Bangladesh
Date: 5 May 2011
The event will be held in Dhaka, Bangladesh, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Mustafa K. Mujeri
Director General
Bangladesh institute of Development Studies
Bangladesh
Clovis Freire
Economic Affairs Officer
Macroeconomic Policy and Development Division
United Nations Economic and Social Commission for Asia and the Pacific
Country briefing note <download pdf file>
Growth momentum is being sustained
The economy of Bangladesh demonstrated considerable resilience despite the global economic crisis. GDP grew at 5.8% in 2010 on top of the 5.7% growth achieved in 2009. In both the years, growth was broad-based with all the major sectors of the contributing to growth. On the expenditure side, both private and public consumption contributed strongly to growth and the rise in consumption was driven by the remittances of overseas workers, which induced demand. This was supported by a budgetary stimulus package that included higher social safety net spending. P rojected GDP growth for 2011 at 6.4% is expected to be supported by improved growth in the agricultural sector , recovery in export growth with diversification into new markets, including the emerging economies, and an improved situation in power and gas supplies.
High inflation is a major challenge as food prices rise rapidly
Inflationary pressures also re-emerged in the Bangladesh economy as the consumer price index increased by 7.3% in 2010 against 6.7% in 2009. Food price inflation rose at an even higher rate. To check this upward trend of prices, the Government took several steps, including ensuring an improved supply of commodities, allowing the sale of essential commodities in open areas, and closely monitoring the price situation and demand-supply gaps. At the same time, the Government attempted to keep inflation at a tolerable level by pursuing a less accommodative monetary policy by mopping up excess liquidity due to the upsurge of inflows from overseas worker remittances. In addition, the Bangladesh Bank, the central bank of the country, raised its policy rate in May 2010 to contain inflationary pressures.
Budget deficit remains high and there is need for fiscal consolidation
In Bangladesh , the budget deficit deteriorated slightly to 4.5% of GDP in 2010. The fiscal situation is expected to deteriorate further in 2011 as the Government attempts to tackle a complex array of problems, ranging from shortages of power, gas and water to the need for enhanced welfare spending. The sectoral outlays of public expenditure in the fiscal year 2011 budget contain distinct inclusive features that aim to combat poverty, with one third of total outlays going to social infrastructure, including nearly one fourth for human development (health, education, science and technology, and other related subsectors).
Exports revive but imports grow more rapidly
In Bangladesh , after witnessing a slump during the first half of fiscal year 2010, exports picked up in the second half of the year and registered an overall growth of 4.1% in the full fiscal year. Total imports grew faster than exports, thus widening the trade deficit. Remittances from overseas workers continued to grow, albeit at a slower rate. They reached close to $11 billion in 2010 and not only closed the gap on merchandise trade but also helped to post a surplus in the current account balance.
Some major policy challenges
High inflation rates in South Asia can compromise the achievement of sustained high growth rates. Containing inflationary pressures should therefore be a priority in the policy agendas of governments. Both demand- and supply-side factors have contributed to inflationary pressures in the subregion. High budget deficits in most countries have been instrumental in increasing liquidity and have generated price pressures in the face of supply constraints. There is an urgent need to bring budget deficits down to a more sustainable level. Some countries have been tightening monetary policy to alleviate pressures on inflation from the demand side but a combination of monetary, fiscal and other measures is needed to reduce price pressures.. Repeated supply shocks pose a constant challenge to sustaining a low inflation regime. A more medium-term approach is needed in order to augment the supply of items of mass consumption by addressing structural supply constraints.
Strong and sustained growth momentum is needed in South Asia to tackle the long-term problem of widespread poverty. Over the past few years, most countries have made progress in reducing poverty. Even today, however, at least one in every three persons in South Asia is classified as poor. The fight against poverty therefore must continue. Countries need to continue pursuing economic reforms to improve productivity, strengthen public institutions, improve economic governance, and build social safety nets to protect the more vulnerable segments of the population.
On the physical infrastructure side, o ne of the biggest challenges being faced by several countries is improving the electricity supply. Electricity supply disruptions are common in Bangladesh , Nepal and Pakistan . Both short-term and long-term measures are needed to tackle the electricity problem. To boost electricity supply in the short term, In the subregion, transmission and distribution losses vary from 20% to 40% in different countries and theft of electricity is a major problem. There is therefore a need for greater efficiency on both the generation and distribution sides. The promotion of regional cooperation in the energy sector can benefit the participating countries enormously.
Concerning electricity pricing, s ome countries have been providing substantial subsidies, but they are being withdrawn. This process has been raising the cost of living, though, and there is a need to provide some form of protection to the poor. Tariff rates somehow need to be kept affordable for small consumers. It is also worth considering a more targeted approach to providing subsidies following the pattern of food stamps, where electricity stamps or coupons can be given to the poor to pay their electricity bills.