Ensuring Sustainable Development

The long-term objectives of the BANGLADESH government led by Sheikh Hasina is to eradicate poverty and transform the country into a digitalized and middle-income country by 2021 when it will celebrate 50th year of the country's independence. The Bangladesh government is committed to ambitious targets and programmes as there is no other alternative for a population of 150 million with one of the heaviest concentration of poverty on earth.

To “ensure sustained economic growth, environmental protection and social justice which implies improvement of livelihood options of the people, reduction of poverty; ensuring wise use of natural resources, good governance and people's participation”, the Bangladesh government in technical and financial collaboration with the United Nations Environment Programme (UNEP) has chalked out a National Sustainable Development Strategy (NSDS) . The strategy focuses on four keys areas of development: Sustained Economic Growth; Agriculture and Rural Development; Social Security and Protection; and  Environment and Natural Resource Management.

Broad-based, inclusive, socially and environmentally responsible economic growth is viewed by the apex Bangladesh Bank as the way forward in strengthening domestic demand with rapid reduction of poverty, said the Governor of the Bank Dr. Atiur Rahman at a recent speech at Dhaka University .

The global financial meltdown notwithstanding, Bangladesh could keep up its growth prospect in the current crisis by emphasizing agriculture, employment programmes and social safety net expansion. The country is expecting a 6 percent GDP growth during the current financial year (2009-10) inflation at an average 6.5 percent This is reflected in a speech of Bangladesh Bank Governor Dr Atiur Rahman's speech at an international conference held in India.

Because of regulated limited openness of Bangladesh to short term capital flows,Dr Rahman ponited out, financial sector remained virtually unruffled by the global crisis. A small net FPI outflow (US$ 159 million) in fiscal year 2008-09) was far outweighed by sustained strong inflows of remittances from workers abroad, in part presumably transfers of their savings from jittery markets in host countries. 

Competitiveness of apparels and textiles export sector kept overall FY 2008-09 export growth in double digits, despite export decline in other commodities. Import of capital goods for new investment activities weakened in the recessionary global environment However, and food grain imports remained low with good domestic harvests. Low outflows for imports from the surging inflows of workers’ remittances and export proceeds kept the local financial markets awash with liquidity, in sharp contrast with most markets elsewhere facing liquidity crunch caused by large scale flight of FPI and non resident deposits.

Bangladesh Bank guided the financial sector in utilizing the liquidity glut in supporting productive pursuits (lending in agriculture, SMEs, renewable energy and effluent treatment projects etc., sectors typically under served by markets) that strengthen domestic demand by increasing employment and income. Export sectors affected by weak demand were extended fiscal support (modest subsidies, tax/fee waivers etc.) from the government, which also increased social safety net expenditure for the weak and vulnerable population segments.  

Bangladesh Bank allowed temporary easing of bank loan rescheduling terms for affected exporters, besides allowing easy credit conditions to continue with supportive monetary policies. Growth of Bangladesh economy has consequently been impacted only modestly by the crisis, with 5.9 percent real GDP growth in FY 2008-09 following 6.2 percent growth in previous financial year. Current trends of economic activities indicate that real GDP growth is likely to be around 6.0 percent in fiscal 2009-10; accelerating in subsequent years as export demand recovery gains firm traction. CPI inflation remains moderate (annual average 5.21 percent as of November 2009), and is projected not to exceed 6.5 percent by June 2010.Over the medium term Bangladesh is aiming at rapid poverty eradication with sustained strong and inclusive economic and social growth.

The monetary policy for 2009-10 lays emphasis on bringing competitive conditions to bear on lending rates while ensuring that the credit needs of the private sector are met. Capital adequacy and risk management in banks and financial institutions are being carefully monitored. Public finances were impacted by tax revenue shortfalls in 2008-09, reflecting the weakening of economic activity and imports. At the same time, expenditure cutbacks were necessitated by implementation capacity constraints. Accordingly, the budget deficit at 4.1 percent of GDP fell below projections. For fiscal 2009-10, a step-up in public expenditure on expanding social safety nets, agricultural and rural development as well as support to sectors affected by the global downturn is expected to take the deficit to 5 percent of GDP.

Real GDP growth in 2009-10 is expected to be in the range of 5.5-6 percent at the current juncture with some downside risks associated mainly with the outlook for the global economy and the implications for exports and remittances. The modest fiscal stimulus and judicious use of foreign exchange reserves built during 2008-09 should enable some smoothing of domestic consumption and investment and support growth. percent in June 2009, aided by the rise in domestic agricultural output and the collapse of global commodity prices. There are, however, indications of the firming up of inflationary pressures, supported by the persisting upward trend in real estate prices. Consequently, annual average CPI inflation is likely to remain at around 6.5 percent in 2009-10.

For 2009-10, a step-up in public expenditure on expanding social safety nets, agricultural and rural development as well as support to sectors affected by the global downturn is expected to take the deficit to 5 percent of GDP. The modest fiscal stimulus and judicious use of foreign exchange reserves built during 2008-09 should enable some smoothing of domestic consumption and investment and support growth.

Uncertainties associated with the global slowdown weakened new investment activities however, with decline in capital goods imports. Low outflows for imports from the growing export receipts and workers' remittance inflows kept local financial markets awash with liquidity. Bangladesh government made ample allocations in the FY 2008-09 and FY 2009-10 national Budgets to uphold domestic demand by expanding the social safety net for the weak and vulnerable population segments, and to provide temporary support to economic sectors hurt in the global crisis. (Source: Dr Atiur Rahman's speech at First International research Conference- 2010: Challenges to Central Banking in the Context of the Financial Crisis organized by the Reserve Bank of India 12-13 February in Mumbai, India)

Exports facing demand decline and/or price decline in markets abroad were extended cash incentives at different rates out of allocations from the national budget (a new incentive is under consideration for apparels exports to new markets, for five years, starting at five percent of export value and diminishing by one percent each year).

Exports receipts during July-November, 2009 decreased by US$ 453.74 million or 6.93 percent to US$ 6097.71 million as compared to US$ 6551.45 million during July-November, 2008. Import payments during July-November, 2009 decreased by US$1252.10 or 12.24 percent to US$8977.10 million compared to US$10229.20 million during July-November, 2008.                   

A delegation of the India-Bangladesh Chamber of Commerce and Industry (IBCCI) that met Foreign Minister Dr Dipu Moni last month (December 2009) pointed out that There are huge possibilities for investment and expansion of trade for Bangladeshi enterprises in the trillion dollar market of India. India has recently removed the barrier for Bangladeshi investment in India. Time has come for the matured Bangladeshi entrepreneurs in the Financial, Industrial and Insurance sectors to spread their operations abroad. India is the nearest country which had traditionally been deprived of world class quality products. Bangladesh has traditionally been an advocate for quality products from inception. 

According to the Ministry of Commerce, Government of India India's total trade with Bangladesh increased from $1 billion in 2001-02 to $3.17 billion in 2007-08. During the first nine months (April-December) of fiscal 2008-09 the Indo-Bangla trade was $ 2.26 billion. The Federation of Bangladesh Chambers of Commerce & Industry (FBCCI) maintains that besides normal trade through official channels, another around $3 billion is being brought into Bangladesh informally totalling an acutal imports of the order of approximate $ 6 billion from India to Bangladesh. On the other hand Bangladesh's exports to India in 2007-08 stood at $ 257.12 million and in the first nine months of fiscal 2008-09 imports from India into Bangladesh sttod at 1.99 billion, according to the Commerce Ministry of India.  

Earlier, in July last year ( 2009) Prime Minister Hasina told India's Federation of Indian Chambers of Commerce and Industry (FICCI) that all trade and business should remain open for the regional countries for mutual trade and investment keeping intact people's interest. In response to delegation leader Harsh C Mariwala's suggestion of special economic zones in the bordering areas exclusively for Indian investment, the Bangladesh Prime Minister said that the government has planned to build such zones where, like others, Indian businessmen can also make their investment, but added that Export Processing Zones (EPZs) were already there in Comilla, Feni and Syedpur (Uttara EPZ) and the Indian businessmen could invest in these EPZs as they are close to the Bangladesh-India frontier. 

Meanwhile, at a recent meeting with the country's Commerce Minister M Faruk Khan the Metropolitan Chamber of Commerce and Industry, Dhaka, emphasized on the urgency of signing a free trade agreement (FTA) with India as Sri Lanka, Thailand and other countries are capturing the Indian market through bilateral and multilateral agreements. The proposal for signing a bilateral FTA with India was mooted in 2003 and since then there has been studies at different levels. The Chamber maintains that Bangladeshi exporters are facing problems in accessing Indian market due to tariff and non-tariff barriers and the government should take initiatives to reach an understanding at political level. So far, out of 8 million pieces of duty-free ready-made garments (RMG) items, only 1.52 million pieces were exported in 2008 and 4.08 million pieces in 2009. (Source: The Financial Express, Bangladesh)

South Asian Free Trade Agreement (SAFTA) is in place since the July 1, 2006 and despite having duty free access of Bangladeshi products to Indian market, the trade has not significantly increased. Negotiations on BIMSTEC (Bay of Bengal Initiative for Multi Sectoral, Technical and Economic Cooperation) FTA are in progress and Bangladesh, MCCI feels, should strive for making a favourable deal alongside the trade negotiation.

Bangladesh is likely to seek duty-free access of 232 major exportable items during Prime Minister Sheikh Hasina's visit to India in January. Currently, the items are on the Indian negative list of 460 products. During her talks with the Indian government major issues that are likely to figure includes removing non-tariff barriers and certification-related problems, establishment of border haat and transit facility connecting Nepal and Bhutan.

Foreign exchange reserves held by the Bangladesh Bank stood at US$ 9544.7 million at the end of October 2009 compared to US$ 7470.9 million at the end of June 2009. This was higher by US$ 2073.8 million or 27.76 percent compared to US$ 7470.9 million at the end of June, 2009.

Sources
1. Monthly Economic Trends, November 2009, Bangladesh Bank
2. Speech of , Dr. Atiur Rahman, Governor, Bangladesh Bank on World Financial Crisis and Global Business Challenges at Senate Bhaban, Dhaka University on 22 December, 2009
3. International Monetary Fund

Updated February 18, 2010