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« on: August 17, 2011, 09:36:12 PM »
Infrastructure, energy situation improvement essential to attain targeted growth: MCCI
FE Report
Prospects for acceleration of economic growth, being buoyed up by investment activities that remain now far below the country's potential, will critically depend on efforts to remove the existing bottlenecks in physical infrastructural facilities and the persistent crisis in power and energy sectors.
This assessment has been made by the Metropolitan Chamber of Commerce & Industry (MCCI), Dhaka, one of the country's leading trade promotion organisations (TPOs), in its latest review of "Economic situation in Bangladesh."
According to the assessment by the MCCI, the actual increase in economy-wide investment, including foreign direct investment (FDI), will be contingent on "how quickly and effectively the government would ease the problems of power and energy sectors," notwithstanding the fact that there are "strong official commitments and efforts to find solutions" to the sectoral problems.
"Attaining the targeted 7.0 per cent gross domestic product (GDP) growth this year and 8.0 per cent in the next fiscal years will hinge upon the government's success in this area," it observed.
"Shortage of energy, in fact, now poses the biggest threat to Bangladesh's economic growth," the MCCI stated.
Despite the installation of some additional generation capacity and some increase in power production, the power situation did not improve much in quarter four (Q4) of fiscal year 2010-11 or FY11, as the production of power lagged behind the growing demand.
"The present demand for electricity is 6000 megawatt (mw), while actual generation varies between 4200 mw and 4800 mw. The estimated demand-supply gap currently is thus 1800 mw during peak hours. Gas shortage accounts for at least half of this gap. A total of 1922 mw of additional electricity has been added to the national grid since the present government took office in January 2009 but the shortfall remains because of higher demand. The highest electricity generation was recorded at 4890 mw on June 13 of FY11. To combat the acute power shortage, the government plans to increase power generation to around 7000 mw by 2013. Only 45 per cent households have access to national grid with the majority remaining out of the formal electricity supply system," the MCCI pointed out in its review.
The chamber recalled that the government formulated a merchant power plant policy for facilitating the entry of private enterprises to electricity business, especially in direct sale of electric power to the consumers from their plants, in order to break the monopoly in electricity business.
"These power plants use diesel and furnace oil for producing electricity and hence their cost is high and affects the competitiveness of user firms," it observed.
While noting that the Bangladesh economy performed reasonably well in FY11 posting a 6.7 per cent GDP growth -- well in excess of projections made by multilateral donor agencies and some local research bodies -- it stated that the agriculture sector depicted good growth, "but continuous government support with inputs and finance will be needed to sustain the sector's growth in the present fiscal."
"The production in the manufacturing sector has been improving steadily, although investment growth is still below the potential" because of many long lingering problems that continue to persist.
On the domestic front, output performance in agriculture, the chamber observed, continued to remain healthy. "Crop production during FY11 exceeded the previous year's production and also exceeded the annual production target, thanks to the record production of boro. Fisheries and livestock sub-sectors, too, depicted good growth."
"Within the broad industry sector, the performance of different sub-sectors was generally satisfactory. While large and medium scale industries are yet to regain the historically high growth rate witnessed in the middle of the 2010s, their recovery is well under way. In particular, manufacturing industries oriented to the domestic market have done better. With the expansion of small & medium enterprise (SME) loans by banks, production of SMEs has also increased considerably," it added.
According to the MCCI's review, the performance of construction, housing and water sub-sectors has improved while mining, electricity and gas sub-sectors lagged behind. A total of 1922 mw of additional electricity was added to the national grid since January, 2009.
"The services sector, overall, performed well. In particular, the telecommunications sub-sector depicted good growth buoyed by new FIDI and is expected to sustain the growth momentum with the introduction of new products and services."
About monetary and credit situation, the chamber noted that private sector credit increased significantly (24.3 %) during July-May of FY11. "Net credit to public sector also increased by about 22 per cent. Reserve money recorded a 13.5 per cent increase during July-May of FY11, resulting from the increase in Bangladesh Bank's (BB's) net domestic assets. Total liquid assets of scheduled banks stood higher at Tk 943.90 billion as on at the end of May, 2011, as against Tk 871.98 billion at end-June, 2010", it added.
"However, excess liquidity of scheduled banks", the MCCI pointed out, "stood lower at Tk 292.49 billion as on end May, 2011, as against Tk 344.98 billion at the end of June, 2010.
The MCCI pointed out that the level of public investment remained poor, despite the fact that revenue collection by the National Board of Revenue (NBR) improved significantly.
However, the ADP implementation performance in FY11 was slightly better than that of the previous fiscal, the chamber said.
Pointing out that public sector investment has a strong crowding-in effect on private investment, a speedier implementation of the ADP will be needed for boosting economic activities in the private sector, it pointed out.
On the external front, export trends, the chamber stated, remained strongly positive, growing by 43.9 per cent in the last quarter of fiscal 2011, compared to the corresponding quarter of the previous fiscal.
"In order to sustain the high export growth, top priority should be given to develop the physical infrastructure and improve the power situation, which are now the major constraints to export and economic growth," it said.
According to the assessment by the chamber, larger import payments and declines in foreign aid and remittances caused the depreciation of Taka.
"The inflation rate continued to rise, and BB had re-fixed the inflation target to 7.0 per cent for June, 2011 from the previously set target of 6.5 per cent. The actual annual average rate of inflation, however, rose to 8.7 per cent in May of FY11, well past the June, 2011 target", it noted.
The main factor behind the rise in overall inflation, according to the MCCI, was the rise in food prices, which increased continuously since May 2011