Download Likely implications of the ongoing global financial crisis for Banglad

Likely Implications of the
Ongoing Global Financial
Crisis for Bangladesh
Media Briefing by the World Bank
November 26, 2008
Economy today
The current state of the Bangladesh
economy is stable,
2
Economy (possibly) in the
coming months
The current state of the Bangladesh
economy is stable, but in view of the
unfolding global financial crisis, the
situation could deteriorate in as little
as three months time!
3
Three parts of this briefing
1.
The economy today ~ what we know & what
was projected before;
2.
Ongoing global financial crisis; and
3.
Likely impact on Bangladesh economy.
4
Bangladesh: Economic Growth
Growth (%)
FY05
FY06
FY07
FY08
FY09 (P)
Overall
Per Capita
6.0
6.6
6.4
6.2
6.5
4.5
5.1
4.9
4.7
5.0
Source: Bangladesh Bureau of Statistics
5
Structure of Economy
Sectoral Composition (in %)
60.0
46.5 47.5
50.0
40.0
30.0
29.5
24.6
18.4
21.1
50.6
24.4 27.6
20.0
10.0
0.0
Agriculture
Industry
FY91
FY00
Services
FY08
Source: Bangladesh Bureau of Statistics
6
Sectoral Growth Rates
Growth Rates (in %)
12
9.7
10
8.4
8.3
8
4.9
6
4
6.9
6.4
6.4
4.6
7.0 7.5
6.9 6.7
3.6
4.0
2.2
2
0
FY05
FY06
FY07
Agriculture
Industry
FY08
FY09 (P)
Services
Source: Bangladesh Bureau of Statistics
7
Foreign Exchange Reserves
(in billion US$ & in months of import)
Jul-2007
Jan-2008
Jul-2008
Nov-2008
Foreign
Exchange
Reserves(in
billion US$)
Reserves in months
of import
5.0
5.4
5.8
5.0
3.3
3.4
3.2
2.3
Source: Bangladesh Bank & World Bank Staff Estimate
8
Exchange Rate
Exchage Rate (Taka per US$)
72.0
70.5
69.0
67.5
Interbank Exchange Rate
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
66.0
Informal Exchange Rate
Source: Bangladesh Bank
9
Foreign Direct Investment
Foreign Direct Investment (Million US$)
900
750
600
450
300
150
0
776
743
793
650
125
FY05
FY06
FY07
FY08
FY09(July-Aug)
Source: Bangladesh Bank
10
Export
Billion US$
18
16
14
12
10
8
6
4
2
0
16.4
14.1
3.9
12.2
10.5
3.4
3.0
8.7
2.6
2.2
6.4
FY05
7.9
9.2
FY06
FY07
RMG
Others
10.7
FY08
12.5
FY09 (P)
Total
Source: Export Promotion Bureau
11
Import
Billion US$
21.6
24
22
20
18
16
14
12
10
8
6
4
2
0
17.2
13.1
4.6
Food
7.2
14.7
5.4
6.3
10.9
6.9
8.0
8.9
1.6
1.4
1.9
3.5
FY05
FY06
FY07
FY08
Consumer & Intermediate Goods incl EPZ
Capital Goods & Others
Total
Source: Bangladesh Bank
12
Remittances
11
10
9
8
7
6
5
4
3
2
1
0
Billion US$
10.0
7.9
3.7
6.0
2.9
4.8
3.8
1.6
2.2
1.2
2.7
3.2
3.7
FY05
FY06
FY07
Middle East
Rest
6.3
5.0
FY08
FY09 (P)
Total
Source: Bangladesh Bank
13
Overseas Employment Growth
6
24
5
1.7
1.5
4
Overseas
employment
(million)
3
0.9
1.0
1
Overseas
12 employment
growth (%)
3.5
2.4
2.6
16
1.2
2
20
4.1
8
2.9
4
0
0
FY05
Middle East (Left Scale)
FY06
FY07
Rest of the w orld (Left Scale)
FY08
FY09 (projected)
Overseas emplyment grow th (%) Right Scale
Source: Bureau of Manpower, Employment & Training
14
Remittances & Overseas Employment
During FY05- FY08, remittances grew at a faster rate than growth
in overseas employment, indicating that money remitted per
worker has increased during the period.
FY05
FY06
FY07
FY08
Remittances (million US$)
Growth
3848
14.2 %
4802
24.8 %
5979
24.5 %
7915
32.4 %
Overseas employment (million)
Growth
3.3
8.3 %
3.6
7.9 %
4.1
14.5 %
5.0
23.9 %
Source: Bangladesh Bank, Bureau of Manpower, Employment & Training
15
Current Account Balance
Million US$
824
900
977
936
672
400
-100
-600
FY05
FY06
FY07
FY08
FY09 (P)
-557
Source: Bangladesh Bank
16
2. Ongoing Global Financial Crisis

Summer of 2007
• Sub-prime mortgage crisis
 September
15, 2008
• US Investment firm Lehman Brothers
files for bankruptcy
17
Growth Forecasts
Output (Percent Change)
2009
2008
Pre-crisis
Post-crisis
3.7
3.0
2.2
Advanced Economies
1.4
0.5
-0.3
Emerging and Developing Economies
6.6
6.1
5.1
8.3
7.7
7.1
World
Developing Asia
Source: World Economic Outlook, IMF
18
Trade Volume
Trade Volume (Percent Change)
2008
World Trade Volume (Goods & Services)
2009
Pre-crisis Post-crisis
4.6
4.1
2.1
1.8
1.1
-0.1
5.6
7.4
5.3
Imports
Advanced Economies
Exports
Emerging and Developing Economies
Source: World Economic Outlook, IMF
19
Remittances
Remittance Flows (Percent Change)
2009
2008
Base Case Low Case
South Asia
16.2
-0.1
-5.5
Source: Migration and Development Brief, Development Prospects
Group, The World Bank
20
3. Likely Impact on Bangladesh
Economy
Trade channel ~ export, import &
remittance, which in turn will affect

Economic growth

Government finances: expenditure,
revenue and fiscal deficit
21
Exports

FY09 exports ~ projected to grow by 16.3% to US$ 16.4
billion.

First 3 months of FY09 ~ exports US$ 4.4 billion. To
achieve the target, exports need to grow by 9% in the
remaining 9 months of FY09.

Two post-impact scenarios for exports:

5 % in 9 months ~ export earnings: $16 billion

3 % in 9 months ~ export earnings: $15.7 billion.
22
Remittances

FY09 projections ~ grow by 26.6% to $ 10 billion;
additional 800,000 people will go abroad for work

First 3 months of FY09 ~ 213,000 people have left ~
600,000 more need to go in the remainder of the fiscal
year to meet the $10 billion target

Two post-impact scenarios: Not 600,000 more, but

400,000; total remittance in FY09 is reduced to $9.2
billion

300,000; total remittance in FY09 is reduced to $8.9
billion.
23
Import

FY09 import projection: grow by 19.2% to $ 23.2
billion ~ falling commodity prices

First 2 months of FY09: goods worth $3.8 billion
imported ~ to get to benchmark, import will need to
grow by 16.2% for the remainder of the year

Two scenarios: Instead of growing by 16.2%, import
will grow by

10.3%: import bill reduced by $1 billion;

13.2%; import bill reduced by $.5 billion.
24
Benchmark & two possible
scenarios
Billion US$ (growth in percent)
FY08
Benchmark
FY09
Scenario 1
Scenario 2
Export
14.1
(15.9)
16.4
(16.3)
16.0
(13.1)
15.7
(11.6)
Remittances
7.9
(32.4)
10.0
(26.5)
9.2
(16.8)
8.9
(12.4)
Import
19.5
(25.6)
23.2
(19.2)
22.2
(14.1)
22.7
(9.8)
Source: Bangladesh Bank, Bangladesh Bureau of Statistics, and World Bank
Staff Estimates
25
1. Likely Impact on Economic
Growth
Growth in Percent
FY08
GDP Growth
6.2
FY09
Benchmark Scenario 1 Scenario 2
6.5
Likely Impact (in percentage point) of
Export
Import
Remittances
Source: Bangladesh Bureau of Statistics, and World Bank Staff Estimates
6.5
6.5
-0.2
0.2
-1.1
-0.4
0.2
-1.6
26
1. Likely Impact on Economic
Growth
Growth in Percent
FY08
GDP Growth
6.2
FY09
Benchmark Scenario 1 Scenario 2
6.5
Likely Impact (in percentage point) of
Export
Import
Remittances
Likely Post-impact GDP Growth
6.5
Source: Bangladesh Bureau of Statistics, and World Bank Staff Estimates
6.5
6.5
-0.2
0.2
-1.1
-0.4
0.2
-1.6
5.4
4.8
27
2. Likely Impact on Balance of
Payment
Balance of Payment Impact
(Million US$)
FY09
Benchmark Scenario 1 Scenario 2
-5,541
-6,816
-6,261
-6,982
13,945
16,411
15,966
15,746
-19,486
-23,227
-22,227
-22,727
FY08
Trade Balance
Merchandise Export
Merchandise Import
Workers' Remittances
Current Account Balance
% of GDP
7,915
10,012
9,241
8,898
672
0.9
977
1.1
761
0.9
-303
-0.3
Source: Bangladesh Bank, and World Bank Staff Estimates
28
3. Likely Impact on Government’s
Budget
Billion Taka (as % of GDP)
Benchmark
FY09
Scenario 1
Scenario 2
617.7
693.8
681.5
684.6
(11.4)
(11.3)
(11.2)
(11.3)
819.0
999.6
963.2
963.2
(15.1)
(16.3)
(15.9)
(16.0)
-201.3
-305.8
-281.7
-278.7
(3.7)
(5.0)
(4.6)
(4.6)
FY08
Total Revenue
Total Expenditure
Deficit
Source: Ministry of Finance, and World Bank Staff Estimates
29
Knowing what we know now &
planning…

The global financial crisis has started affecting
the real economies. All signs of a massive
downturn in the global economy ~ developed
and developing.

BD has been insulated from the financial crisis ~
lack of integration.

The crisis could easily come to our shores in the
post-Christmas period!
30
Knowing what we know now
& planning…

Need to remain watchful ~ government and civil
society!

Perhaps contingency planning including any
possible government assistance need to be
carefully thought out.

Extremely important to ensure the new elected
government has the relevant briefing to be able to
quickly move & take relevant policy actions.
31