Economy performs reasonably well in Q1, says MCCI review
Economy performs reasonably well in Q1, says MCCI review
FE Report
Economy of the country performed reasonably well during the first quarter of the present fiscal, even though the performance of different sectors and sub-sectors was mixed, according to a review of the Metropolitan Chamber of Commerce and Industry (MCCI).
The review titled 'Economic Situation in Bangladesh' of July-September period said the overall investment scenario still remains depressed but the situation is steadily improving.
"Investment is coming up in the power sector," it said adding, "While there are some definite signs of improvement, the actual increase in investment would depend on how effectively the government could ease the constraints to investment growth, including the shortage of power."
The acceleration of growth would depend upon the success in raising investment, especially in the private sector, the review noted.
"Raising public investment through improved implementation of the ADP and success in rapidly institutionalising the PPP efforts, especially in the infrastructure sector, will be important in crowding-in private investment."
The government will also need to take quick and innovative actions in economic management in order to improve the implementation capacity, raise the level of economic activity, and make progress towards realizing the social goals, including the poverty reduction targets, the MCCI review said.
The review stated that the construction sector expanded at a steady pace, as indicated by the high growth in the production of cement and import of construction materials.
Several service sector activities showed good performance such as hospitals, IT, travel agencies, education, social work, public administration, road and air transport, storage, hotels and restaurants during the first quarter, the review said.
"The trade sector also got a boost during the period because of more bank advances going to various trading activities," it said.
The increasing economic activity of the business sector led to an increase in services dependent on demand from this sector, the review said adding, "On the whole, the overall performance of the service sector was good in the Q1 of the fiscal."
The Bangladesh Bank (BB) under its Monetary Policy Statement announced in July emphasised on keeping inflation under control, encouraging credit delivery to the productive economic sectors, including agriculture and SMEs, and maintaining the stability of the exchange rate.
"In order to contain the inflationary pressure, the central bank remained vigilant to make its monetary policy instruments more effective and handled interventions in the foreign exchange market and the monitoring of excess liquidity in the banking sector with great care," the review said.
Domestic credit increased by Tk 27.58 billion or 0.81 per cent in July of FY11 (Tk 3.43 trillion) against June FY10 (Tk 3.40 trillion), it said.
"The rise in domestic credit during the period was due to the rise of private sector credit by Tk 31.46 billion or 1.16 per cent," the review said adding, "In the component of credit to the public sector, net credit to the government decreased by Tk 4.21 billion or 0.77 per cent."
Reserve money recorded a decrease of Tk 11.14 billion or 1.37 per cent in July of FY11 compared to the decrease of Tk 19.43 billion or 2.8 per cent in July of FY10.
The FY11 national budget has set the annual target for NBR tax revenue collection at Tk 725.84 billion, the review pointed out.
"In July-September 2010, collection of NBR tax revenue stood at Tk 151.76 billion, which was higher by Tk 27.79 billion or 22.42 percent over the corresponding months of the past fiscal (Tk 123.97 billion), it said adding, "The increase in NBR's tax revenue in the period can be attributed to the picking-up of economic activity and the broadening of tax base."
The review said available data so far indicates that ADP spending rose to 76.39 per cent in the first two months (July-August 2010) of the present fiscal year over last year's.
"In these first two months, spending of the ADP stood at Tk 23.76 billion as against Tk 13.47 billion during the corresponding period of the last fiscal," it said adding, "The crucial issue is ADP implementation."
The exchange rate of Taka per US$ rose to Tk 70.25 on an average in September 2010 from Tk 69.44 in July 2010.
The depreciation was due to the increased demand for foreign currency to finance current account transactions necessitated by increased spending on merchandise imports and lower inflows of remittances.
Recent price trends in the domestic and international market indicate that despite a slight easing of the price pressure, the inflation rate remains high, and that the upward inflationary pressure is likely to continue during the coming months, the review observed.
A steady recovery from global recession would increase demand for investments (credit growth), which might eventually contribute to demand-pull inflation, it said adding, "Both demand and supply side measures need to be taken for maintaining price stability."
On agriculture, the MCCI review while taking the last two years' 'good performance' into account said the country's agriculture sector would achieve its growth target of 4 5 per cent in FY1 1, provided government support continues and no major natural disaster occurs.
The growth rate of agriculture in FY10 was 4.4 per cent, it mentioned.
"Given the importance of the country's agriculture sector as a source of food security, employment generation, higher GDP growth, and poverty reduction, the sector has been given a high priority in budgetary allocation," said the MCCI review.
However, in view of the volatility of prices of fertiliser and other agri-inputs in the international market, an upward revision of the subsidy in the sector may be necessary, it maintained.
"The sustainability of the growth of the agriculture sector is also dependent on the diversification within the sector, which currently relies mostly on crops," it said.
The MCCI review also revealed that the target of food grains production for FYI 1 was primarily set at 36.53 million tonnes, consisting of 2.70 million tonnes of 'aus', 13.50 million tonnes of 'aman', 19.17 million tonnes of 'boro', and 1. 16 million tonnes of wheat.
The FYI 1 target is 4.22 per cent higher than the target of FYI 0 (35.05 million tonnes ) and also 9.96 per cent higher than the actual total production of food grains of 33.22 million tonnes in FY10, it mentioned.
Tentative consensus estimates of Bangladesh Bureau of Statistics (BBS), Department of Agriculture Extension (DAE) and SPARRSO for aus, aman, boro and wheat production for FY10 are 1.71 million tonnes, 12.20 million tonnes, 18.34 million tonnes, and 0.97 million tonnes respectively, it added.
"To ensure food security, government lays strong emphasis on building a reasonable food grains stock by public procurement and through imports," it said, adding public stock of food grains remained at a reasonably satisfactory level at the beginning of FY10.
However, it gradually decreased over the subsequent months.
Up to the end of September 2010, the government had a stock of 660,000 tonnes of rice and 120,000 tonnes of wheat, which are equivalent to half of the food stock the government maintained at this time last year, the MCCI review said.
"One of the major reasons behind the lower food stock was the government's failure to achieve even half of the procurement target set for the last Boro season, it said, adding the gross mismatch between the market and the government fixed procurement prices contributed largely to the poor performance of the food directorate.
Thus, the government is trying to import food from other countries, the MCCI said in its review.
Citing the Food Planning and Monitoring Unit of the Ministry of Food and Disaster Management, it said as of 09 September 2010, 230,700 tonnes of rice was imported, of which 79,100 tonnes and 151,500 tonnes were government and private imports respectively.
Over this period, 591,00 tonnes were imported privately, it mentioned, adding at the same time last year, total imports of rice amounted to 3,600 tonnes, all of which were government imports.
The government is now seeking to buy Indian rice and wheat at concessional rates below global prices in order to lock in grain supplies for the rest of the year, it said.
Referring to the Fisheries Directorate, the MCCI in its review said the fisheries sector performed better in 01 of FY1 1 than in the previous fiscal.
About livestock, the review said around 3.7 million cattle (and buffaloes) are slaughtered annually in the country, of which 20 per cent are imported through cross border trade.
Due to increased demand and higher consumer preference for meat of local breeds, cattle and goat fattening has become an important income generating activity for small farmers, it mentioned.
Livestock and poultry farming, however, suffer from many constraints such as limited knowledge and technical skills, scarcity of quality feed and fodder, frequent occurrence of diseases, limited coverage of extension services, including veterinary services, and absence of appropriate regulatory body, it pointed out.
"The commercial poultry farmers also face acute scarcity of good quality chick, feed and other inputs like vitamin premix, medicine, etc., and lack of extension services and increased threats of diseases," it said.
It further said the acute shortage of feed and fodder is the single most important obstacle to livestock and poultry development in the country.
Most of the dairy and poultry farmers also face problems of adulterated and inferior quality of commercial feed and feed ingredients, it said, adding there exists bright potential for increasing milk and meat yield if quality feed, better veterinary care, intensive extension services and improved management can be ensured.
It, however, said a mix of increasing number of farms and birds together with quality improvement is expected to produce good results for the country's poultry sector.
About industry, the MCCI in its review said the industry sector growth, especially the growth of manufacturing activities, accelerated during the second half of FY10, though they experienced significant depression in the wake of global recession and downturn of economic activities, especially during the first six months of FY1 0.
On manufacturing industries, it said data on industry sector performance were not available for Q1 of FY1 1 and hence it is difficult to identify the most recent trends.
It, however, said there are signs such as the rise in private sector credit and increased volume of letters of credit (L/Cs) opened, which indicate that manufacturing activities have been on the rise.
