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Quarterly Economic Update for Bangladesh Released

Facing the media: Toru Shibuichi, Country Director (right) presenting the QEU highlights

• Improvement in economic performance with prospects of higher GDP growth during FY 2004
• Strong food crop harvests
• Export-oriented manufacturing expansion
• Steady growth in services sector
• Containing rising trend in inflation
• Improvement in balance of payments

These highlights were presented by Toru Shibuichi, Country Director, at a press briefing organized by ADB's Bangladesh Resident Mission on 2 May 2004 to launch the March 2004 issue of the Quarterly Economic Update, Bangladesh. Rezaul Karim Khan, Senior Economist, discussed and elaborated on the key findings. "The overall economic performance seems to be on track to achieve the targeted 5.5% GDP growth rate for FY2004" said Mr. Khan. He explained that the growth performance would be lifted by expansion in both domestic and external demand. There is a turnaround in investment, particularly in private investment.

In the agriculture sector, the QEU notes a bumper aman harvest while a good boro crop is expected. Higher agriculture and export-oriented manufacturing activities are expected to improve services sector activities, e.g. trade, transport and finance sub-sectors.

A turnaround in manufacturing exports, imports of industrial raw materials, and expansion of industrial credit indicate a sharp rebound in the manufacturing sector. The production of non-manufacturing items steadily increased with natural gas and electricity showing notable growth.

Bangladesh, however, continues to perform below its potential. The country needs to up-grade its infrastructure to seize its full economic potential, particularly of export-led manufacturing expansion. There is also a pressing need to address governance issues including reducing corruption, and reversing the deterioration in law-and-order.

The QEU highlights a need for Bangladesh to substantially improve its revenue collection by implementing coordinated systemic, procedural and administrative reforms of both direct and indirect taxes. Raising both revenue and expenditure levels while maintaining fiscal prudence is central to accelerating economic growth and achieving rapid poverty reduction in Bangladesh.

Aided by robust global demand, the export sector recovered sharply with strong growth in the main products including garments and knitwear. Despite a widening of the trade deficit, the current account of the balance of payments (excluding grants) generated a higher surplus, mainly due to a steady increase in workers remittances and a lower deficit in services account. This aided further improvement in the balance of payments, resulting in a further buildup in foreign exchange reserves. Foreign ex-change reserves increased to $2.7 billion or about 3 months' equivalent of imports in mid-April 2004.

Despite a shortfall in revenue collections, the budget deficit is likely to be lower than the projected 4.8% of GDP due to under-performance in development spending. The QEU also notes that with declining trends in food prices, the rising trend in inflation has been contained.