Thursday, April 25, 2024

Economy gradually slowing down

The country’s economy is slowing down gradually and is unlikely to achieve the targeted growth rate in the current fiscal mainly because of the slow pace of investment and political unrest. Sources said most of the economic indicators are going from bad to worse, causing the country’s economic prospects to turn gloomier. The situation will not improve unless the ongoing political unrest ends.
Business activities have virtually come to a standstill because of frequent shutdowns and political violence in the last couple of months. The situation has worsened further as borrowers are not taking their approved loans and banks are sitting idle amid sluggish investment demand.
A lacklustre situation is prevailing in the country’s investment scenario, both in terms of local and foreign direct investment (FDI), mainly because of political uncertainty. Private sector investment as a share of gross domestic product (GDP) fell to a six-year low this fiscal year.
The payment of import bills, however, increased slightly in April after declining for eight months as a result of the contractionary monetary policy undertaken by the central bank and also because of the dismal business environment.
According to experts, these problems, which have affected the country’s macroeconomic stability, will, in
effect, result in moderate economic growth. This will also affect the prospects of investment and employment. Revenue mobilization by the National Board of Revenue (NBR), exports and imports, and the private sector’s output — all are below their targets.
“The analysis of the macroeconomic performance in the current fiscal, based on available data, signals that the growth target of 7.2 per cent is unlikely to be achieved,” said former adviser Dr. Mirza Azizul Islam while talking to The Independent.
Private investment, according to sources, has been a matter of concern in the last four years. In the last fiscal (2011-12), private investment as a share of GDP declined to 19.1 per cent, from 19.7 per cent in 2009. It further declined to 18.99 per cent this fiscal, a six-year low, because of political uncertainty and the global slowdown. “The investment situation in the current fiscal and the outlook in the next fiscal also do not look promising,” said former adviser Dr. Mirza Azizul Islam.
The investment-GDP ratio is already very low in Bangladesh. The fall in private sector investment this year has caused concern among policymakers. In such a situation, experts and economists have expressed apprehensions about the targeted growth rate. Achieving the projected 7.2 per cent GDP growth rate would be very challenging mainly because of slower rates of growth in the industrial and service sectors, internal and external demand, and overall investment, they pointed out.
Dwelling on the country’s overall macroeconomic situation over the last three quarters of the current fiscal, Centre for Policy Dialogue (CPD) senior fellow Dr. Khondaker Golam Moazzem Hossain also observed that the country’s overall economic performance is slowing down gradually, which he dubbed “gradual deceleration”.
Although inflow of FDI has increased in recent days, the country is continuously facing problems in connection with investment. Lack of infrastructural facilities, shortage of power and energy, and a turbulent political environment are discouraging entrepreneurs from investing in the country, said Dr. Moazzem Hossain.
Export-oriented investments have also slowed down substantially as the global recovery is faltering, he added.
The growth rates of domestic credit (13.4 per cent) and private sector credit (14 per cent) are unlikely to meet their annual targets as the private sector has lost its appetite for credit. “Despite some improvement in recent days, decline in the imports of capital equipment and the slow rate of growth of imports of raw materials indicate lower utilisation of existing production capacity and a lull in investment,” said former adviser Dr. Mirza Azizul Islam. Drops in import letters of credit opened for machinery and industrial raw materials signal weak economic activity in the coming months, he added.
Apart from political unrest, investors are of the view that infrastructure development is still weak. Uncertainty about gas and power supply, rise in prices of diesel, furnace oil and other energy products, the high interest rates and higher labour costs, have all made investors jittery.
Many employers are retrenching their staff, especially those operating in the country’s capital market. Bankers are unwilling to take risks. All these have impacted the share market. Import and export-related transactions are being hampered while the supplies of essential commodities are being delayed as a result of work stoppages and political bickering. In such a situation, the suffering of the common people has increased.
The country’s general or point-to-point inflation increased to 7.93 per cent in April from 7.74 per cent in March mainly because of disruptions in supply chains amid political unrest, which pushed up food prices. According to data of the Bangladesh Bureau of Statistics, food inflation increased to 8.68 per cent in April from 7.50 per cent in March, while non-food inflation was slightly down to 7.91 per cent in April from 8.04 per cent in March. This has hit the low-income group people hard.
Revenue collection by the NBR, the most dependable performer among the macroeconomic indicators during this regime, has been found wanting and may witness a shortfall. During the first eight months of the current fiscal, the growth of NBR revenue was about 15.4 per cent as against the target of 18.8 per cent.
Growth of export earnings (10.2 per cent) during the first three quarters of the current fiscal was also well below its annual target in the July-February period (15.3 per cent). Growth in garment exports is declining. It has declined to six per cent from 43 per cent in the last fiscal. Demand for the dollar has come down in the domestic market against the Bangladesh Taka. The exports sector may suffer due to the rise in the value of the Taka. The inflow of remittances may also be affected because of the appreciation of the local currency.

-With The Independent input

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