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Middle-income status hinges on higher investment: MCCI

18 Nov,2018

BDchronicle :

Bangladesh needs to catalyse more foreign and domestic investments if the country wants to attain the middle income status by 2021, a leading chamber has said.

 

"There is no alternative to raising the rate of GDP growth and the level of investment if Bangladesh is to attain the status of a middle income country by 2021", the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI), said in its latest quarterly review report on the Economic Situation in Bangladesh.

 

The report noted that while the seventh five-year plan (7FYP) targeted achieving 7.40 per cent GDP growth per annum during the period and 7.60 per cent growth in FY19, the country achieved 7.86 per cent GDP growth in FY18.

 

 

 

However, the investment-GDP ratio, according to 7FYP, has to be 31.82 per cent in FY18, which is higher than the national statistics agency estimate of 31.23 per cent, the MCCI said.

 

"All-out effort will be needed to mobilise the desired volume of investment, including foreign direct investment (FDI), in the country", it added.

 

Focusing on the money and capital market, the trade body noted that the broad money (M2) grew at a lower rate of 9.00 per cent at the end of August 2018, compared with the recorded 11.73 per cent growth achieved at the end of August 2017.

 

Domestic credit, on the other hand, grew by 13.23 per cent in the 12-month period ending in August 2018, as against the slightly higher credit growth of 13.66 per cent until the end of August 2017.

 

The growth of credit in August 2018 was also below the credit growth target of 15.80 per cent set in the monetary policy for the first half of the fiscal year", the chamber added.

 

Among components of domestic credit, the report noted that private sector credit registered 14.95 per cent growth during the 12-month period between August 2017 and August 2018, compared with the higher growth of 17.84 per cent during the past one year between August 2016 and August 2017.

 

Private sector credit growth was also below the central bank's target of 16.8 per cent set for the first half of FY19.

 

Public sector credit, on the other hand, recorded a low 1.80 per cent growth at the end of August 2018, compared with the negative growth of 8.08 per cent at the end of August 2017.

 

Meanwhile, total liquid assets of banks stood at Tk 2,538.58 billion as of end-August 2018, which is 45 per cent higher than the minimum liquidity requirement of Tk 1,752.04 billion of the banks as of end-August 2017.

 

The interest rate spread in the banking sector, on the other hand, marginally decreased to 4.27 per cent at the end of August 2018 from 4.31 per cent in July 2018.

 

The weighted average interest rate on deposits fell to 5.36 per cent in August 2018 from 5.40 per cent in July 2018, and the interest rate on lending also came down to 9.63 per cent from 9.71 per cent," the chamber's review said.

 

During the first quarter (Q1) of the current fiscal year (FY), inflation was under control; the exchange rate remained stable; and foreign exchange reserves rose to a comfortable level, according to the review.

 

Because of the decline in food prices, the general point to point inflation fell by 0.05 percentage point to 5.43 per cent in September 2018 from 5.48 per cent in August 2018.

 

However, year-on-year, the inflation rate in September 2018 fell by 0.69 percentage point from 6.12 per cent, the MCCI said.

 

"A comparison of inflation data for urban and rural areas in September of FY 18 shows that the general inflation rate was higher in urban areas than in rural areas," it noted.

 

The Bangladesh Taka depreciated by 0.06 per cent in terms of US dollar between end-June and end-September of 2018.

 

However, gross foreign exchange reserves stood at $31.95 billion (with ACU liability of US$ 0.54 billion) as of end September 2018, as compared to $ 32.927 billion (with ACU liability of US$ 1.15 billion) at the end of the previous month.

 

The foreign exchange reserves at end-September 2018 was equivalent to 6.35 months' import payments, the MCCI estimated.

 

It also said the foreign exchange (forex) reserve will fall somewhat in November due to the payment to the Asian Clearing Union (ACU) against imports.

 

Bangladesh's forex reserve came down to $ 31.06 billion on November 11 from $ 32.17 billion of the previous working day after making a routine payment of US$ 1.13 billion to the ACU against imports during the September-October period of this calendar year.

 

The MCCI, in its review, predicted the rate of inflation is likely to go up in October because of the probable rise in some essential commodities.

 

"It is assumed that the peaceful political situation that currently prevails will continue in the coming days. Therefore, export, import, and remittances can be expected to increase," the review said.

 

When it comes to export and import, the review noted export earnings in Q1 of FY19 rose year-on-year by 14.75 per cent to US$ 9.941 billion from US$ 8.663 billion.

 

Meanwhile, import payments in July-August of FY19 stood at US $9.538 billion, which is 5.66 per cent higher than those of the same period of FY18.

 

On the other hand, remittance inflow in Q1 of FY19 increased by 13.68 per cent to US$ 3.856 billion compared to US$ 3.392 billion in Q1 of FY18.

 

The agriculture sector performed well during the quarter under review, the report said, attributing it to favourable natural factors and strong official policy to ensure timely availability of inputs at affordable prices.

 

The sector grew at a robust rate of 4.19 per cent in FY18 compared to a moderate 2.97 per cent in FY17, the review said.

 

Meanwhile, the industry sector managed to grow by 12.06 per cent in FY18, exceeding the growth rate in the previous fiscal by 1.84 percentage points-- despite the shortage of energy, the report noted.

 

The MCCI noted that although the power supply situation improved in the quarter under review, the demand for power also shot up as anticipated.

 

The demand for electricity was 10,881 mw as of 30 September 2018 while the maximum generation in 2018 (recorded on 19 September) was 11,623 mw.

 

"Bangladesh's economy is progressing well, but due to infrastructure bottlenecks and shortage of power and energy its performance has remained below its true potential," the MCCI said.

 

The trade body said the government should adopt adequate steps to overcome these problems, and maintain political stability, which are essential for creating an investment-friendly climate for achieving higher economic growth.

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