Transcript Quarterly Economic Update

Bangladesh Economy: Passing the Point of no
Return?
2nd July 2015
Dr. Stuart Davies
Reflections on the Economy in FY15…
Headline: ‘Fairly good given the circumstances’
• Growth of between 5.6% and 6.1% is expected, BBS past the upper
end at 6.5% (these are somewhat below FY15 budget and 6th 5YP)
• Investment at 28% of GDP (22% private) is below 6th 5YP target
(32.5%) – tough doing business and conservative lending practices
• Inflation – downward trend 6.6% from 7.3% in June FY14
• Public finances – revenues are reported to have exceeded target
FY15; spending in the main has been contained (helped by the fall
in commodity prices).
• Budget deficit up – as expected – but manageable at 5% of GDP
• Annual development programme – In first 10 months of FY15 ADP
was around one-half of planned spend (capacity issues)
Reflections on the Economy in FY15…
• Trade – Political turmoil and BDT appreciation affected exports.
Imports have remained strong in spite of weaker commodity prices.
 Widening trade deficit (in the first three quarters of FY15).
• Balance of payments remains in surplus; foreign currency reserves
provide a comfortable 6/7 month cushion; [trade-weighted]
exchange rate has appreciated over the past year
• Monetary Policy – Targets unchanged. Lending rates have declined
but remain high due to weak credit quality on Banks’ BS
• Financial Stability – NPLs still problematic in SOCB. Private banks
have had governance issues (appointment of now 6 observers)
Reflections on the Political Turmoil…
Headline: ‘Sustained, pervasive and more damaging campaign than in FY14’
•
CPD - Estimated total losses suffered by selected sectors from
January to mid‐March of 2015 were about BDT 49 billion
(about 0.55% of GDP) for FY2015 if the 6.5 GDP growth
projection for FY2015 by the Bangladesh Bank is taken as a
reference point.
World Bank - Political turmoil led losses in the 3Q2015 about
1% of GDP or $ 2.2 billion.
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In the absence of political turmoil economic growth would have
between 6.4 and 6.6 percent in FY15.
With turmoil reduced WB growth estimate to 5.6 percent – World
Bank (2015).
Industries faced 25%, service sector 68% and agriculture 7% loss.
Losses were compounded by BDT appreciation
Reflections on the FY16 budget...
Quick recap: ‘Ambitious with inconsistencies’
• Bigger budget – NBR to mobilise an extra 0.451 trillion BDT in FY16
• Macro assumptions have been reigned in for FY16 – 7% growth and
6.2% inflation
• Heavily reliant on increasing the tax base – 1.2 million to 3 million
– but also cigarettes, private education, mobile comms.
• Winners & Losers – power & energy as well as general services (CS
pay structure) vs. human and rural development
• Deficit – an expected 5% of GDP
• Financing the deficit – reliant on domestic sources (3.6 p.p.) mostly
commercial banking sector and savings certificates.
 Not a costless exercise – interest servicing and crowding out!
• Tax/GDP ratio still very low in global terms (circa 10%)
Reflections on the FY16 budget revisions...
Quick recap: ‘will the roll back cause problems for NBR?’
• No major changes to the budget delivered on the 4th June
• Some revisions announced…
– Tax exempted income limit from Poultry and Fisheries is BDT 1.9 million
(rather than 1m)
– Export Sector including Ready-made Garments Sector will be charged 0.6%
tax at source (rather than 1%)
– Use of mobile phones and internet services will incur 3% supplementary
duty (rather than 5%)
– Private universities will incur VAT at 7.5% (rather than 10%)
• Roll back put a greater reliance on NBR to increase the number of
tax payers
 If FM aims to meet the LDC graduation criteria in 2018 (as outlined in
budget speech), more needed on human development (health, education
outcomes)
Bangladesh is progressing…
Headline: ‘Bangladesh is on its way!’
• Against development milestones:
– Middle Income Status confirmed last night
• FY14 Income per capita above $1,045 threshold.
– 2015 LDC review was a close call
Economic Vulnerability
Human Asset
Per capita Income
25.1
63.8
$943
Less than 32
Greater than 66
3-year average above $1,242
• Two out of three criteria need to be met to begin the graduation process
• Finance Minister has high aspirations for 2018
– MDG performance respectable in 2013 assessment
• Already met several targets of the MDGs, notably poverty gap ratio.
Though still many challenges...
Headline: ‘Formidable challenges remain’
• Leave no one behind – still work to do on MGDs
• Addressing obstacles to investment – Power, Skills, Contract
Enforcement, Land, Transport, Political Stability…
– Improve doing-business (173 out of 189)
– Improve sovereign credit rating
• Create enough jobs – 2 million entering the jobs market each year
– 1.3 million jobs (plus 0.5 million abroad) were generated between 2010 –
2013…but between 2005-2010 the corresponding figures were 1.7 million
(0.6 million resp.)
• Build institutional capacity – utilisation of the development budget
just one example
• Diversify both production and destination of exports
…and, of course, do this all in a climate resilient way!
Programming for Economic Development...
Headline: ‘We’re here to help’
• We have recently diagnosed the problems…
– now working on the therapy.
• Current Growth and PS programmes…
 KATALYST – improves productivities and competitiveness of small
farmers and enterprises
 PROSPER – delivering microfinance services to the ultra poor;
supports a new Microfinance Regulatory Authority; and promotes knowledge
development and dissemination, through the institute of Microfinance
 RISE – Through Bangladesh Investment Climate Facility, DFID supports
Bangladesh to improve the investment climate.
 Skills & Employment – Still at inception phase, aims to strengthen the PS provision of training, certification
and employment services in Garments and Construction.
 Business Finance for the Poor – aimed at enabling micro, small and medium enterprises access to the
financial services they need to grow.
 Strengthening Economic Systems in Bangladesh – aimed at increasing dialogue on economic reforms
 Supporting the National Action Plan on Fire & Building Safety – working with other donors and the
Government to improve the inspection regime and working conditions of garments factories.
• To help Bangladesh pass the 7% point of no return!
...
Thank you
and
Ramadan Mubarak
Stuart Davies