Economy regains growth momentum

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The economy has regained the momentum for growth, said Metropolitan Chamber of Commerce and Industry (MCCI) in its latest analytical publication on the state of the economy in April through June of FY 2007-08.

In the publication titled ‘Review of Economic Situation: April-June FY 2007-08′, the credit for the growth has been given to higher production in agriculture and industries sectors, increased remittance, higher implementation of the Annual Development Programme (ADP), improved investment activities and slight decline in inflation rate.

The chamber said the overall performance of the economy has improved in the second half of the last fiscal compared to the first half of the year. “At such a trend, the economy is due to achieve the growth rate of approximately 1.6 percent per quarter, which has been achieved since FY03,” said the review.

It said food grains and fisheries production went up by 1.8 percent in the last quarter of FY08 from 1.4 percent in the third quarter, while industrial production increased by 2.5 percent from 2 percent.

Investment activities improved as indicated by higher amount of LCs opened for capital machinery by different sectors. Import of capital machinery, which went down to $371.67 million during January-March 2008, showed an upward trend as higher number of LCs were opened in July-May 2008, according to the review.

It also mentioned that remittance from abroad increased by 50 percent in Q4 from 47.2 percent in Q3 of FY08.

Implementation of the ADP is estimated to reach Tk 8,900 crore in Q4 as opposed to Tk 3,272 crore in Q3. Lastly, and more significantly, the inflation rate came down to 7.44 percent in May from 10.06 percent in March of 2008, the review mentioned.

The MCCI in the review, however, said the business community felt that the failure to improve supply of gas and electricity has been a major lapse on the government’s part. Besides, they are also concerned over the process of transition to democracy.

“The large and medium level entrepreneurs feel that the overall business climate and the government’s commitment to be business-friendly are proving to be helpful to business confidence. They stated that continuation of stable monetary policy, improved performance of the infrastructures and check on borrowings by the government from the banking sector would prove to be mutually beneficial to the business community and the economy.”

“On the other hand, the businessmen in small and micro sectors are found to be less optimistic. Businessmen engaged in poultry farms, food processing, engineering workshops, transportation and packaging and printing complain against lack of policy support from the government and more particularly, against non-availability of electricity and gas. They point out that higher prices of gas and electricity and the law and order situation pose a grim future for small and micro enterprises,” it said.

Analysing the price situation, the MCCI in the review said price pressures remained strong in April-June 2008, with the average rate of inflation rising to 9.9 percent from 9.8 percent in the previous quarter. “The point-to-point inflation, however, fell to 7.44 percent in May 2008 from 10.06 percent in March 2008 and 11.59 percent in December 2007.”

“Domestic inflation has been in line with higher global oil and agricultural commodity prices. In particular, the increased pass-through of the prices of rice and other food products led to the acceleration in food inflation. The inflation rate in the rural areas remains higher than in the urban areas. The prevailing short-term measures like OMS of food grains at subsidised prices, duty-free import of food grains and edible oil, increasing the import of food grains, lowering of interest rate against import credit of food grains, regular market monitoring, and fixation of maximum retail price for edible oil need to be continued,” it observed.

The Bangladesh Bank continued its accommodative monetary policy, it said adding that credit flow to the private sector up to April 2008 increased by 23.1 percent compared to the corresponding period of FY2006-2007. “Credit to the government sector increased by 22.6 percent, while credit to the public sector enterprises declined by 13.3 percent compared to 15.7 percent, 31.5 percent and 6.6 percent increases, respectively, during the corresponding period of FY2006-2007.”

“M2 (currency outside banks, demand deposits and term deposits) recorded an increase of 11.2 percent during July-April 2007-2008 against the 11.9 percent increase during July-April 2006-2007, while the more liquid narrow money (M1) grew by 10.4 percent compared to 12.1 percent in the corresponding period last year,” it continued.

It said the total liquid asset in the banks was Tk 47,967 crore in April 2008 against Tk 44,841 crore in June 2007. The Central Bank mopped up excess liquidity. In April 2008 excess liquidity was Tk 13,325 crore as against Tk. 14,279 crore in June 2007.

“The disbursement of long-term industrial loans during July-March of the current fiscal year increased by 66.3 percent, which was only 26.0 percent during the corresponding period of FY2006-2007. Disbursement of agricultural credit also registered an increase of 60.6 percent during July-May of FY 2007-2008 compared to the 9.3 percent negative growth of disbursement during the corresponding period of the previous fiscal,” said the review.

According to the MCCI publication, the total amount of remittance in July-May of FY08 was $ 7,164 million compared to $ 5,462 million in July-May FY07.

The review also made detailed analysis on service sector, public finance, balance of payments and the foreign exchange market.

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