6.3pc growth impressive: WB
Slower export, high oil price may derail growth, it says
Dhaka, June 3 (UNB) - An estimated 6.3 percent growth in the 2011-2012 fiscal year is healthy and impressive given the scenario of volatilities in the global economic environment but there are macroeconomic vulnerabilities that could derail the growth in the near future, the World Bank said here on Sunday.
“It’s (6.3 % growth) healthy and very impressive growth,” WB’s lead country economist Dr Sanjay Kathuria told reporters while briefing on Bangladesh Economic Update at Hotel Westin in the city.
World Bank Country Director Ellen Goldstein, senior economist Dr Zahid Hussain, Sector Director, Poverty Reduction and Economic Management, South Asia Region Dr Ernesto May and Communications Officer Mehrin A Mahbub were also present.
The 6.3 percent GDP (gross domestic product) growth, preliminarily estimated by the Bangladesh Bureau of Statistics (BBS) is higher than the developing country average (5.5%) but lower than the South Asia average (6.5%).
The GDP growth, the WB says, has moderated from 6.7 percent (FY11) to 6.3 percent in the fiscal year 2011-2012 due to unfavorable external economics and internal supply constraints.
Sanjay Kathuria said improving the investment climate and undertaking trade-related reforms would be needed to increase domestic and foreign investment, essential for accelerated growth. “The investment growth to GDP ratio will have to 30-32 percent (from 24 percent) to accelerate the growth.”
Responding to a question, Zahid Hussain said he finds three major external risks in the coming days -- declining export due to Eurozone crisis, possible slower remittance inflow as the Gulf Cooperation Council (GCC) dependent economies are most affected and possible higher fuel price in the global market.
“These all will have pressure on the overall balance of payment (BoP),” the WB economist said.
Underlining internal risks, Dr Zahid Hussain said lack of required infrastructure and energy crisis are the two major internal risks. “If we can address these two, investment flow will increase giving a boost to the overall economic growth.”
On black money whitening, he said, “We don’t know what scheme is coming exactly to whiten black money. There shouldn’t be any scheme what will ultimately encourage black money generation.”
He said ideological aspects and reality will have to be considered in providing any scheme to whiten black money. “The ultimate impact of the black money will also have to be considered.”
Earlier, in her opening remark, Goldstein said, the Bangladesh’s most recent economic growth quite healthy by developing country standards.
“But there are several headwinds that could derail growth in the near future. Spillover effects of recession in the eurozone and oil price increases are the two headwinds that pose the most serious downside risks to Bangladesh’s growth from external sources.”
She said all Bangladesh can do is to prepare to face these risks by creating policy space, so that it can respond appropriately and in time as these risks materialise.
However, these are not the only risks and Bangladesh’s ability to provide adequate infrastructure, energy and a business friendly regulatory environment has also suffered in recent years. “If these are addressed, we feel Bangladesh will be able to overcome the impact of a weak global economy without much difficulty.”
She said the Bank Group will remain engaged to support Bangladesh’s development. “The Sixth Five Year Plan is soon to enter its third year of implementation. The challenge now is to effectively speed up implementation to deliver results on the ground.”
Continuing Macroeconomic Pressures
Inflationary pressures, particularly from an increase in non-food prices, have worsened. Overall inflation is in double digits and non-food prices rose 14 percent in March 2012, compared to 4.3 percent a year earlier. This has been driven by expansionary monetary and fiscal policies.
On the other hand, food price increases have declined from 13.8 percent in September 2011 to 8.1 percent in April 2012 which is good news for the poor.
The fiscal deficit has increased despite significant increases in revenue. Recurrent expenditures are likely to overshoot the original 2012 budget target, driven by larger-than-budgeted growth in subsidies and transfers.
The central government budget deficit increased by more than 2.5 times from July to January compared to the same period the previous year.
The balance of payments is under strain. The current account surplus during July-March, FY12 was US$ 456 million compared to nearly US$710 billion during same period the previous year, owing largely to the sharp rise in petroleum-product imports to feed the liquid fuel-based power plants. With exports starting to decline in March 2012, pressure on the balance of payments could intensify.
Outlook - The Challenges
Uncertainty in Bangladesh’s leading trade markets poses risks to accelerated growth. High unemployment, low business and consumer confidence, and volatility in financial sectors remain major threats to Bangladesh’s two major export markets, Europe and the United States.
In addition, the combination of current levels of inflation, the fiscal deficit, and reserves mean that Bangladesh has very little policy space to respond to the crisis, unlike its situation during the last global economic and financial crises.
Energy shortage poses as much of a risk to growth as do global uncertainties. The overall shortages of energy continue to deter fresh investments and expansion projects. Authorities need to proceed with longer-term solutions to the energy problem to ensure that the net additions to capacity already made can be sustained.
Policy - Coordinated Macroeconomic Strategies
A coordinated policy response will be essential to restore macroeconomic stability and accelerate growth. Stabilization policies will need to focus on creating fiscal space, and containing government borrowing.
The longer-term growth outlook depends on acceleration of structural reforms to raise savings and investments rates, improve trade prospects, and ensure balance of payment sustainability. This would entail modernizing the tax regime and strengthening public financial management, and require increased tax revenues to address the large infrastructure deficit.
Growth acceleration also needs urgent reforms to address the looming skills deficit and enable a continuation of manufacturing and export growth.
“It’s (6.3 % growth) healthy and very impressive growth,” WB’s lead country economist Dr Sanjay Kathuria told reporters while briefing on Bangladesh Economic Update at Hotel Westin in the city.
World Bank Country Director Ellen Goldstein, senior economist Dr Zahid Hussain, Sector Director, Poverty Reduction and Economic Management, South Asia Region Dr Ernesto May and Communications Officer Mehrin A Mahbub were also present.
The 6.3 percent GDP (gross domestic product) growth, preliminarily estimated by the Bangladesh Bureau of Statistics (BBS) is higher than the developing country average (5.5%) but lower than the South Asia average (6.5%).
The GDP growth, the WB says, has moderated from 6.7 percent (FY11) to 6.3 percent in the fiscal year 2011-2012 due to unfavorable external economics and internal supply constraints.
Sanjay Kathuria said improving the investment climate and undertaking trade-related reforms would be needed to increase domestic and foreign investment, essential for accelerated growth. “The investment growth to GDP ratio will have to 30-32 percent (from 24 percent) to accelerate the growth.”
Responding to a question, Zahid Hussain said he finds three major external risks in the coming days -- declining export due to Eurozone crisis, possible slower remittance inflow as the Gulf Cooperation Council (GCC) dependent economies are most affected and possible higher fuel price in the global market.
“These all will have pressure on the overall balance of payment (BoP),” the WB economist said.
Underlining internal risks, Dr Zahid Hussain said lack of required infrastructure and energy crisis are the two major internal risks. “If we can address these two, investment flow will increase giving a boost to the overall economic growth.”
On black money whitening, he said, “We don’t know what scheme is coming exactly to whiten black money. There shouldn’t be any scheme what will ultimately encourage black money generation.”
He said ideological aspects and reality will have to be considered in providing any scheme to whiten black money. “The ultimate impact of the black money will also have to be considered.”
Earlier, in her opening remark, Goldstein said, the Bangladesh’s most recent economic growth quite healthy by developing country standards.
“But there are several headwinds that could derail growth in the near future. Spillover effects of recession in the eurozone and oil price increases are the two headwinds that pose the most serious downside risks to Bangladesh’s growth from external sources.”
She said all Bangladesh can do is to prepare to face these risks by creating policy space, so that it can respond appropriately and in time as these risks materialise.
However, these are not the only risks and Bangladesh’s ability to provide adequate infrastructure, energy and a business friendly regulatory environment has also suffered in recent years. “If these are addressed, we feel Bangladesh will be able to overcome the impact of a weak global economy without much difficulty.”
She said the Bank Group will remain engaged to support Bangladesh’s development. “The Sixth Five Year Plan is soon to enter its third year of implementation. The challenge now is to effectively speed up implementation to deliver results on the ground.”
Continuing Macroeconomic Pressures
Inflationary pressures, particularly from an increase in non-food prices, have worsened. Overall inflation is in double digits and non-food prices rose 14 percent in March 2012, compared to 4.3 percent a year earlier. This has been driven by expansionary monetary and fiscal policies.
On the other hand, food price increases have declined from 13.8 percent in September 2011 to 8.1 percent in April 2012 which is good news for the poor.
The fiscal deficit has increased despite significant increases in revenue. Recurrent expenditures are likely to overshoot the original 2012 budget target, driven by larger-than-budgeted growth in subsidies and transfers.
The central government budget deficit increased by more than 2.5 times from July to January compared to the same period the previous year.
The balance of payments is under strain. The current account surplus during July-March, FY12 was US$ 456 million compared to nearly US$710 billion during same period the previous year, owing largely to the sharp rise in petroleum-product imports to feed the liquid fuel-based power plants. With exports starting to decline in March 2012, pressure on the balance of payments could intensify.
Outlook - The Challenges
Uncertainty in Bangladesh’s leading trade markets poses risks to accelerated growth. High unemployment, low business and consumer confidence, and volatility in financial sectors remain major threats to Bangladesh’s two major export markets, Europe and the United States.
In addition, the combination of current levels of inflation, the fiscal deficit, and reserves mean that Bangladesh has very little policy space to respond to the crisis, unlike its situation during the last global economic and financial crises.
Energy shortage poses as much of a risk to growth as do global uncertainties. The overall shortages of energy continue to deter fresh investments and expansion projects. Authorities need to proceed with longer-term solutions to the energy problem to ensure that the net additions to capacity already made can be sustained.
Policy - Coordinated Macroeconomic Strategies
A coordinated policy response will be essential to restore macroeconomic stability and accelerate growth. Stabilization policies will need to focus on creating fiscal space, and containing government borrowing.
The longer-term growth outlook depends on acceleration of structural reforms to raise savings and investments rates, improve trade prospects, and ensure balance of payment sustainability. This would entail modernizing the tax regime and strengthening public financial management, and require increased tax revenues to address the large infrastructure deficit.
Growth acceleration also needs urgent reforms to address the looming skills deficit and enable a continuation of manufacturing and export growth.
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