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Economy of Bangladesh Overview

Recent Macroeconomic Trends (H1 FY 16)


All three sectors of the economy: agriculture, industry, and services, are performing well.
Industrial growth has been faster than others as expected. The trend analysis shows 8 percent
plus growth for industry and around 4 percent growth for agriculture. Services, being the largest
sector (more than 50 percent), grows at 6 percent on the trend. The share of investment in GDP is
around 29 percent (which is close to Indias and Sri Lankas and almost double than Pakistans)
adequate to generate 6 percent plus growth in output.
Overall, growth in services, construction, manufacturing, and remittances suggests that aggregate
demand and overall economic growth in FY2016 will be picking up. The total debt-GDP ratio of
Bangladesh decreased from 50.7 % in FY1994 to 28.6 % in FY2014. During the same period the
external debt-GDP ratio decreased from 43.3% to 13.6% while the domestic debt-GDP ratio
gradually rose from 7.4% to 15.0% as government financing became more dependent on
domestic sources. Still Bangladesh has one of the lowest Debt-GDP ratios in the region and this
presents opportunities of productive debt by the government to invest in infrastructure and
institutions that facilitate financial activity.
The government implemented 91 per cent of the ADP in the last fiscal year (2014-15), which
was 93 per cent in the previous fiscal year (2013-14) although the year was battered by persistent
political turmoil. For this reason, the Planning Commission has taken initiatives to implement the
ADP and big projects within the stipulated time. Improving the ADP implementation rate,
ensuring quality of government projects, enhancing capacity of implementing agencies are the
key issues related to ADP implementation.
Given existing economic conditions, Bangladeshs current level of inflation of 6.4% can be seen
as already being of moderate level. Twelve month average general inflation is on the decline but
the point to point general inflation has been increasing for the past few months. Although general
inflation has fallen from 6.87 percent in January 2015 to 6.40 percent in June, core inflation that
counts nonfood and nonfuel inflation is on the rise. It has inched up from 6.08 percent in January
2015 to 6.74 percent in June of the same year. The fall in general inflation mainly came from the
declining food prices. Food inflation fell from 7.68 percent in January 2015 to 6.68 percent in
June of the same year. The figure below shows the recent movement in the point-to-point and 12
month average general inflation.

Fig: Recent trends in Inflation (%)


7.5
7
6.5
P-to-P

12 Mon-Avg

5.5
Jun-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

Dec-14

Nov-14

Oct-14

Sep-14

Aug-14

Note: P-to-P: Point-to-point general inflation; 12 Mon-Avg: 12 month average general inflation

The weighted average deposit rate fell from 7.71 % in July 2014 to 6.99 % in May 2015. The
average spread, which stands on the average deposit rate to give the average lending rate, fell
from 5.13 percent in July 2014 to 4.83 percent in May 2015. At the same time, the weighted
average call money rate (month on month) has been on the decline in the recent months
reflecting excess liquidity in the banking system.
Fig: Recent movements in IRS (%)

Interest Rate Spread


5.3
5.2
5.1
5
4.9
4.8
4.7
4.6
Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15

Although export receipts during FY15 increased by 3.35% and stood at USD 31.20 billion
compared with that of FY14, it fell short of the strategic target for FY15 by 6.03 percent. The
recent slowdown in export is attributable largely to demand weakness in the European Union.
Additionally, the competitiveness of exports is eroding due to growing strength of the US dollar
vis--vis Euro in particular. The taka had appreciated by about 17.6 % against the Euro in FY15.

Therefore while the central bank is currently defusing appreciating pressures on the Taka, it may
soon have to go for depreciation of the exchange rate to boost export performance.
Import payments during the past fiscal FY15 increased by 11.26% to amount to USD 45.19
billion compared to the previous fiscal. During the same period fresh opening of import LCs
increased by 2.99 % and stood at USD 43.07 billion compared to the last. Additionally sectoral
composition of the LCs opened during this period reveal that LC opening for industrial raw
materials was the highest (37.49% of total LC opening) followed by Consumer goods (12%).
Trade Balance recorded a larger deficit of USD9.92 billion in FY15 compared to the deficit of
USD6.79 billion in FY2013-14. Although inflow of remittances was higher during the period
under review, a larger import payment contributed mainly to a current account deficit of
USD1.65 billion during FY 2014-15. Despite current account deficit, a higher financial account
surplus of USD5.11 billion, resulted in a surplus of USD 4.37 billion in overall balance during
the last fiscal (2014-15) compared to the surplus of USD 5.48 billion during the same period of
the preceding fiscal. However, higher growth and a current account surplus are projected to
return in FY 2016 with continued political calm.
Fig: Trends in Export, Import and Balance of Trade
350000
300000
250000
200000

Export

150000

Import
BOT

100000
50000
0
FY10

FY11

FY12

FY13

FY14

FY15

Note: Figures are in Crore Taka;


BOT: Balance of Trade figures have been made positive so they show deficit

Remittance receipts in FY15 increased by 7.65% from to its value in FY14 and stood at USD
15.32 billion. The Bangladesh Bank projects 10% growth of remittance for the FY16 along with
14% growth in imports and 7.5% in exports.
Despite impressive remittance growth of FY2014-15, current account balance recorded a
deficit of USD1.65 billion due to higher import payments during this period while the nation
enjoyed surpluses over the fiscal years of 2013 through 2014. This does not signify that the

external sector is gradually running into a difficult stage as the overall balance still remained
positive at USD 4.16 billion in FY15. According to the Bangladesh Bank, the current account
deficit that turns out to be less than 1 percent of GDP is comfortably manageable and does not
pose any immediate risk.
The gross foreign exchange reserve of the country crossed the USD 25 billion benchmark for
the first time in the history of the country as a result of the increased inflow of financial account.
Reserves are at a comfortable level to cover over 6 months of imports of goods and services but
its growth rate will slow down in the near future because of imports' outpacing exports.
Total foreign aid disbursements in FY2014-15 increased by USD0.18 billion or 6.27 percent and
stood at USD3.10 billion compared to FY2013-14. Net receipts of foreign aid also stood higher
at USD2.20 billion in the last fiscal year (2014-15) compared to USD1.83 billion of the previous
fiscal.
Exchange Rate: Between FY11 and FY12, the Taka greatly depreciated against the US dollar
followed by a period of slower depreciation. A period of appreciation followed from early 2012
but since mid-2013 the exchange rate has remained stable. On the other hand, although initially
gradually depreciating from 2010 onwards, the Taka has sharply appreciated against the EURO
in recent times starting from mid-2014. Since the Taka is pegged with the dollar that has much
appreciated against other major currencies like the Euro, the real effective exchange rate (REER)
has also been on the rise in recent times.
The stock of broad money is projected to be Tk. 9155 billion in June 2016, representing 53.33
% monetization of the economy. Domestic credit recorded an increase of Tk.63620.20 crore or
9.97 % (y-o-y) at the end of June 2015 relative to its increase of 11.57 % at the end of June 2014.
Private sector credit growth has always remained stable particularly since the fiscal year of
2013 when the figure was 10.8 % and has stood higher at 13.6 % in FY15. On the other hand
public sector credit growth figures have always been very volatile and recorded a negative
growth of 2.56 percent in June 2015 compared to the same month of the previous year.
Reserve money recorded an increase of 14.33 percent (y-o-y) at the end of June 2015 compared
with the increase of 15.46 percent at the end of June 2014. Of the sources of reserve money,
while net foreign assets of Bangladesh Bank increased by Tk.29897.10 crore in June 2015, net
domestic assets of Bangladesh Bank decreased by Tk.11290.40 crore, resulting from much lower
credit demand by the government from Bangladesh Bank.
NBR Tax Revenue collection during the FY15 stood at Tk.136723.98 crore which was higher
by 13.16 percent compared with the collection of Tk.120819.86 crore during FY14.