Bangladesh economy off to struggling start in FY20

Staff Correspondent | Published: 00:00, Oct 20,2019 | Updated: 17:09, Oct 20,2019


The country’s economy has shown signs of sluggishness in three months (July-September) of the current fiscal year 2019-2020 as all major indicators, except remittance, performed poorly in the period.

Export earnings, import payment, private sector credit growth, revenue collection, development budget implementation, and financial market situation became worse or weak in the first quarter of FY20 compared with the corresponding period of last fiscal year 2018-19.

Economists on Saturday told New Age that the performance on the major economic fronts in July-September indicated that the overall economy was slowing down with little hope of rebound as the overall situation was not good at all.

They said that the government should immediately address some issues, including devaluation of the taka against the US dollar to make export competitive, crisis in financial market and revenue mobilisation, to give a momentum to the economy.

According to Export Promotion Bureau data, country’s export earnings dropped by 2.94 per cent year-on-year in July-September of FY20 to $9.64 billion from $9.94 billion in the same period of FY19 due to a global economic slowdown amid trade war between the US and China.

Of the export earnings, export of readymade garments that constitutes around 86 per cent of the country’s exports fell by 1.64 per cent to $8.05 billion in July-September of FY20 from $8.19 billion in the same period of FY19.

Bangladesh’s economy would be hit hard if the current trend of negative growth of export earnings continues till the end of this fiscal year, experts and traders said.

Garment exporters said that the foreign orders received for the RMG products till December was not encouraging as major economies like the US, the UK and Germany were stuttering amid the ongoing US-China  trade war and Brexit related uncertainties.

Imports payment fell by 2.3 per cent to $8.62 billion in July-August of FY20 against $8.83 billion in the same period of FY19, according to Bangladesh Bank data.

Import of industrial raw materials and capital machinery, one of the key indicators for the country’s economic and investment situation, had been falling constantly in last few months that resulted in a fall in the overall import payments.

The private sector credit growth hit a nine-year low in August at 10.68 per cent, the lowest after September 2010 when it was 6.09 per cent because of lack of appetite for loans on the part of industries.

Liquidity crisis in the banks due to a slow deposit growth along with the advance deposit ratio adjustment-centric cautiousness of a section of the banks also caused the slump in the private sector credit growth.

The decision of liquidation of People’s Leasing and Financial Services due to deterioration of its financial health is another example of poor situation in the financial market.

The revenue earnings by the National Board of Revenue fell Tk 9,318 crore short of its target for July-August due to a slowdown of economic activities in the country and external trade.

Revenue collection grew only 3.35 per cent year-on-year in the period and collection stood at Tk 29,620 crore or 76 per cent of the collection target of Tk 38,937 crore set for the period, according to the provisional data of the NBR.

Like revenue mobilisation, the rate of annual development programme implementation declined to 8.06 per cent in the first quarter, which is a four-year low, as the government agencies managed to spend only Tk 17,344 crore in the period.

Only remittance inflow grew by 16.58 per cent year-on-year following announcement of distribution of 2 per cent cash incentive against inward remittance and stood at $4.51 billion in July-September of FY20 against the receipt of $3.87 billion in the same period of last fiscal year.

The ailing capital market also struggled in the first quarter because of poor situation in the financial market.

Between July 1, 2019 and September 30, 2019 the key index of Dhaka Stock Exchange lost 474 points or 8.8 per cent because of financial market woes and lack of confidence in the market regulator on the part of investors.

The situation worsened in October as the market turmoil continued in the current month.

Policy Research Institute of Bangladesh executive director Ahsan H Mansur said that the indicators showed that the economy became slower in the period.

There may be a situation like India where quarterly economic growth of the country recently fell to nearly 5 per cent from over 8 per cent once, he said.

‘We don’t know the actual short-term economic situation of the country as there is no quarterly GDP measurement system in the country,’ he said.

The government provides a final GDP calculation which often faces questions and doubt as the figure remains inconsistent with performance of the indicators.

The indicators show that the economy is slowing down.

The country’s banking system has been suffering over the last few years in absence of necessary care, Mansur said.

‘The stock market reflects the actual scenario of the country’s economy as almost all the sectors have representation there,’ he said.

He said the stock market situation was the early warning for the economy as well as for the government.

The government should address the issues immediately, otherwise the situation will worsen, he said.

The government is not devaluating the currency as required rate to revive the export earnings, he said.

Development budget implementation will be affected if the revenue generation does not get pace, he said.

Former finance adviser to an interim government Mirza Azizul Islam on Saturday expressed deep concern over the performance of the overall economy in the first quarter of FY20 saying that that all indicators of the economy were performing poorly.

The performance in the first quarter indicates that the economic growth is slowing down in the country in contrast to the government’s target of achieving the GDP growth at 8.2 per cent, he said.

Economic indicators are going down though they should move up to achieve the growth target, he said.

Mirza Aziz also saw little possibility that the economic indicators would be able to regain the momentum due to both external and internal factors.

The private sector credit growth may not pick up as the problems in the banking sector are not being solved, he said.

Capital machinery import still remains in the negative terrain, indicating poor health of investment scenario.

The possibility of making a turnaround of export earnings is also unlikely as the country cannot grab the export orders shifting due to trade war between the US and China, he said, adding that initially Bangladesh exporters got some orders but now those were going to Vietnam, Cambodia, Laos and some other countries.

Better situation in the remittance earnings could not be maintained in the coming days as expatriates in large numbers continue to returning from Saudi Arabia, the largest source of overseas employment, he said.

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