period of the recent global economic slowdown.28

However, while remittance growth in Bangladesh remains robust in 2013, there are signs of a significant decline in the growth of domestic demand for consumption because of lower income of farmers due to lower prices of rice in the local market. Steps should be taken to maintain the growth of crop agriculture and to ensure fair prices to farmers for their products, and at the same time protect the interest of consumers by providing selective subsidies.Domestic demand may be increased through appropriate monetary and fiscal policy. The recently announced monetary policy for the second half of FY13 is seen as growth friendly but it should be properly complemented by fiscal policy. Increased public expenditure on infrastructure facilities and a faster implementation of the ADP will increase the cash flow to the economy and raise consumer demand, and at the same time remove the physical impediments to growth. Concerns over budget deficit should not deter government from raising expenditures on social sectors, such as education and health, as well as safety net programmes. All these expenditures will stimulate aggregate demand in the economy.The demand for private investment remains subdued due to poor investment climate manifest in weak physical infrastructure, inefficient and politicized administration that fails to deliver the desired services to investors, and deteriorating law and order conditions. FDI inflows, in particular, have remained small due to problems in governance like policy discontinuity, red tapes, administrative hassles, corruption in public services, and ineffective implementation of the legal system, high and growing investment-related costs, an uncertain political environment, unsatisfactory law and order situation, poor conditions of infrastructure (roads, ports etc), shortage of skilled labour, and trade policy-related impediments, all of which vitiate the investment climate. The quality of infrastructure services is very poor, which increases the cost of doing business. Inadequate and erratic supply of electricity and gas discourages investors to invest in the country. Port services in Bangladesh are worse than in any other Asian country. The telecommunication network is inadequate, inefficient and expensive although a well-developed telecommunications sector is very important for business and industry. Much

28 United Nations, op cit.


faster progress in these infrastructures will be needed to improve the investment climate and make the country an attractive destination for overseas investors. The presence of a skilled workforce with adequate knowledge is also essential for a healthy investment climate. Proper policy should be framed and implemented focusing on skill development of workers in major sectors like RMG and shipbuilding. The recent fire accidents in RMG factories have worried foreign investors as well as the US government and the EU. Government and RMG leaders should be proactive in tightening compliance standards at their factories. Structural reforms, voluntarily or under donor pressure, have moved forward. Fiscal policy is now broadly on track, but underperforming tax collection related to import slowdown will require strong actions to widen the tax base and raise more revenues from non-trade sources like income, value added, and property. More aggressive tax enforcement would buttress tax collection.The progress on financial sector reforms must also be accelerated. To strengthen governance in the financial sector, amendments in banking laws should move forward to keep risks in check, especially those in state-owned banks. The central bank must fully embrace its role as chief banking regulator. Greater oversight of the state-owned banks, aggressive loan recoveries, and strict enforcement of the new loan classification and provisioning standards will ensure financial stability. Timely action on all fronts will allow Bangladesh to reap full gains from a global economic recovery. The most important challenge, however, is to shun political violence and solve the present political uncertainty, which may derail the economy.

Share in GDP (%) Growth Rate (%)

Sector 2008-09 2009-10 2010-11 2011-12P 2008-09 2009-10 2010-11 2011-12P 2012-13E

1. Agriculture20.48 20.29 20.01 19.29 4.12 5.24 5.13 2.53 3.88

Crops & Horticulture 11.43 11.42 11.32 10.74 4.02 6.13 5.65 0.94 3.75

Animal Farming 2.73 2.65 2.58 2.50 3.48 3.38 3.48 3.39 3.30

Forestry 1.75 1.73 1.69 1.66 5.69 5.23 3.90 4.42 4.00

Fishing4.58 4.49 4.43 4.39 4.16 4.15 5.25 5.38 4.50

2. Industry29.86 29.93 30.38 31.26 6.46 6.49 8.20 9.47 7.90

Mining & Quarrying 1.25 1.29 1.26 1.26 9.84 8.80 4.80 6.25 6.25

Manufacturing17.90 17.94 18.42 19.01 6.68 6.50 9.45 9.76 8.10

Large-scale12.71 12.68 13.20 13.75 6.58 5.98 10.94 10.78 8.00


Small-scale 5.18 5.26 5.22 5.26 6.90 7.77 5.84 7.18 7.60

Power, Gas, Water 1.59 1.60 1.60 1.72 5.91 7.28 6.63 14.11 16.50

Construction9.12 9.10 9.09 9.27 5.70 6.01 6.51 8.51 8.86

3. Services49.66 49.78 49.60 49.45 6.32 6.47 6.22 6.06 5.90

Wholesale & Retail trade 14.41 14.36 14.33 14.26 6.21 5.87 6.31 5.88 5.00

Transport & Com. 10.65 10.79 10.70 10.72 8.01 7.69 5.69 6.58 6.00

Real Estate etc.7.34 7.18 7.00 6.85 3.81 3.89 3.96 4.05 4.25

Health and Social Work 2.34 2.38 2.42 2.45 7.20 8.10 8.35 7.94 9.00

Community, Social, Personal Services

6.93 6.83 6.71 6.61 4.70 4.72 4.70 4.76 4.70

Education2.64 2.71 2.78 2.84 8.05 9.24 9.36 8.61 8.75

Hotel & Restaurant 0.71 0.72 0.73 0.74 7.58 7.61 7.55 7.60 5.00

Financial Intermediation 1.86 1.95 2.01 2.07 8.99 11.64 9.64 9.52 8.00

Public Adm. & Defense 2.78 2.84 2.92 2.91 7.01 8.35 9.67 6.07 10.00

GDP at Constant 1995-96 prices

100.0 100.0 100.0 100.0 5.74 6.07 6.71 6.32 6.14

Appendix Table: Sector Share in GDP and Annual Growth Rate

Source: Bangladesh Bureau of Statistics. P = provisional E = Projected Estimate

Reviewierb-bd.org/wp-content/uploads/2013/07/Ayubur-Rahman... · Web viewSince investment in the stock market is generally regarded as speculative and non-productive, BB is going

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