Transcript Recent Macroeconomic Developments

MDTA
Recent Macroeconomic
and PRGF Developments
June 17, 2004
By IMF Dhaka office
Do not quote
Bottom Line
• The economic recovery that started in
FY03 strengthened further in FY04
• Although inflation has picked up
• Macroeconomic management remains
cautious and all quantitative
benchmarks and PCs were met
• Good headway has been made on the
structural agenda, but with some
slippages in key areas
Production and Inflation
• Real GDP growth is likely to accelerate to 5.5
percent in FY04 from 5.3 percent in FY03
• Under program, this will be growth and inflation
are targeted at 5.5 percent each
• Industrial production, services, and exports were
main contributors to growth
• Mainly due to higher prices of imported items,
inflation has gone up and will reach 6 percent
(year average) in FY04
Mar-04
Sep '03
Mar '03
Sep '02
Mar '02
Sep '01
Mar '01
Sep '00
Mar '00
Sep '99
Mar '99
Sep '98
Mar '98
Year-on-year
percentage change
Industrial Production, 1998-2004
(12-month running totals)
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Net Foodgrain Production
1991/92-2003/04
15.00
Productin in MT
Change
10.00
23.5
5.00
21.5
0.00
19.5
-5.00
17.5
03/04
02/03
01/02
20/01
99/20
98/99
97/98
96/97
95/96
94/95
93/94
92/93
-10.00
91/92
15.5
90/91
Million Tons
25.5
Change in percent
27.5
20
18
16
14
12
10
8
6
4
2
0
Jul '98
Oct '98
Jan '99
Apr' 99
Jul '99
Oct '99
Jan '00
Apl '00
Jul '00
Oct '00
Jan '01
Apl '01
Jul '01
Oct '01
Jan '02
Apl '02
Jul '02
Oct '02
Jan '03
Apl '03
Jul ' 03
Oct ' 03
Jan ' 04
Apr ' 04
12 months, end-of-period
percentage change
National Consumer Price Inflation, 1998-2004
('85/86=100 for Jul '98-'00; '95/96=100 as of Jul '00)
General index
Food
Nonfood
Fiscal policies were tighter
than programmed
• The budget deficit for FY04 targeted
in the revised budget is 4.2 percent of
GDP, and is likely to come out lower,
against 4.8 percent in the program
• Revenues are falling short of the
target, as do ADP spending and foreign
financingb
Government Revenue and Expenditure, FY00-FY05
12
Percent of GDP
10
8
b
6
4
Revenues (excl. grants)
Revenue Expenditure
Annual Development Program
2
0
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
Broad and Reserve Money Growth, 1999-2003
(12 months, end-of-period, percentage change)
Broad Money
Apl '03
Jan '03
Oct '02
Jul '02
Apl '02
Jan '02
Oct '01
Jul '01
Apl '01
Jan '01
Oct ' 00
Jul '00
Apr '00
Jan '00
Oct '99
Jul '99
Apr '99
Reserve Money
Jan' 99
24
22
20
18
16
14
12
10
8
6
4
2
Monetary policy remains
prudent
• This is appropriate in light of the
increase in inflation
• Private sector credit has grown less
than programmed, as has credit to
government
Broad and Reserve Money Growth, 2001-2004
(12 months, end-of-period, percentage change)
Broad Money
Mar '04
Dec '03
Sep '03
Jun '03
Mar '03
Dec '02
Sept '02
Jun '02
Mar '02
Dec '01
Sep '01
Reserve Money
Jun '01
27
25
23
21
19
17
15
13
11
9
7
5
3
1
4
-5
-10
2
-15
Apr '04
Feb '04
Dec '03
Oct '03
Aug '03
Jun '03
Apl '03
Feb '03
Dec '02
Oct '02
Aug '02
Jun '02
Apl '02
Feb '02
6
Dec '01
Oct '01
Aug '01
Jun '01
Private Credit
20
35
18
16
30
25
14
20
12
15
10
10
5
8
0
Private Credit
Net Claims on Govt
Net Claims on Govt
Bank Credit, 2001-2003
(12 months, end-of-period, percentage change)
1-month T-bill rate, 2000-2004
(in percent per annum; end-of-month)
Apr-04
Jan '04
Oct '03
Jul '03
Apl '03
Jan '03
Oct '02
Jul '02
Apr '02
Jan '02
Oct '01
July '01
Apl '01
Jan '01
Oct '00
Jul '00
Apl '00
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
Jan '00
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
The external sector is
recovering
• From the start of FY04, exports grew
by 15 percent through April and imports
by 18 ½ percent through February
• Export is led by RMG and frozen food.
• External debt management has been
prudent
• Gross international reserves now stand
at $2.6 billion
Jan ' 04
Oct ' 03
Jul ' 03
Apl '03
Jan '03
Oct '02
Jul '02
Apl '02
Jan '02
Oct '01
Jul '01
Apl '01
Jan '01
Imports
Oct '00
Jul '00
Apr '00
Jan '00
Oct '99
Jul '99
30
Apr '99
Jan. 99
Oct '98
Jul '98
Year to year percentage change
5. Merchandise exports and imports, 1998-2003
(12-month running totals)
40
Exports
20
10
0
-10
-20
Trade deficit (million US$)
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Jul '98
Sep '98
Nov '98
Jan. 99
Mar' 99
May
Jul '99
Sep '99
Nov '99
Jan '00
Mar '00
May
Jul '00
Sept
Nov '00
Jan '01
Mar '01
May
Jul '01
Sep '01
Nov '01
Jan '02
Mar '02
May
Jul '02
Sept
Nov '02
Jan '03
Mar '03
May
Jul ' 03
Sep ' 03
Nov '
Jan ' 04
Mar '
Trade balance and workers' remittances, 1998-2004
(12-month running totals)
Trade Deficit
Workers' Remittances
500
Jun. 10' 04
Apr. 01' 04
Jan. 22' 04
Nov. 13 ' 03
Sep. 04, 03
Jun. 26 '03
Apl. 17 '03
Feb. 06 '03
Nov. 28 '02
Sept. 19 '02
Jul 04 '02
Apr 24 '02
Feb 14 '02
Dec 06 '01
Sep 27 '01
July 19, 01
May. 10' 01
Mar. 01, 01
Dec. 21' 00
Oct. 12' 00
Aug. 03' 00
International Reserves, 2000-2004
(in millions of US$, weekly)
3,500
3,000
2,500
2,000
1,500
1,000
The exchange rate has
become a bit more volatile
• In recent weeks, transient factors
have pushed down the taka.
• The increase in volatility is a sign of
a maturing of the exchange rate
market.
Exchange rates, 2003/4
Taka per US dollar
63.0
62.0
61.0
60.0
59.0
58.0
57.0
56.0
55.0
54.0
Interbank
market
May '30
Apl '30
Mar '31
Mar '01
Jan '31
Jan '01
Parallel market
Structural Conditionality:
Tax Administration
• Set up CIU: delayed
• Revamp bonded warehouse system: met
• Expand audit program to 1,000 taxpayers:
not met
• Expand LTU system to VAT and
withholding tax: by end-September
• Replace tax holiday system with rational
investment incentives: by next budget
Structural Conditionality:
NCBs
• Contracting new management/support for NCBs:
delayed
• Implement MOUs: met; continuous
• Sign new MOUs with lending cap and recovery
targets: at final step
• Adopt bank-by-bank resolution strategies: at final
step
• Bring Rupali, Agrani, and Janata to the point of
sale: Rupali at end-1994, then Agrani and Janata
Structural Conditionality:
Others
• Adjust NSC rates in line with market
developments: to be done
• Adjust trade taxes: done in budget
One slide about MFA
• MFA phase out is a major risk to the program
• RMG exports have been buoyant due to
strengthened competitiveness, especially in the
duty-free EU market
• But Bangladesh is vulnerable due to heavy
reliance on quotas
• Without a policy response, the adverse impact on
the BOP could be as much as $1 ½ billion in FY0506, or 1 percent of GDP on average
• Attracting FDI, the flexible exchange rate
regime, increased international reserves,
liberalizing the regime for imports of RMG
inputs, and measures to reduce the social impact
should be part of an policy package