Download Outlook of Bangladesh Economy in the “Double

Outlook of Bangladesh Economy in the “Double-dip” Global Recession
Dr. Mohamamd Masudur Rahman
Economist
Economist, Microcredit Regulatory Authority
Dhaka, Bangladesh
Email:[email protected]
Bangladesh is located in the tropics in South Asia and has a total area of 147,570 sq. km.
It shares its borders with India on the west and north and Myanmar on the east. On the
south, 66,400 kilometers of coastline merge into the Bay of Bengal. The country of
Bangladesh is most known internationally through newspaper headlines for its high poor
population and natural disasters. Reality however is not as devastating as indicated by the
image of the country since the national economy is improving, population growth has
slowed down, poverty seems to be abating, and a nationwide nature caveat system
functions effectively. The economy of Bangladesh is a rapidly developing market-based
economy. Over the past 40 years since independence, Bangladesh has increased its real
per capita income by more than 130 percent, cut poverty rate by sixty percent, and is well
set to achieve most of the millennium development goals. Some of the underlying
specific achievements include, increasing life expectancy from 46.2 years to 66.6 ;
increasing the rate of economic growth from an average rate of 4% in the 1970s to 6% in
the 2000s; increasing the savings and investment rates from below 10 percent each in the
1970s to 24 percent (investment rate) and 30 percent (savings rate) in FY2010; achieving
gender parity in primary and secondary education; and more than tripling of the
production of rice (from 10 million tonnes in FY1973 to 32 million tonnes in FY2010)
thereby achieving near self-sufficiency in normal production years. The economy today
is lot more flexible and resilient, as indicated by the ability to withstand the global
financial crisis with minimum adverse effects. Bangladesh also is now much more
capable of handling natural disasters with minimum loss of life. Bangladesh achieved this
remarkable progress with development despite numerous internal and external constraints.
Notwithstanding this past progress, Bangladesh is still a low income country with
substantial poverty, inequality and deprivation. An estimated 47 million people are living
below the poverty line. Most of the labor force is engaged in informal low productivity
and low income jobs. The access to secondary and tertiary education is limited and the
quality of education at all levels is deficient. The poor group of the population is severely
disadvantaged in terms of ownership of assets and has inadequate access to institutional
finance as well as to basic services including quality education, healthcare, water and
sanitation.
In recognition of the long -term development challenges, the Government adopted the
Vision 2021. The Vision 2021 and the associated Perspective Plan 2010-2021 have set
solid development targets for Bangladesh by the end of 2021. Those targets if achieved
will transform socio-economic environment of Bangladesh from a low income economy
to the first stages of a middle income economy. Along with higher per capita income,
Vision 2021 lays down a development scenario where citizens will have a higher
standard of living, will be better educated, will face better social justice, will have a
more equitable socio-economic environment, and the sustainability of development will
be ensured through better protection from climate change and natural disasters. The
implementation of Vision 2021 will be done through two medium term development
plans, with the first spanning FY11-15. This Five Year Plan is the sixth in the series of
development plans in Bangladesh starting in 1973. A key focus of the plans will therefore
be on strategies, policies and institutions to help guide the private sector in helping
Bangladesh achieve the goals set in Vision 2021. Table below presents historical
economic stance of Bangladesh.
Table 1 : Macroeconomic Outlook of Bangladesh
Indicators
1971
1980s
1990s
2000s
2008
2009
2010
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GDP (current million US$)
GDP per capita (current US$)
GDP growth (annual %)
Exports of goods and services
(current million US$)
Imports of goods and services
(current US$)
Trade-GDP Ratio
Inflation, consumer prices
(annual %)
Remittance from NRB
(US$ million)
8,752
12,168 22,382 38,744 79,554 89,360 1,00,357
129
166.1
236.9
324.6
547
608
675
-5
1.2
3.7
4.8
6.0
6.0
6.1
551
630
1,200
4,270
16,181 17,360
18,472
939
1,635
3,010
6,451
22,873 23,727
25,106
0.17
0.19
0.19
0.28
0.49
0.46
0.43
7.25
5.1
9
5
8
618
1,327
8,925
10,508
10,838
..
--
145
Source: World Development Indicators 2011 and Bangladesh Bank 2012
Global “Double –dip” Recessions and Bangladesh’s Resilience
Since the global downturn observed in 2009, the developed countries still continue to
tackle with an uncertain future and markets are agitated the possibility of a “double-dip”
recession. A number of factors are behind the current situation, including the high
unemployment rate in the USA, the sovereign debt crisis in Europe and also the tsunami
and earthquake in Japan had transmitted shocks to the global economy. World real GDP
growth is forecast to be about 4.5 percent in 2011 and 2012, down modestly from 5
percent in 2010. Real GDP in advanced economies and emerging and developing
economies is expected to expand by about 2.5 percent and 6.5 percent, respectively.
Commodity prices have quickly returned to high levels and market pressures remain
elevated. Growth in demand for commodities during the second half of 2010, which
drove up oil prices for 2011 to about $90 a barrel by early January 2011, up from the $83
a barrel expected in April 2010. An earthquake in Japan has exacted a dreadful human
toll. The earthquake may have a lasting and sizable impact is the global energy market.
Japan’s unfolding nuclear crisis raises long-term worldwide concerns about the safety of
nuclear energy; it may precipitate a structural shift in the global energy mix. On the other
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hand the overall IMF commodity price index rose by 32 percent from the middle of 2010
to February 2011—recuperating about three-quarters of the 55 percent decline after the
cyclical peak in July 2008 through early 2009. The Euro zone economy uncertainty
remains high with many downside risks and the growth came in at 1.7% in 2011.
In this global backdrop the developing Asia’s growth in 2011 will remain vigorous, albeit
somewhat slower than in 2010. Inflation pressures are building, however, and
overheating is an emerging threat in some economies. Growing uncertainties from
tensions in the Middle East as well as the recent natural disaster in Japan and its
consequent nuclear disruption raise the risks for higher prices of oil and commodities.
Inflation in Southeast Asia is accelerating.. South Asia was less affected by the crisis and
growth remained fairly strong throughout, dipping only slightly when the global
recession hit its nadir. India is setting the pace for South Asia’s overall performance. The
sub regional giant’s recovery to 8.6% growth was both robust and broad-based even in
the face of fiscal consolidation and a substantial tightening of monetary policy during the
year. This helped to boost sub regional growth to 7.9% in 2010.
Figure 1 : GDP Growth Rate of some Developing Asian Countries
Source: World Development Indicators, World Bank and IMF-World Economic Outlook,
Sep 2011 (for 2011 & 2012)
GDP growth rate of developing Asian countries are shown in the above figure. GDP
growth rate of Bangladesh is moderate in the plotted years. It is clear that Bangladesh is
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much resilient from the global downturn in 2008-2009. India, Pakistan, Vietnam all show
a sheer drop of growth rate of GDP, but Bangladesh remains fairly in around 6.1 percent.
Exports have been rising at around 11.0 percent per annum during last 10 years,
accounting for a significant part of Bangladesh’s dynamic performance. Exports are
dominated by the RMG sectors with a 77 percent share in total export earnings. Export
performance in the four years preceding the global financial crisis averaged 17 percent
annual growth. The economies of major trading partners such as NAFTA and the EU
shrunk or were close to recession during that period, reducing demand for Bangladeshi
export items. Nevertheless, while major economies in the world have experienced
negative export growth, Bangladesh has achieved satisfactory levels of export and GDP
growth. The outlook for exports is strongly positive on the back of the recent rebound.
Exports rebounded strongly with about 38 percent growth is estimated to be achieved in
FY2011 but is slowing in most recent months in the end of 2011.
Figure 2 : Real GDP Growth & CPI Inflation of Bangladesh and South Asia
So
urce: Ministry of Finance, GoB & IMF-WEO, 2011
Figure 2 shows the real GPD growth rate and CPI inflation of Bangladesh from IMFWorld Economic Outlook. It is clear that till 2012, Inflation will be higher than GDP
growth rate, which is alarming for Bangladesh. But Bangladesh can grow at a rate of
8.2% in 2016 while CPI inflation will be at 5.5. Again, if we compare GDP growth rate
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of Bangladesh and South Asia, we can see that on an average Bangladesh will move
ahead of South Asia both in terms of Real GDP growth and CPI inflation.
Challenges to the Bangladesh Economy in the Global Economic Crisis
The rate of economic growth and its composition will both matter for job creation.
Acceleration of the growth rate will require a substantial increase in the rate of
investment from the present 24.4 percent of GDP level to 32.5 percent of GDP by the end
of the plan period which will be a major challenge for Bangladesh in this global
economic crisis. Much of the higher investment will need to be deployed to reduce and
eventually eliminate the infrastructure constraint (primarily power and transport) and to
finance human development.
Continued recession in the development markets is affecting external sectors of
Bangladesh economies. Although a strong export rebound push up growth in end of 2010
but slowing down at the end of 2011 due to “double-dip” recession. Inflation, fuelled by
the surging commodity prices is volatile which pose special challenges as a largely
import-dependent country. Bangladesh has been experiencing a rising trend of food
inflation in recent months at the backdrop of global hike of food grain prices. The food
price rises created a range of macro-vulnerabilities in the country. One aspect is the
impact on domestic food inflation and overall inflation. A major challenge for policy
makers will be to balance the needs for taming inflation and for ensuring that credit to the
private sector is not stifled. To harness the country’s medium-term growth potential,
removing infrastructure gaps will be essential, as will enhancing the supply of skilled
human resources.
The spectral of double-dip crisis in the developed world and the after-effects of the
turmoil in the Middle-East are likely to weaken remittance flow in the coming months.
This could lead to a hazardous foreign funding and aid management of Bangladesh.
Employment abroad and associated remittances have played a major development role in
Bangladesh. In addition to the current strategy to export low skilled manpower, the effort
would focus on the ability to export well trained skilled and semi-skilled manpower to
existing as well as new destinations. Women being a significant contributor to the
domestic and export oriented industries (e.g. Ready Made Garments) are still
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concentrated in the low income jobs. Therefore targeted programs will be undertaken to
improve their skill base.
In addition, Bangladesh most likely is not getting smooth soft loan from the donor
agencies in the giant upcoming projects. Bangladesh Bank has projected even a wider
deficit of trade balance for 2012 coupled with high import, low rate of export as well as
low remittance growth. Balance of payment pressure are likely to intensify over the near
to medium term because of rising oil import volumes and import-intensive infrastructure
investment.
Some other issues are also important for Bangladesh long term perspectives development.
Good governance and institutions are interlinked. Ensuring good governance requires
establishing strong institutions. Bangladesh is also a victim of climate change caused by
rapid urbanization, industrialization and economic development activities worldwide. A
rise in the sea level, leading to coastal submergence (i.e. 17 % of Bangladesh) would
cause large-scale displacement of people. Therefore, effective steps must be explored and
adopted in collaboration with the international community to help Bangladesh address the
adverse consequences of climate change and sustainable development.
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