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Press reports on State of the Bangladesh Economy in FY2015-16 (First Reading)

CPD Research Fellow Mr Towfiqul Islam Khan presented the State of the Bangladesh Economy in FY 2015-16 (First Reading) to the media at the BRAC Centre Inn in Dhaka, on Sunday, 3 January 2016. The report delivered an analysis of the quality of macroeconomic management and underlying strengths and weaknesses of the economy, at the halfway mark of the ongoing fiscal year. It was prepared under CPD’s programme Independent Review of Bangladesh’s Development (IRBD).

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Published in The Daily Star on Monday, 04 January 2016

Economy stable, lacks vibrancy

Private investment remains depressed, says CPD

Staff Correspondent

The Centre for Policy Dialogue yesterday came up with a number of recommendations to boost the country’s economy that has “stability but lacks vibrancy”.

Bangladesh Economy in FY2015-16-01
Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue, speaks at a press briefing in the capital’s Brac Centre Inn. The CPD organised the event to launch its report — The State of Bangladesh’s Economy in FY 2015-16. CPD Executive Director Mustafizur Rahman, 4th from left, among others, also spoke at the briefing. Photo: Star

“It makes us worried that private investment has remained depressed despite low inflation and prices of global commodities, downward trend of lending rates in banks and a stable exchange rate,” said CPD Distinguished Fellow Debapriya Bhattacharya.

“So, we conclude that there is stability in the economy but it lacks vibrancy,” he said at a media briefing in the capital’s Brac Centre Inn.

The CPD organised the event to release its review of the country’s development, “The State of Bangladesh’s Economy in FY 2015-16”.

The thinktank suggested reducing prices of fuel, especially kerosene, diesel and furnace oil. It proposed cutting the central bank’s key policy rates — repo and reverse repo — for further reduction in banks’ interest rates on lending to break sluggishness in business and investment activities.

It also suggested reforms and continued efforts to curb militancy and ensure public security for attracting investment.

“Unless there is security, investment climate will deteriorate further,” said Debapriya.

The CPD said various indicators such as agricultural production, foreign exchange reserves and exchange rates were favourable.

But the economy suffered from various weaknesses in the first five months of the year. Those include: downturn in capital machinery import and industrial term lending, and decline in the number of initial public offerings in the capital market.

Remittance flow declined while export earnings saw volatility, it added.

Implementation of projects under the Annual Development Programmes was low, while revenue collection growth remained slow, indicating sluggish economic activities, according to the CPD.

Bangladesh Economy in FY2015-16Presenting an analysis, CPD Research Fellow Towfiqul Islam Khan said resource mobilisation and utilisation are likely to miss the targets for FY 2015-16.

Revenue shortfall from the target of 208,443 crore might be Tk 40,000 crore by the end of the fiscal year, he said.

To give the economy a push in the short term, the CPD favoured reduction in fuel prices to let people have the benefit of falling petroleum prices on the international market.

The government is yet to slash petroleum prices in the domestic market though the prices have kept falling since January 2013.

“Fuel price cuts will have positive impacts on consumers, producers, investment and economic growth. Only government’s profit will reduce. But it is a good time to slash fuel prices, and revise gas and electricity prices,” said CPD Executive Director Mustafizur Rahman.

The CPD projected that a 10 percent reduction in fuel prices would help the GDP grow by 0.3 percent, and increase export by 0.4 percent and household consumption by 0.6 percent. And inflation will decline by 0.2 percent.

Debapriya said the government is getting some relief from a surplus by keeping fuel prices high on the domestic market. “This benefit should be given to consumers.”

Cuts in Bangladesh Bank’s key policy rates will facilitate reduction in banks’ lending rates, said the CPD.

“Now is the time for the central bank to cut rates slightly so that investors could reap the benefit of low inflation rates.”

It said banks’ average lending rate declined to 11.3 percent in October last year from 12.5 percent a year ago. However, the real lending rate has not reduced significantly in spite of lower inflation rate.

“In order to boost investment, business community has been consistently demanding a lower lending [interest] rate.”

The thinktank said rate cuts by the central bank would reduce the cost of banks’ funds and allow depreciation of taka against dollar, which would increase competitiveness of exportable items.

Referring to a large volume of non-performing loans (NPLs), it said the banking sector’s performance continues to be worrying. The share of NPLs in total loans still remains high at state banks and has risen at private and foreign banks.

There is a suspicion that a major portion of bad loans at private banks went to the pockets of bank owners, said Debapriya.

Lending on political consideration was the main reason behind bad loans at state banks, while insider lending may be a reason for the rise in bad loans at private banks, he said.

The CPD demanded that the government form a Banking Commission.

On the issue of private investment, the thinktank said inadequate infrastructure was one of the main reasons behind investment slowdown.

“Bangladesh needs to focus more on improvement of institutional efficiency to reignite private investment: from ‘first generation’ to ‘second generation’ reforms,” the CPD said, calling for revision of investment and business-related policies.

“Business-related services need to be simple, transparent and hassle-free,” it added.


 

Published in The Financial Express on Monnday, 04 January 2016

Economy fails to gather momentum, says CPD

Tk 400b revenue shortfall this fiscal feared

Despite having relatively stable macroeconomic fundamentals in the just-concluded year, country’s economy failed to reap its benefit as investment remained sluggish round the year, says a policy analyst.

“The economy remained stable, but failed to gain any momentum,” CPD (Centre for Policy Dialogue) Distinguished Fellow Dr Debapriya Bhattacharya said Sunday.

He was addressing a press briefing on ‘State of the Bangladesh Economy in FY 2015-16′, arranged by the policy think tank at the Brac Inn in the city.

The private investment did not pick up as required despite a comparatively peaceful political environment, low level of inflation and stable international market, said the CPD Distinguished Fellow, stressing the need for pursuing rigorous reform of public institutions to derive the desired result.

“We are continuously hammering for reform. If the government does not undertake the reform measures boldly, the country will not achieve the mid-term economic growth and even lag behind the revenue target,” said Dr Debapriya.

He, in this regard, urged the government to enforce the VAT Act first.

He also called for reducing central bank’s policy rates, which will ultimately help lower bank interest rates and boost investment.

The policy think tank also stressed the need for stability in the country’s political arena as success of the economy would also be underpinned by the state of political predictability and overall public security.

Overall revenue earning, according to the CPD, in the last fiscal suffered a shortfall of about Tk 369.97 billion, As a result, the total revenue mobilisation registered an insignificant growth of 4.0 per cent.

The private policy think tank also apprehends a Tk 400.0 billion revenue shortfall in the current fiscal (2015-16) for lack of administrative capacity.

“The ambitious fiscal targets did not come true for both income and expenditure,” said the CPD review report.

It also demanded adjustment of domestic oil prices following steady fall on the international market for over a year, which, it said, will benefit the people largely and help increase growth of the investment.

“A10 per cent cut in the petroleum price will lead to a rise in both GDP and private investment by about 0.3 per cent and inflation is expected to come down by 0.2 per cent,” said the CPD analysis.

Bangladesh Petroleum Corporation (BPC), which imports crude oil, however, incurred a huge loss over the last 15 years and earned a profit of Tk 52.68 billion in the last fiscal which will go up to 110 billion in the current fiscal.

“We suggest reducing the administered prices of petroleum products in a manner that both BPC and other stakeholders are able to share the benefits from the lower global petroleum prices,” also said CPD Executive Director Mustafizur Rahman.

They urged the government to adjust the prices at least in cases of diesel, kerosene and furnace oil.

The Centre also stressed the need for expediting the implementation of APD projects, which, it said, did not mark any significant breakthrough as yet in 2015-16.

According to last five months’ data, actual spending under ADP was only 16.8 per cent of originally planned allocation of Tk 970.0 billion.

This, according to CPD, is the lowest level of expenditure in the last seven years. “Both taka and project aid component of the expenditure were the lowest in the recent past,” said the report.

CPD Senior Research Fellow Towfiqul Islam Khan presented the keynote paper on the subject, identifying a number of challenges as well. Those include risk of revenue-collection shortfall against target, political uncertainty, sluggish export growth and rising default loan in banks, and sluggish investment scenario.

CPD research director Dr. Fahmida Khatun and additional research director Khondaker Golam Moazzem also spoke at the briefing.

The analysis shows the fiscal framework of 2015-16 under severe strain in the early months.

“Both resource mobilisation and utilisation are likely to be significantly off the mark compared to the fiscal targets of 2014-15.

“Performance of the economy in the current fiscal will be critical in terms of setting the stage for implementation of the seventh five- year plan. As the country’s economy moves into the second half of the current fiscal, a number of challenges have emerged, addressing which will be critical to realising the potential of the country’s economy,” said the presentation.

Mr Towfiqul in his paper pointed out that the private investment share in GDP remained almost unchanged at 22.1 per cent in the last fiscal compared to 22.0 per cent in 201314. Proxy indicators of last quarter (April-June) indicated that private investment has continued to remain sluggish. Growth of credit to private sector stood at 13.2 per cent at the end of June 2015 as against the target ceiling of 15.5 per cent.

Despite decline in classified loan at the end of last fiscal 2014-15, the state-owned commercial banks (SCBs) faced capital deficit which in turn created additional fiscal pressure for the government.

According to CPD findings, financial disciplines of these banks were undermined by scams, high non-performing loans and inadequate capital adequacy followed by repeated recapitalisation.

“Funds from banks, both in public and private banks, are being plundered almost openly by political and inside lending,” said the distinguished fellow, Debapriya, stressing the need for strengthening the supervision by the central bank as well as the ACC.

“Even after three years, Hall Mark Group has not returned any money to the bank,” he added.

The lower profits in SCBs, according to the analysis, are mainly due to bad assets, inefficiencies and political interference.

According to the CPD, the government doled out Tk 26.17 billion for recapitalisation of SCBs in fiscal 2014-15.

The average lending rate, the report said, declined to 11.3 per cent in October 2015 compared to 12.5 in October 2014. However, in spite of lower inflation rate, the real lending rate has not been reduced significantly. Interest rate spread, though still within the suggested limit of 5.0 per cent, has not experienced a significant reduction during the first four months of current fiscal, said the CPD analysis.

The Centre recommended setting up a Financial Sector Commission which will come up with concrete recommendation to address the weaknesses and give strategic directions for future.

The private think tank also expressed its concern over the formation of Trans-Pacific Partnership (TPP) which some of Bangladesh’s major trading partners, including the USA and Japan, joined.

Therefore, in the coming months Bangladesh needs to pay close attention to the issue and should have undertake effective measures to counter any adverse effect on the economy.

The Bangladesh currency has experienced a rise over the past couple of years, said the report, adding that there is some scope to let the BDT depreciate to some extent.

The CPD meet also demanded more allocations in social sectors as social-security programmes are not getting enough funds in the budget.  It also demanded Bangladesh Agriculture Costs and Prices Commission (BACPC) which will provide strategic guidelines for ensuring food security, price signal, procurement etc.

 


Published in Dhaka Tribune on Monnday, 04 January 2016

CPD: Economy remains stable but fails to find steam

Tribune Report

Bangladesh Economy in FY2015-16-02
CPD briefs the press on the state of Bangladesh economy in FY’16 in the city yesterday. Photo- RAJIB DHAR

The country’s economy has showed stability but failed to find steam in the first half of the current fiscal as private investment— the driving force of economic growth — is yet to pick up despite positive internal and external environments.

Centre for Policy Dialogue (CPD), a leading civil society think tank, came up with the above assessment over the performance of key sectors of the country’s economy during the first half of FY2015-16 at a press briefing in the city yesterday.

“We have seen stability but no vibrancy in the economy,” said CPD distinguished fellow Debapriya Bhattacharya. 

Even after falling interest rate, easing inflation, stable exchange rate and declining global commodity prices, there was weakness in the economy, particularly in the private investment, he said. 

Listing weaknesses of the economy, he said: “Investment registration with the Board of Investment dropped, FDI slowed down, the number of IPOs declined, and on the other hand, term industrial loan and import of capital machinery were down and revenue collection was poor. These were the reflections of weak economic activities.”

“Under the situation, we are taken aback,” he said. 

Debapriya claimed that private investment failed to get support from banks as the sector was now in crisis because of insider lending in private banks and political lending in the state-owned banks.

He said disciplined politics, protection of political rights, peace and security are very important for boosting the private investment.        

CPD research fellow Towfiqul Islam Khan presented a keynote paper on the state of Bangladesh economy in FY’16, saying as the country’s economy moves into the second half of the current fiscal, a number of challenges have emerged.

He added that addressing those challenges will be crucial to realising the potentials of the country’s economy. 

External sector was able to demonstrate resilience, the keynote paper said, adding that the declining flow of remittance and volatility in export earnings, however, remained a concern.

“Inability to take advantage of the relative macroeconomic stability to stimulate private sector investment remains an enduring concern,” added the keynote speech.

On falling fuel oil prices that slipped to the 11-year lowest in the international market, CPD Executive Director Professor Mustafizur Rahman said time is ripe to pass the benefits of lower oil prices to the consumers.

“Prices of gas, oil and power should be adjusted in a coordinated way to bring balance to their prices, he added.

He advised moving from social safety net to universal social security for ensuring security protection for every citizen of the country.

Debapriya commented that lower oil price has given the government to take breath that was strangulated by poor revenue collection and inefficiency in foreign aid utilisation. 

“This breathing space should be shared with the commoners.”

To bring dynamism in the economy in the next six months, CPD has put forward a set of reformations, including in the areas of banking sector, public expenditure management and PPP to yield the aspired results. 

“Success will also be underpinned by the state of political predictability and overall public security concerns,” it said.

In short-term initiative, Debapriya suggested considering to cut policy rate and devaluation of local currency against greenback.

“Once policy rate is lowered, there will be positive impact on interest rate and inflation. Taka devaluation will boost export competitiveness.” 

In mid-term initiative, he said big reformation is needed in the public investment.

“We have seen some measures taken by the government to improve annual development expenditure, but the result was marginal. Expenditure of money does not refer to the implementation of project with efficiency, as no evaluation is made over the benefit of the project implementation.”

Laying emphasis on quality statistics for ensuring transparent and accountable development effort, Debapriya said: “We have seen in different times that statistics lost its quality.” 


 

Published in New Age on Monnday, 04 January 2016

Concerns remain as private investment dull: CPD

Staff Correspondent

Bangladesh Economy in FY2015-16-03
CPD distinguish fellow Debapriya Bhattacharya speaks at a press conference in Dhaka on Sunday. — New Age photo

The Centre for Policy Dialogue on Sunday expressed concern over prolonged stagnant situation in private investment despite overall stability in the economy over the first half of the current fiscal year.

Evaluating the macro-economic situation of the country, the CPD said that economy was not vibrant and some volatility was there despite overall stability being in place.

At a press briefing, the local independent think-tank suggested the government for adopting a package of reform measures in different areas including in government development expenditure and banking sector for boosting private investment.

Other suggested reforms measures include reduction in different policy rate of Bangladesh Bank for banking sectors, appreciation of the Taka against US dollar and reduction of fuel prices, it said.

The CPD organised the press briefing at BRAC Centre Inn in Dhaka on the occasion of its regular publication of the state of the Bangladesh economy for the first half of the fiscal year 2015-16.

‘The major weakness in the economy in the first half of the fiscal year is no rise in private investment despite peaceful law and order situation in the country, stability in economy, lower commodity price in international market, tolerable inflation in domestic market and lower interest rate in lending,’ CPD distinguish fellow Debapriya Bhattacharya said.

Registration for new investment with the Board of Investment has declined, foreign direct investment has remained sluggish and import of capital machinery has decreased along with lower term-loan disbursement in the period which was not expected, he said.

Emphasizing on reforms in banking sector, Debapriya said that there was political lending in state-run banks while huge lending by the owners in private banks were causing rise in non-performing loans.

The Bangladesh Bank may also consider lowering policy rates for Repo and Reverse Repo as it may put positive impact on interest rate in lending and inflation, he said.

The government may also consider for a slight appreciation of the Taka against the US Dollar for increasing competitiveness in global trade, he added.

Reduction in fuel prices is also important, he pointed out.

Maintaining political stability and public security is also critical in the backdrop of recent incidences of militancy activities in the country, Debapriya said.

According to the CPD report, improvement in the quality of government expenditure, timely execution of annual development programme, particularly accelerating the ADP implementation by the large ministries in terms of allocation are needed for boosting the private investment,

It said that the government should give priority to completion of mega projects including Padma Bridge, Dhaka-Chittagong and Joydebpur-Mymensigh four lane projects on urgent basis so that investors can reap the benefit of public investment.

In the report, CPD projected the overall revenue collection shortfall could be around Tk 40,000 crore mainly following overambitious targets, sluggish investment, low international prices of imported commodities and wide incentives in the budget.

It also suggested for enactment of a law on allowing entrepreneurs to invest abroad.

The research organisation did not make any projection on economic growth in absence of sufficient required data of the first half of the fiscal year on various macro-economic indicators.

CPD executive director Mustafizur Rahman, research director Fahmida Khatun, additional research director Khondaker Golam Moazzem and research fellow Towfiqul Islam Khan also spoke at the briefing.

The Centre for Policy Dialogue on Sunday expressed concern over prolonged stagnant situation in private investment despite overall stability in the economy over the first half of the current fiscal year.

Evaluating the macro-economic situation of the country, the CPD said that economy was not vibrant and some volatility was there despite overall stability being in place.

At a press briefing, the local independent think-tank suggested the government for adopting a package of reform measures in different areas including in government development expenditure and banking sector for boosting private investment.

Other suggested reforms measures include reduction in different policy rate of Bangladesh Bank for banking sectors, appreciation of the Taka against US dollar and reduction of fuel prices, it said.

The CPD organised the press briefing at BRAC Centre Inn in Dhaka on the occasion of its regular publication of the state of the Bangladesh economy for the first half of the fiscal year 2015-16.

‘The major weakness in the economy in the first half of the fiscal year is no rise in private investment despite peaceful law and order situation in the country, stability in economy, lower commodity price in international market, tolerable inflation in domestic market and lower interest rate in lending,’ CPD distinguish fellow Debapriya Bhattacharya said.

Registration for new investment with the Board of Investment has declined, foreign direct investment has remained sluggish and import of capital machinery has decreased along with lower term-loan disbursement in the period which was not expected, he said.

Emphasizing on reforms in banking sector, Debapriya said that there was political lending in state-run banks while huge lending by the owners in private banks were causing rise in non-performing loans.

The Bangladesh Bank may also consider lowering policy rates for Repo and Reverse Repo as it may put positive impact on interest rate in lending and inflation, he said.

The government may also consider for a slight appreciation of the Taka against the US Dollar for increasing competitiveness in global trade, he added.

Reduction in fuel prices is also important, he pointed out.

Maintaining political stability and public security is also critical in the backdrop of recent incidences of militancy activities in the country, Debapriya said.

According to the CPD report, improvement in the quality of government expenditure, timely execution of annual development programme, particularly accelerating the ADP implementation by the large ministries in terms of allocation are needed for boosting the private investment,

It said that the government should give priority to completion of mega projects including Padma Bridge, Dhaka-Chittagong and Joydebpur-Mymensigh four lane projects on urgent basis so that investors can reap the benefit of public investment.

In the report, CPD projected the overall revenue collection shortfall could be around Tk 40,000 crore mainly following overambitious targets, sluggish investment, low international prices of imported commodities and wide incentives in the budget.

It also suggested for enactment of a law on allowing entrepreneurs to invest abroad.

The research organisation did not make any projection on economic growth in absence of sufficient required data of the first half of the fiscal year on various macro-economic indicators.

CPD executive director Mustafizur Rahman, research director Fahmida Khatun, additional research director Khondaker Golam Moazzem and research fellow Towfiqul Islam Khan also spoke at the briefing.


 

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