Bangladesh to pick up growth
By Syed Tashfin Chowdhury
DHAKA - The Bangladesh economy, already benefiting from higher prices of food
exports and a strengthening industrial sector, may expand at a faster rate over
the next two years, well outpacing global economic expansion, according to the
World Bank.
Bangladesh's gross domestic product (GDP) may expand 6.1% in 2011 and 6.2% the
following year, the bank forecast in its report "Global Economic Prospects
2011: Navigating Strong Currents". That is faster than the 5.8% growth rate in
2010 and 5.5% in 2009.
The country will continue to expand even as the global economy growth rate
slows to 3.3% in 2011 and 2.6% the following year, down from 3.9% in 2010, the
bank said, as the "post-crisis
bounce-back phase of the recovery" moves to a "slower but solid pace of
growth". The bank stressed that developing countries were contributing to
almost half of this growth.
The World Bank's outlook for Bangladesh comes in lower than the 6.7% figure
recently issued by the country's central bank, Bangladesh Bank.
"As the Bangladesh Bank is located within the country and has been dealing with
economic issues more closely, its predictions are likely to be more accurate
provided the central bank has been impartial and free from ruling party
influence," Anu Muhammad, economics professor at Jahangir Nagar University,
told Asia Times Online, adding that "such economic reports are based on a
number of specific assumptions which are never revealed".
The ruling Bangladesh Awami League, which came to power in December 2008 for a
five-year term, has long campaigned that it will ensure economic growth.
Last year's economic growth came within the 5.5-6% forecast by the Bangladesh
government, while well outpacing the World Bank's 4.5% outlook for fiscal
2009-2010. A year earlier, the World Bank's prediction also fell short of
actual growth - by 5 basis points - while the government was spot-on at 5.9%.
Bangladesh Institute of Development Studies research director Dr Zaid Bakht,
who predicts growth of "around 6.5%" this year, told Asia Times Online that
although the World Bank report was positive, "the economy is likely to do much
better as the agriculture sector may account for 4% of the growth in the coming
year while the industrial sector continues to increase impressively."
The World Bank's positive outlook was more cautious when referring to other
emerging and high-income countries. "In most developing countries, GDP has
regained levels that would have prevailed had there been no boom-bust cycle.
While steady growth is projected through 2012, the recovery in several
economies in emerging Europe and Central Asia and in some high-income countries
is tentative. Without corrective domestic policies, high household debt and
unemployment, and weak housing and banking sectors are likely to mute the
recovery."
Developing economies enjoyed improvements in trade last year, resulting in an
average GDP growth of 5.3%, through "improvements" - ie gains - in commodity
prices, to a larger extent, and remittances and tourism to a smaller degree.
Rising food prices are an increasing drain on the incomes of millions of people
in developing countries, but the World Bank argues that this was not a matter
of major concern last year. Dollar depreciation, improved local economic
conditions and increasing prices of goods and services in these economies meant
higher food prices did not substantially affect these economies, it said.
In Bangladesh, the price of rice, a dietary staple, has risen to between 42 and
46 takas (US$0.59-$0.64) per kilogram this month from 38-40 last month and may
rise to up to 52 takas by March, the Financial Express reported this week,
giving the retail prices of a popular local brand. Over the past year, the
price of coarse rice has surged 40.4%, that of the finer Minicate brand 18-20%
and different varieties of Paijam rice by up to 38, according to a market
report prepared by the Trading Corporation of Bangladesh. Retailers in Dhaka
recently claimed the price of coarse rice had gained 40% in the past six
months.
Still, Bangladesh is benefiting from higher overseas prices for its food
products. Export earnings from frozen food such as fish and shrimps between
July and November surged 40% to US$266.21 million from the year-earlier period,
the Daily News reported this month, citing the Export Promotion Bureau. Export
volume did not increase, the report said.
The country is also profiting from higher wages in China, which are encouraging
Chinese and international companies with factories there to relocate plants to
lower-wage centers such as Bangladesh.
Overall exports from Bangladesh increased by nearly 30% during the first
quarter of the current fiscal year (July through September), Dr Zaid Bakht,
research director, Bangladesh Institute of Development Studies, told Asia Times
Online. "The growth stood at nearly 40% during the first six months." A record
number of letters of credit being opened to import goods were also a good
indicator of the industrial sector's growth, he said.
The World Bank report further mentioned that Bangladesh's growth had been
strengthened by the government's deficit being managed better than in
neighboring countries.
However, both Bangladesh Bank predictions and the World Bank report raise
concerns about remittances over the next two years, due to a slowdown in
migration, lower wages earned by Bangladesh people working overseas, and
currency changes.
Remittances in the last fiscal year increased barely 2% to US$11 billion from
2009, compared with a near 19% annual increase over the 30 years to 2008.
"As the stock of Bangladeshi migrants abroad continued to rise (albeit at a
slower pace than in the past), the pronounced moderation in the inflows (and
recent decline in November) could reflect a variety of factors, including a
fall in employment, decline in wages, or a decline in the propensity to remit,"
the report said.
The World Bank warned that overall inflation in the region may continue to
increase. "The rise in prices in Bangladesh, Bhutan and Nepal also partly
reflects spillover from India, a key trade partner, through higher imported
prices," the report said. It also warned that power supply problems in
Bangladesh could be a major hindrance to economic growth.
Professor Anu Muhammad pointed out that the World Bank report assumed current
factors. "However, the prices of oil, coal and rice continue to increase and we
do not really know how this will affect the economy in the next two years," he
said.
According to the World Bank, the Indian economy will grow by 8.7% in 2011 and
by 9.5% in 2012. On the other hand, Pakistan may suffer a slide with only 2.6%
growth this year, nearly half of its previous year's 4.4% growth. The report
forecast that Pakistan's GDP may ease slightly to 3.8% in 2012.
The report predicted that due to an improved monsoon and better crops yield,
Nepal's GDP may grow at 3.7% in 2011 and 4% the following year.
Anu Muhammad, while welcoming economic growth, warned against increasing
deforestation, rising prices and higher rates of employment.
Syed Tashfin Chowdhury is a senior staff writer at New Age in Dhaka.
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