Published in New Age on Thursday, 2 June 2016
State of economy 2015-16: Sagging pvt investment, job creation blot growth success
The government announces the national budget for the fiscal year of 2016-2017 today against the backdrop of weak budget implementation, stagnant private investment and low level of employment generation in the outgoing fiscal year despite achieving a record-high economic growth.
Economists and business leaders said that the overall economic performance was relatively good and stable in the outgoing fiscal year of 2015-2016 mainly because of stability in political and economic arenas compared with that of the previous year which had experienced intense political unrest and uncertainties.
Despite higher growth and stability, economy suffered due mainly to lack of businesses’ confidence, shortage in energy supply, inadequate progress in infrastructure development and good governance that resulted in stagnation in private sector investment and low level of employment generation, they said.
A year-long dispute between the traders and the government over implementation of the new Value-Added Tax and Supplementary Duty Act-2012 with single VAT rate at 15 per cent for all sectors also marked the outgoing fiscal year.
According to the latest provisional estimation of the Bangladesh Bureau of Statistics, the country’s gross domestic product or GDP growth will be 7.05 per cent in the year, the highest since the FY 2006-07, against the target of 7 per cent set by the government.
In contrast, the revenue collection fell short of target, implementation of the annual development programme dropped to a record low, share of private investment to the GDP declined and growth in agriculture decreased in the passing year.
Remittance earnings also dipped, overall consumption slumped and import of capital machinery and raw materials slowed down during the period.
According to the Centre for Policy Dialogue, the Bangladesh economy continued to show signs of resilience throughout the FY16.
‘Economic stability was maintained thanks to falling inflation, contained budget deficit, impressive export growth, rising public investment, increasing foreign exchange reserves and private sector credit growth,’ the independent think-tank said in its State of the Bangladesh Economy released on May 25.
Stagnant private investment, decline in agricultural growth, weak banking sector performance, shortfall in revenue collection and low efficiency of development spending continue to nag the economy, it said.
According to the provisional estimation of the BBS, the share of private investment to GDP dropped to 21.78 per cent in FY16 from 22.07 per cent in the previous fiscal year.
The CPD said that the higher economic growth failed to generate enough employment in recent years including the current fiscal year, rather the pace of job creation considerably slowed down.
In last two years, more than 12 lakh jobs were lost in the manufacturing sector, it said analysing the several labour force survey of the BBS.
Youth unemployment rate also rose sharply to 9.5 per cent in 2015 from 8.1 per cent in 2013, it added.
The CPD also said that implementation of the national budget in the areas of resource mobilisation, ADP implementation, progress in implementation of fast-track projects and utilisation of foreign loans and grants were among the weakest areas in the year.
The country’s overall point-to-point inflation stood to 5.61 per cent in April against the target of 6.2 per cent for the year.
The National Board of Revenue set to fail to achieve its original revenue collection target and the government has made the biggest ever cut in the target by Tk 26,370 crore to Tk 1,50,000 crore from Tk 1,76,370 crore.
According to the Implementation Monitoring and Evaluation Division of the planning ministry, the progress in implementation of the development budget hit seven-year low in the first 10 months of the fiscal year as only 50 per cent of the Tk 93,894-crore revised ADP was implemented in the period.
Former interim government finance adviser Mirza Azizul Islam told New Age that the overall economy was quite stable in the outgoing fiscal year thanks to political stability and good performance by some macroeconomic indicators including export earnings.
But there are some sectors including private investment, import of capital machinery and raw materials, remittance inflows, revenue generation and ADP implementation which have performed discouragingly in the year, he said.
Remittance inflow in July to April slipped by 2.39 per cent and stood at $12.25 billion from $12.55 billion in the same period of last year, according to Bangladesh Bank.
Considering the overall economic performance, Mirza Azizul expressed his doubt over the government’s estimation of GDP growth at 7.05 per cent in the year.
He also said that there were still some political uncertainties in the country.
The situation related to ease of doing business and cost of doing business did not improve in the year that created hindrance to the private investment, he said.
According to the Export Promotion Bureau, export earnings grew by 9.22 per cent in July-April of the fiscal year compared with that of the same period of the previous fiscal year.
Policy Research Institute executive director Ahasn H Mansur also termed the performance of the outgoing fiscal year relatively good.
Though the budget management in revenue collection and ADP implementation was very weak, economy grew at better pace, he said.
Federation of Bangladesh Chambers of Commerce and Industry former president AK Azad said that overall macroeconomic performance was good in the outgoing fiscal year despite several constraints including lower private investment, declining growth in import of capital machinery and raw materials and as usual shortage of gas and electricity supply and inadequate infrastructure.
Replying to a question, he said that political uncertainty did not matter to businesses in making investment. They need adequate infrastructure and energy supply for making investment, Azad said.
The economy will need another two years to rebound as there is no possibility of improving gas and electricity supply, he said adding that by this two years the government would be able to ensure developing transmission lines for electricity and building LNG terminals for liquefied natural gas supply.
He also said in last year (2015) only 6 lakh new jobs were created while usually around 10 lakh jobs are created every year.
FBCCI first vice-president Shafiul Islam Mohiuddin also attributed lack of progress in infrastructure including ports, roads and rail, inadequate supply of gas and electricity, scarcity of land to stagnation in private investment.
Though there is political stability in the country, but the businesses lack confidence due to policy uncertainties regarding tax and VAT, and because of some global factors including slowdown in world economy, militancy and other issues, he said.