Despite persistent weaknesses in the global economy, the performance of Bangladesh economy in the year 2016, according to a dispassionate assessment, was impressive. Policy stability, stable political environment, improved energy situation, the sustained growth of exports and remittance earnings (albeit at a slow pace) and a spurt in public investment provided the much-needed boost to the economy.
The overall atmosphere, political or otherwise, was peaceful throughout the year 2016 barring the terror incident involving the Holy Artisan restaurant in Gulshan along with a few other terrorist incidents in the countryside. The incidents had cast a negative impact on the economy as well since foreign investors and businesses started avoiding the country. However, things have improved a lot lately because of government’s decisive actions against militants. Business confidence has been largely restored.
Bangladesh has been receiving accolades from all around for its impressive economic performance despite the odds.
Bangladesh has been receiving accolades from all around for its impressive economic performance despite the odds. The achievements have not missed the attention of many global and regional economic and political superpowers. China, Japan, Russia, and India have come up to bankroll many large infrastructure and energy projects in the country. Very recently, during the historic visit of Chinese President, Xi Jinping, Bangladesh and China struck deals that might ensure the inflow of Chinese funds worth over $25 billion.
The January-June period of 2016 covered the second half of the fiscal year (FY) 2015-16. Most indicators barring private investment and agro-output were quite healthy then. However, the situation in the July-December period was not as rosy as many had expected, particularly in the area of remittance earnings. A much positive vibe was absent in the business community. A stagnant private investment situation prevailing throughout the year is a pointer to that fact. The trend, however, had been persisting for more than a couple of years.
The sense of populism which was sweeping in continents across the Atlantic gained further strength in the second half of the year. Brexit and the election of Donald Trump in the USA, during the period, emerged as an ominous sign for economies like Bangladesh. Multilateralism in trade, it is widely feared, could be the first casualty of such a populist stance. The fear might soon prove real when Trump takes over the US presidency. In fact, the country along with the rest of the world enters a very uncertain time, both politically and economically.
The GDP growth figure that emerged at the end of the fiscal 2015-16 helped the country break the 6% growth trap. For the first time in the country’s history, as the Bangladesh Bureau of Statistics (BBS) statistics showed, the GDP growth rate reached the 7% mark. The growth rate was actually 7.11% in the last fiscal. However, the estimates done by the multilateral lenders, including the World Bank, the International Monetary Fund, and the Asian Development Bank were below the 7% mark. However, the development partners are apparently convinced by the economy’s positive growth outlook and they are projecting a growth rate close to 7% for the current fiscal year (2016-17). The government, however, expects to hit the growth target of 7.2%.
The stable growth of the Bangladesh economy in recent years has left a welcome impact on the poverty situation. In fact, the pace of poverty reduction has been faster than anticipated earlier. The poverty rate declined to 24.8% in the year 2015 and that of hardcore poor to 6.5%. The rate of decline in poverty level must have continued also in 2016 as the growth rate recorded a further rise during the year under review.
Investment, particularly the public side, was on track during the last fiscal period because of the large volume of money being spent by the government on mega infrastructure projects. A total of seven mega public sector development projects, including Padma Bridge, Roopur nuclear power plant, Paira seaport, metro rail, two large coal-fired plants at Rampal and Matarbari, are now underway. However, private investment continues to be a sore point for the economy. The rate of private investment has remained stagnant for the past few years.
The stable growth of the Bangladesh economy in recent years has left a welcome impact on the poverty situation. In fact, the pace of poverty reduction has been faster than anticipated earlier.
The situation has to be reversed if the country intends to reach the much-coveted 8% GDP growth rate and achieve the middle-income country status within the stipulated time. Moreover, the foreign investment will continue to elude the country unless local investors demonstrate their eagerness to put their own money in different sectors of the economy.
The gap between savings and investment has been persisting for the past few years, indicating that savings generated are not coming into the productive sectors of the economy.
A part of the savings is flying out of the country in various forms and a part is preserved clandestinely. The flight of capital in recent years has emerged as a serious problem and the authorities have been failing to contain it. It is suspected some influential people are also involved in the act of sending funds outside the country illegally. The external trade transactions are thought to be a widely used means to take money out of the country by people who are amassing wealth illegally.
The rate of inflation in the economy was tolerable because of the central bank’s prudent monetary stance. The low oil and commodity prices in the international market, good rice harvest locally and stable exchange rate, among others, helped the inflation to remain at low level.
The credit growth in 2016 gives a mixed picture. The public sector credit growth was less than the target set in the budget for the current fiscal. The government’s large-scale borrowing through savings instruments was responsible for low-level borrowing by it from the banking system. However, the private sector borrowing improved during the period under review, mainly because of the decline in banks’ lending rate in the domestic market. The demand for credit by the private sector during the year 2017 might grow further, provided external factors remain positive.
When it comes to the issue of private sector lending, one can hardly escape yet another important issue – the non-performing loans (NPLs), which has reached a very high level, more than 10.5%. In the case state-owned commercial banks, the NPL rate is well over 20%. A good number the public sector banks are deficient in capital and are now seeking funds from the government for recapitalization.
The tax revenue collection by the National Board of Revenue in the last financial year was less than the target which, according to most experts, was highly ambitious. The target set in the current year’s national budget is also high and the government may finally have to collect less than the targeted one. In 2016, businesses and the government had a tough time over the introduction a few VAT-related new measures incorporated in the new VAT and SD law, set to be introduced next July. In the face of strong resistance from the businesses, the government softened its stance, to some extent.
The country’s foreign exchange reserve continued to rise steadily throughout 2016 and stood at around $32 billion in the last week of December, 2016. However, the siphoning off $100 million from the BB’s account with Federal Reserve Bank of New York by the hackers in February 2016 came as a great shock to the banking industry both at home and abroad.
Remittance inflow, particularly during the second half of the year, turned out to be a source of concern for the policymakers. Despite an increase in the outflow of Bangladeshi migrant workers in recent months, the drop in remittance inflow was not a normal development. However, it is widely believed that because of the mismatch between the kerb market rate and official exchange rate, a section of remitters is taking the services of hundi operators to send their money back home.
The year 2016 was satisfactory one for the Bangladesh economy. But it is hard to say what remains in store for it in the year 2017, which is expected to be more eventful. If the Bangladesh economy suffers that would largely because of external factors. Hopefully, that won’t be the case.
The writer is a senior journalist. He can be reached at zahidmar10@gmail.com
