Economy set for a bumpy ride in 2008

Dhaka, Dec 30 (BDPREM) -- Bangladesh is on a rocky path. The economy went through a string of stresses through 2007 and the makeshift government composed of technocrats and backed by the army struggled to keep up the pace of growth. Soaring prices of essentials, food grains and fuel oils and an abnormal rise in inflation, erosion of business and consumer confidence, twin floods and the deadly cyclone hit the economy hard in 2007. "Bangladesh is really going through a very difficult time and challenges. The current year is the most critical in Bangladesh's history," Asian Development Bank country director Hua Du said during the launch of ADB's quarterly economic update late last month. Economic growth probably reached a five-year low in 2007, analysts and Bangladesh's development partners feared. The International Monetary Fund in September forecast that economic growth would be at 5.5 percent because of floods and the ongoing anticorruption drive. The IMF made the prediction before the cyclone Sidr struck Bangladesh on Nov 15. Other development partners including the World Bank also estimated lower growth—below 6 percent instead of 7 percent projected in the budget for fiscal 2007-08. The economy has been growing on an average over 5 percent for the last one decade. The growth was above 6 percent since 2003-04 except 5.96 percent in 2004-05 because of floods. The central bank also recast the growth at 6.2-6.5 percent for fiscal 2007-08, down from 7 percent in the wake of floods and the cyclone. Unnayan Shamunnay, a private think-tank, also forecast in a recent economic outlook that the country's growth will be around 5.5 percent this fiscal year. The reduction was paced by some major factors such as hikes in fuel and food prices on the international market, erosion of business confidence, natural disasters and lower farm output, said Zaed Bakht, research director of Bangladesh Institute of Development Studies. Global crude oil prices near $100 a barrel added to budgetary and inflationary pressures. The fuel price adjustment in April was done when oil was selling at $65 a barrel. Losses at state-run Bangladesh Petroleum Corporation, the lone importer and distributor of oil, were estimated at $749 million or 1.1 percent of GDP in the fiscal year to June 2008, the ADB said. "The government has to subsidise fuel imports by Tk 6,000 crore instead of estimated Tk 2,500 crore because of unexpected hikes in prices on the international market," a senior energy ministry official told bdnews24.com, asking not to be named. Prices of rice and wheat both on the international and domestic markets also marked a significant rise in 2007. On point-to-point basis, inflation reached 10.10 percent in July. A number of natural calamities—floods and cyclone—cost the country huge losses. Crop losses have been estimated at 18 lakh tonnes, which has forced the government to import rice. The combined losses to assets and output were estimated at $1 billion, or 1.4 percent of GDP, said the Manila-based bank. The WB put it at about $3 billion. "Still agriculture contributes hugely (21 percent of GDP) to our economic growth. Crop losses due to the cyclone and floods will certainly lower this year's economic growth forecast," Zaed Bakht told bdnews24.com. According to a government estimate, it needs $2.2 billion to recover the losses from the cyclone Sidr alone. The strength of the external sector, however, sustained with significant growth in overseas workers' remittances and moderate growth in revenues, Bakht said. The latest data of Bangladesh Bank said growth in remittances—21.69 percent in the first five months up to November—partially offset the widening trade deficit. Bangladesh's exports in the first quarter (July-Sept) was $3,077 million, 5.37 percent less than the export for the same period of the last fiscal year (2006-07) while the import witnessed a 20.33 percent rise at $6,337 million for July-October period of the current fiscal year, according to the BB data. A declining trend in private sector credit was a much-talked-about issue in 2007. Businesses blamed the slowdown on the stringent anticorruption drive of the caretaker government. However the private sector credit growth gained a momentum in the second half of the year. The growth up to October was 16.34 percent on year-on-year change, according to BB data. Poor implementation of the annual development programme and slowing foreign and domestic investments will also lower the growth prospect, the BIDS director said.