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Sluggish exports dim prospects in Bangladesh

Publication Date : 19-04-2012

 

Bangladesh's economic growth will slow down to 5.9 per cent in the current fiscal year, largely due to falling exports and sluggish investment, the International Monetary Fund said on Tuesday.

The growth in gross domestic product will, however, make a comeback in the upcoming fiscal year, expanding at 6.4 per cent, the IMF said.

The estimate is lower than the government's target--7 per cent--for the current year of 2011-2012.

The country's economy expanded 6.7 per cent in fiscal 2010-2011 even in the face of the global recession.

The forecast from the Washington-based lender came in its April 2012 World Economic Outlook released on Tuesday, ahead of the Spring Meetings of the IMF and the World Bank in Washington.

Bangladesh's growth prospect for this year is almost in line with the slowing growth in Asia, which will expand by 6 per cent in 2012.

The IMF said China and fellow emerging economies will face slower growth in 2012-13 on weak external demand, but strong Chinese domestic demand and policy easing by other Asian countries should help ensure a soft-landing.

On Asia, the report said, weaker external demand has dimmed the outlook. But resilient domestic demand in China, limited financial spillovers, room for policy easing, and the capacity of Asian banks to step in as European banks de-leverage suggest that the soft landing underway is likely to continue.

The IMF also said Bangladesh's overall inflation would be 10.4 per cent in the current fiscal year, which will come down to 7.9 per cent in 2012-2013.

In the World Economic Outlook report, the IMF said commodity price shocks can have large economic, social, and political effects on low-income countries (LICs), whether they are commodity importers or exporters.

Global commodity price shocks also tend to create strong inflation and social pressures in the LICs because of soaring food prices, it said.

Earlier on Monday, the IMF also said Bangladesh faces major challenges in restoring macroeconomic stability, strengthening its external position, and engendering higher and more inclusive growth.

Bangladesh's export growth slowed sharply from its record pace last fiscal year.

Exports grew at a slow pace at 0.15 per cent to US$1.99 billion in March from a month ago for the ongoing debt crisis in the Eurozone.

Earnings fell by 7.23 per cent in March, compared to the same month a year ago. This is the first time that the monthly earnings from exports have gone in the negative territory in the current fiscal year.

The IMF said, over the past 18 months, macroeconomic pressures have intensified in Bangladesh, resulting in a marked deterioration in its external position. These pressures stem mainly from large oil and capital imports associated with new fuel intensive power stations, an oil price-driven terms-of-trade shock, and expansionary fiscal and monetary policies.

As a result, the balance of payments slipped into a deficit in fiscal 2011 for the first time in a decade. Much of the foreign reserve buffer built during fiscal 2009-10 was used up in 2011, against the backdrop of limited exchange rate flexibility, said the IMF.

The global lender also said a now-weaker global outlook and firming in oil prices weigh on the near-term BoP prospects.

The ongoing efforts to address power shortages and infrastructure deficit are expected to add to further pressures in Bangladesh, said the lender.

 

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