2015-16: Economic Prosperity Continued

2015-16: Economic Prosperity Continued

Bangladesh has been termed as one of the ten new emerging economies of the world according to Compagnie Françaised’Assurance pour le Commerce Extérieur (Coface). By the same token, the Chief Economist of the World Bank Mr Kaushik Basu has stated that Bangladesh is poised to be the ‘next Asian tiger’. Such opinions are not surprising given the progress the country has achieved in the last decade or so. This pace of accelerated development took a new trajectory under the current government’s economic policies during the last 7 years.

In 2015-16, Bangladesh economy continued to grow rapidly achieving the highest GDP growth rate in seven years at 7.05% (provisional) of approximately $ 11.23 billion while inflation has come down to 6.2%. Meanwhile foreign exchange reserves continue to rise currently closing 30 billion; export earnings have reached $34 billion and over $2 billion from foreign direct investment (FDI) in 2015-16, securing the position of the second largest FDI receiver among the South Asian countries. The balance of payments surplus (BoP) on the other hand surged over 15% to $5.04 billion from the previous fiscal year. These are some, not all, of the major indicators where the country has continued to show promise.

This development update looks at the continued advancement of major economic indicators experienced in the 2015-16 fiscal year under the leadership of Honourable Prime Minister Sheikh Hasina.

Economic Growth
Bangladesh achieved its highest growth in the last 8 years in terms of gross domestic product (GDP) in 2015-16 by securing a projected rate of 7.05% (provisional). This is a substantial increase from the 6.55% growth achieved in 2014-15. According to Bangladesh Bureau of Statistics, the data show that the agriculture sector witnessed a 2.60% growth in the current year, up from 3.33% a year earlier. Furthermore, the industry sector grew 10.10% from 9.67%, the services sector 6.70% from 5.80%. Among other sectors, fishing rose 6.19%, mining and quarrying 12.06%, manufacturing 10.30%, electricity, gas and water supply 11.15%, and construction 8.87%.
The GDP size at constant market price for this fiscal year stood at approximately $ 11.23 million from $ 10.49 million a year ago. Bangladesh has been witnessing a steady GDP growth rate of over 6% for the last one decade and provisional data for 2015-16 fiscal year indicates that Bangladesh had performed better in most sectors at constant prices.
As a result of the sustained and high economic growth, CNN Money predicts Bangladesh to be the 2nd fastest growing economies in 2019. The International Monetary Fund (IMF) forecasts Bangladesh’s GDP growth to speed up in 2016 and 2017.

Foreign Direct Investment (FDI)
Bangladesh is now the second largest foreign direct investment (FDI) receiver among the South Asian countries reaching over $2 billion in 2015-16 up from $1.83 billion inthe previous fiscal year. This was stated in theWorld Investment Report 2016 released jointly by the United Nations Conference on Trade and Development and Board of Investment, Bangladesh. According to the report, FDI in labour-intensive manufacturing, inflows to Bangladesh jumped by 44% to $2.23 billion or $684 million higher compared to $1.55 billion of 2014-15 fiscal year.
This was described as an all-time high placing Bangladeshclosely behind India that received the 10th largest FDI in the world of $44 billion in 2015, said the report. The country’s power, gas and petroleum sector have also received the highest FDI of $574 million followed by textile and wearing with $443 million, telecommunications with $255 million and banking with $310 million. In 2014, the FDI receipt of power, gas and petroleum sector was merely $50 million in contrast. FDI in the textile and garments industries remained solid, as does FDI in power generation which is expected to increase further in the near future.

Export Earnings
Bangladesh earned over $34 billion from exports in the fiscal year 2015-16, which is a striking 10% increase from the 2014-15 which was $31.20 billion. The figure also exceeded export target set for the year by $743 million, according to provisional data prepared by the Export Promotion Bureau (EPB). Even better results are expected in future as the country’s exports are increasing due to a rebound in the global economy and an increase in the export basket. Asian Development Bank’s Development Outlook predicts the growth of exports to rise to 13%, up from 12% in the previous year.
According to Bangladesh Bank data, in the last fiscal year the country earned $3.19 billion from service sector exports with 12.85% rise from the previous year’s $2.83 billion.The total export volume in the year was $34.25 billion, growing 9.77% from a year earlier. If the service sector exports were included, the total export volume in the last fiscal year would be $37.45 billion. EPB has now taken initiatives to include service sector exports to the overall exports to get a more realistic figure for export earnings of Bangladesh.

Foreign Exchange Reserve
Foreign exchange reserves are now close to $30 billion from $25.02 in the previous fiscal year. Bangladesh is comfortably positioned to clear its import bill for about nine months according to Bangladesh Bank(BB) .The reserves had dropped in the first week of May after paying $900 million in bills of Asian Clearing Union (ACU) for March and April, but went past $29 billion again shortly afterwards.The amount is currently at $29.23 billion according to BB. The officials stated that the reserves were in a ‘satisfactory’ condition for the past few years due to higher export-import income ratio. The BB in its new monetary policy statement said: “The import coverage of nine months by foreign reserves in fiscal 2016-17 leaves us much ahead of many developing economies in this respect.”

Low Inflation
Bangladesh is now seeing the lowest inflation in a decade. The average inflation rate in the past year – from May 2015 to May 2016 – was an impressive 5.97% compared to 6.40% between May 2014 and May 2015. Although the government had set targets to bring the inflation down to 6.2% at the beginning of 2015-16 financial year, it has remained significantly lower. On a point-to-point basis, the wage rate went up 6.07% from April’s 6.13%. On a point-to-point basis, the inflation rate dropped from 5.65% in March and 5.61% in April to 5.45% in May. The overall inflation in urban areas declined to 7.06% during the period which was 7.22% in April. In May, food inflation fell to 3.81% against 3.84% in April. Non-food inflation also dropped to 7.92% last month from April’s 8.34%. The massive Boro harvest and stability in the prices of essentials proved vital in the international market for the inflation drop in May.

GNI/per capita income
The per capita income in Bangladesh was expected to grow by 11.39% to $1,466 during the fiscal year 2015-16 from $1,316 in the last fiscal year according to the Bangladesh Bureau of Statistics.The Gross National Income (GNI) was Tk 18,314,994 million ($2,343 million) this fiscal year when the population was 159.9 million. In 2015, Bangladesh was elevated from the low income status to lower middle income nation for the first time since its independence, meeting the World Bank and IMF’s requirements comfortably. The development came against the backdrop of the country achieving higher per capital income amid a consistent economic growth.

Credit Ratings
Bangladesh scored a respectable average of 40 and BB- (stable) on its credit ratings by Fitch, Moody’s and Standard & Poor(S&P). Moody’s Investors Service stated that, Bangladesh’s government bond rating is supported by the country’s stable and strong growth performance and modest debt burden.The S&P also reported the possibility of raising the ratings in future if measures aimed at expanding the revenue base and boosting collection efficiency materially improve fiscal performance. The government is expected to materially reduce energy, infrastructure, and administrative bottlenecks and boosts investment, leading to a durable increase in trend growth for real per capita GDP.

Balance of Payment Surplus
The balance of payments surplus (BoP) surged by more than 15% from the previous fiscal year to $3.7 billion which is credited to lower import to export growth ratio. In fiscal 2015-16, exports grew 8.94% and imports 5.45%, which caused the expansion of the overall surplus, according to the central bank. Meanwhile the trade deficit stood at $6.27 billion in contrast to $6.96 billion in fiscal 2014-15. Last fiscal year, capital machinery imports increased 14.10% compared to 22.97% a year earlier, according to letters of credit settlement statistics.
Besides industrial goods, the import of food items and petroleum also declined. Food grain imports in the last fiscal year plummeted 25.45% and petroleum 29.48%. However, industrial raw material imports during the period raised 3.21% — which was 3.10% a year earlier –a necessity for increasing private sector credit growth. A rise in foreign aid also upped the trade credit playing a role in the overall surplus surge. The officials reported a decline in deferred payment against imports, as a result of which the negative trade credit dropped last fiscal year. Another reason for the increase in surplus is the extensive foreign direct investment.

Remittance Earnings
The remittance earning for the fiscal year 2015-16 was $14.93 billion according to the Bangladesh Bank figures. In the previous fiscal year, the incoming remittances stood at $15.32 billion. The current figures are likely to much higher for the ongoing 2016-17 fiscal year as the government of the Kingdom of Saudi Arabia has recently withdrawn its 6 year cessation of hiring workers from Bangladesh.
There was however a steady rise from the total remittance earning of $14.23 billion in fiscal year 2013-14. The remittance recorded in December 2015 was at $1.31 billion, which 2.57% higher compare to the year earlier. However the country received $7.483 billion between July and December in 2015 which is lower by 0.6% compared to that of the same period of the 2014-15 fiscal year.Remittances in Bangladesh averaged $1211.73 million from 2012 until 2016, reaching an all-time high of $ 1491.36 million in July of 2014 as reported by the Bangladesh Bank.

New Monetary Policy
Setting private sector credit growth target 16.5% and 15.9% for public sector in H1 of 2016-17 Fiscal Year, Bangladesh Bank (BB) introduced the half-yearly new monetary policy in June 2016.The new monetary policy was designed to enable local financial sector to integrate more fully with the global market, initiatives for growth support Inclusive of financing, new financing windows supporting output activities and improving Intermediation efficiency.
The government plans to achieve a 7.2% growth in the 2016-17 fiscal, which began on July 2016, and keep the average inflation rate at 5.8%. The monetary policy for last half of the 2015-16 fiscal (January-June) had set a growth rate in the private sector credit flow at 14.8%. The growth rate stood at 16.40% until May. The last half-yearly policy had also aimed to achieve 6.8% GDP growth rate and bring down the inflation rate to 6.2%. In the 2015-16 fiscal, the overall inflation had dropped to 5.92%, according to Bangladesh Bureau of Statistics (BBS) data.

Multifaceted Development
The country is going through a period of prosperity, not only in terms of core economic indicators, but also as regards the major human and social development indicators. Poverty rate currently stands at 22.4%, which was 38% when the current government came to office in 2008. During the same time period, the average life expectancy of the people of Bangladesh increased from 71.2 years from 64.5. More than 98% people currently have access to safe drinking water, up from 85% in 2008. Nearly 100% sanitation has been achieved for the people, making Bangladesh a model in this regard in the entire South Asian region. More than 71% literacy rate has been achieved, which was only 45% in 2006.

One-third of the 60 indicators to measure progress in MDG had been fulfilled so far, or is in the process of being achieved. The goals of 12 indicators have been fully achieved so far including poverty alleviation, eradication of child malnutrition, boy and girl ratio in primary education, reduction of mortality of infants, combating HIV, malaria, tuberculosis among others.
Significant progress has been made in increasing equitable access in education (National Education Rate: 97.7%), reduction in dropouts among other factors. Bangladesh has already achieved gender parity and achieved the targets of gender parity in primary and secondary education at the national level. The country is also on the track in meeting the target goals of under five mortality rate, infant mortality rate and immunization against measles.

Bangladesh’s steady economic growth in the past fiscal year means that there would be some pressure ahead in order to maintain and surpass its current track records. The World Bank for instance, has stated that growth will be pushed further by laws strengthening worker rights that are expected to boost exports as the country seeks to maintain global trade preferences. The central bank has already targeted higher economic growth with lower inflation for fiscal 2016-17 with its cautious monetary policy. Although risks have increased, particularly those associated with the possibility of a disorderly slowdown in a major emerging economy, the combination of fiscal and central bank policies is expected to assist in mitigating any risks and support growth.
The central bank will continue to rely on low global commodity prices in the international market and proactive management of market liquidity to achieve the inflation target in the coming year. Global headwinds notwithstanding, growth is expected to edge up in the next 2 years on steady expansion in garment sector. Bangladesh has already become a lower middle income nation from a low income one for the first time since its independence in 2015. However, the goal of graduating to a higher middle-income status by 2021 requires further attention. Thus the country looks forward to higher investments, thorough reform to improve business environments, boost budget revenue and strengthen financial discipline in the future ahead.

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