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Chamber Building 122-124 Motijheel, C/A, Dhaka-1000, Bangladesh Phone : +880-2-9565208-10 & +880-2-9574129-31 (PABX), Fax : +880-2-9565211-12 Email : [email protected], [email protected], Web : www.mccibd.org

VISION Be the leading voice serving responsible business

MISSION

CHAMBER COMMITTEE FOR 2017 PRESIDENT MS. NIHAD KABIR

Become the leading Chamber for providing research and analysis related to business in Bangladesh

VICE-PRESIDENT

Attract quality membership, representative of a cross section of business

MR. GOLAM MAINUDDIN

Effectively respond to changing business environment Collaborate with local and international institutions Engage and communicate regularly with our stakeholders Promote best practices that benefit business and society

VALUES Fairness Integrity Respect Equal Opportunity

MEMBERS MR. M. ANIS UD DOWLA MR. TABITH M. AWAL MR. TAPAN CHOWDHURY MS. SIMEEN HOSSAIN MR. A.K.M. RAFIQUL ISLAM, FCA

CORE COMPETENCIES ORGANISATION Research based Policy Advocacy Networking Business Intelligence

CORE COMPETENCIES – PEOPLE Professional Innovative Adaptable Team Player Proactive Communication & Interpersonal Skills

MR. RUBAIYAT JAMIL MR. HABIBULLAH N. KARIM MR. HASAN MAHMOOD, FCA MR. SYED NASIM MANZUR MR. FRANCOIS DE MARICOURT MR. SYED TAREQUE MD. ALI

SECRETARY-GENERAL MR. FAROOQ AHMED

DISCLAIMER The Quarterly Review is published for private circulation by Metropolitan Chamber of Commerce and Industry, Dhaka. The Chamber assumes no responsibility for the correctness of items quoted in the publication although every effort is made to give information from sources believed to be reliable.

QUARTERLY REVIEW Issue 4 : Q4 of FY17 (April-June 2017)

Content Executive Summary 3 Agriculture

5

Industry 7 Service Sectors 8 Monetary and Credit Developments



8

Capital Market

12

Public Finance

13

Exports

14

Imports



16

Remittances

16

Foreign Aid

17

Foreign Direct Investment (FDI)

18

Balance of Payment



19

Exchange Rate

20

Foreign Exchange Reserves

20

Overseas Employment Situation

21

Price Situation



22

Chamber’s Projection on Some Selected Economic Indicators

23

Concluding Observations

24



April-June 2017 (Q4 of FY17)

EXECUTIVE SUMMARY General BBS has estimated the GDP growth at 7.24 per cent in FY17, which is slightly above (0.04 percentage point) the target of 7.20 per cent. However, the economy is progressing well, but below its true potential. Inadequate infrastructure, lack of investor confidence in the economy that discourages making fresh investments and shortage of power and energy are now major impediments to the country’s development. These impediments must be removed to restore the confidence of the country’s business and investor community. Based on the World Economic Outlook of IMF, released in April 2017, the PPP GDP of Bangladesh will cross US$1,000 billion and ranked 30th largest economy of the world in 2022 which is US$686.59 billion and ranked 32nd in 2017. On the nominal GDP basis, Bangladesh will be the 38th largest economy in 2022 which is now 45th.

Agriculture The agriculture sector employed about 47.5 per cent of Bangladesh’s total labour force and accounted for about 14.79 per cent of GDP in the just concluded fiscal year (FY17). Due to strong government support in terms of timely availability of inputs and finance, the sector recorded a higher growth of 3.40 per cent in FY17 compared to 2.79 per cent in FY16.

Industry The industry sector grew by 10.50 per cent in FY17, 0.59 percentage point lower than the previous year’s 11.09 per cent. However, the share of the industry sector in GDP increased by 0.94 percentage point to 32.48 per cent in FY17 from 31.54 per cent in FY16. Manufacturing sub-sector grew by 10.96 per cent in FY17, 0.73 percentage point lower than the previous fiscal year’s 11.69 per cent. The large and medium scale industries sub-sector grew by 11.32 per cent in FY17, compared to 12.26 per cent in FY16. The small scale manufacturing industries performed better than the previous fiscal, grew by 9.21 per cent in FY17 from 9.06 per cent.

the current demand for electricity at around 10,000 mw, while the maximum generation in 2017 was 9,479 mw (as of 7 June). In July 2017, total installed capacity rose to 13,179 mw, but production remained low because of gas shortage and also because of shutting of some power stations for maintenance.

Services The services sector performed better in FY17 compared to the previous fiscal. Despite the sluggish investment situation prevailing in the quarter under review, the services sector growth increased by 0.25 percentage point to 6.50 per cent in FY17 from 6.25 per cent in FY16. Notable among the well-performing sub-sectors in FY17 were wholesale & retail trade; hotel & restaurants; transport, storage & communication; real estate, renting & business activities; construction; and community, social & personal services.

Money and Capital Market Broad money (M2) grew by 11.69 per cent at the end of May 2017 compared with the 14.02 per cent growth achieved at the end of May 2016. Domestic credit, on the other hand, recorded 11.07 per cent growth at the end of May 2017, while a higher rate of growth of 12.97 per cent was recorded at the end of May 2016. Among components of domestic credit, private sector credit registered a lower growth of 16.03 per cent during the period between May 2016 and May 2017, compared with a relatively higher growth rate of 16.40 per cent during the corresponding period of the previous year. Private sector credit growth remained within the targeted end-June 2017 ceiling of 16.5 per cent. Public sector credit, on the other hand, recorded a negative growth of 16.11 per cent at the end of May 2017, compared with the decrease of 2.76 per cent at the end of May 2016 as the government paid off maturing T-bills/T-bonds with proceeds of larger-than-planned sales of NSCs. Total liquid assets of scheduled banks increased by 0.96 per cent and stood higher at Tk.264,744 crore as of end May 2017. The minimum required liquid asset of the scheduled banks was Tk.161,541 crore as of end May 2017.

Construction

Interest rates on bank lending increased to 9.66 per cent in

The construction sub-sector performed better in FY17, growing at 9.32 per cent during the fiscal, compared to 8.56 per cent in FY16. The real estate, renting and business activities also performed better in the period when it marked a 4.78 per cent growth

their lending rates after a long pause due to an increased credit

compared to 4.47 per cent in FY16.

overall interest rate spread stood at 4.73 per cent in May 2017

May 2017 from 9.62 per cent in April 2017. Banks increased demand from the businesspeople in the last few months. However, the weighted average interest rate on deposits decreased to 4.93 per cent in May 2017 from 4.97 per cent in April this year. The

Power

compared to 4.65 per cent in the previous month.

The power supply situation improved in the quarter under review but the demand for power, too, shot up. Unofficial estimates put

The disbursement of industrial term loans during January-March of FY17 stood 19.4 per cent lower at Tk.15,783 crore, compared to Quarterly Review | 3

April-June 2017 (Q4 of FY17)

Tk.19,575 crore during the immediate previous quarter (OctoberDecember) of FY17. The recovery of industrial term loans increased by 6.3 per cent during this period. The disbursement of agricultural credit and non-farm rural credit by banks increased by 19.03 per cent to Tk.20,999 crore in FY17 from Tk.17,641 crore in FY16. The improvement in disbursement was partly the result of strong monitoring by the BB. The recovery of these loans increased by 10.46 per cent to Tk.18,841 crore in FY17 from Tk.17,056 crore in the previous fiscal year. The country’s capital market marked a significant increase in the participation by investors in the quarter under review when both Dhaka and Chittagong Stock Exchanges witnessed a sharp rise both in the key index and turnover.

Public Finance Total tax revenue collection (NBR and non-NBR) during July-April of FY17 stood 19.23 per cent higher at Tk.147,709 crore against the collection of Tk.123,889 crore during the corresponding period of FY16. NBR tax revenue collection during July-April of FY17 stood at Tk.142,759 crore, which was 19.62 per cent higher than the collection of Tk.119,344 crore during the corresponding period of the previous fiscal year In FY17, 54 ministries and divisions spent Tk.1.066 trillion, the highest in history, out of the total Tk.1.193 trillion outlays in the ADP. ADP spending was 92.7 per cent in the previous fiscal year (FY16).

Export and Import Export earnings in FY17 grew by only 1.69 per cent to US$34.835 billion from US$34.257 billion in the previous fiscal year. Export earnings were also 5.85 per cent short of the strategic target (US$37 billion). The slow growth in apparel exports was mainly responsible for the failure to meet the target. Import payments (C&F) in the first eleven months (July-May) of FY17 rose by 10.69 per cent to US$43.508 billion from US$39.307 billion in the corresponding period of the previous fiscal. Import payments increased mainly due to higher imports of capital machinery.

Remittances Remittance inflow in FY17 was the lowest in six years, dropping by 14.48 per cent to US$12.769 billion from US$14.931 billion in the previous fiscal year. The decline in remittance was indirectly linked with the decline in the price of petroleum products in the global market.

Foreign Aid The disbursement of foreign aid in FY17 fell by 12.32 per cent to US$3.56 billion from US$4.06 billion in the previous fiscal year. Quarterly Review | 4

The disbursement declined mainly due to slower project execution and lower fund disbursement by a few development partners, including Japan. On the other hand, the commitments of foreign aid increased to a record high of US$17.86 billion in FY17, 153.33 per cent higher than that of the corresponding period of the previous fiscal year (US$7.05 billion). The increase was mainly due to the single-largest US$11.36 billion state credit commitment by the Russian government for Rooppur Nuclear Power Plant project.

Foreign Direct Investment (FDI) In July-May of FY17, the net FDI inflow was US$1.625 billion, which was 27.75 per cent higher than the FDI inflow in the corresponding period of FY16.

Balance of Payments (BoP) The trade deficit increased by 42.58 per cent to US$9.198 billion in July-May of FY17. The deficit in trade in services, too, widened to US$3.1 billion in July-May of FY17 from US$2.433 billion in the same period of FY16. Inward remittance fell by 14.15 per cent during the 11-month period. Because of higher trade deficit and the fall in inward remittances, the comfortable surplus in the current account prevailing in the previous fiscal turned into a deficit in FY17. The financial account, however, posted a sizeable surplus during July-May of FY17. Higher inflow of foreign investment and comparatively low pressure on the foreign debt repayment contributed to the improvement in the financial account. The net inflow of FDI increased by 27.75 per cent in July-May of FY17 while portfolio investment jumped by around six times to US$324 million during the period. However, because of the large increase in the current account deficit balance relative to the surplus in the financial account, the surplus in the overall balance shrank to US$2.682 billion in July-May of FY17 from US$4.143 billion in the same period of FY16.

Exchange Rate and Foreign Exchange Reserve Between end-June of 2016 and 2017, the Taka depreciated by 2.80 per cent in terms of US dollar. Gross foreign exchange reserves rose to US$33.407 billion in the last working day of FY17 (29 June 2017). The amount was sufficient to cover the country’s import bills for more than nine months.

April-June 2017 (Q4 of FY17)

Inflation In June 2017, the general point to point inflation increased by 0.18 percentage point to 5.94 per cent from 5.76 per cent in the previous month due to an increase in the price of some food and essential items. The food inflation increased by 0.14 percentage point, to 7.51 per cent in June 2017 from 7.37 per cent in the immediate past month (May). At the same time, non-food inflation, too, increased by 0.23

percentage point to 3.67 per cent in June 2017 from 3.44 per cent in the previous month. A comparison of inflation data for urban and rural areas shows that the inflation rate in June of FY17 was higher in urban areas than in rural areas.

1.0 AGRICULTURE The agriculture sector employed about 47.5 per cent of Bangladesh’s total labour force and accounted for about 14.79 per cent of GDP in the just concluded fiscal year (FY17). Due to strong government support in terms of timely availability of inputs and finance, the sector recorded a higher growth of 3.40 per cent in FY17 compared to 2.79 per cent in FY16. However, production of crops fell due to crop losses in the back-to-back disasters – flashfloods in haor areas and Chalan Beel in Natore, intense rainfall in almost all parts of the country and fungal disease blast attacks.

production in FY17 is 1.428 mmt, which is almost the same as the production target. The target of boro production for the year, however, may not be achieved as cultivation declined due to a huge loss of boro crops. Back-to-back disasters – flashfloods in haor areas and Chalan Beel in Natore, intense rainfall in almost all parts of the country and fungal disease blast attacks - came as a blow to boro seasons. Following the first strike of flashflood in Sunamganj and few other adjoining haor-rich districts, the DAE estimated a crop loss of 6 lakh tons with boro on 2 lakh hectares gone under water. The DAE, however, is reassessing the boro losses as reports on new areas being submerged after haor embankments gave way to flashfloods continue to come. After an unusually early flashflood struck the back swamp of the northeastern regions in late March 2017, the DAE estimated that boro output would be some 4.5 lakh tons less than the 19.15 mmt production target. But with flashfloods inundating fresh haor areas and incessant and early rainfalls submerging many other parts of the country, the probable gap now needs to be rechecked. In view of the circumstances, total food grains production in FY17 is expected to be lower than the target.

Food Grains Import 1.1 Food Situation Domestic Production The DAE set the target of domestic food grains (rice and wheat) production at 36.591 million metric tons (mmt) in FY17, which is 0.46 per cent higher than the target set for FY16 (36.424 mmt). Also, the target for FY17 is 1.48 per cent higher than the actual production of 36.057 mmt in the past year. Production targets for aman, aus, boro and wheat are 13.53 mmt, 2.48 mmt, 19.15 mmt, and 1.43 mmt, respectively, in FY17. Bangladesh Bureau of Statistics (BBS) has finalized aman and aus production in FY17 at 13.656 mmt and 2.260 mmt, respectively. The production of aman is 1.28 per cent higher but that of aus is 1.27 per cent lower than the previous year’s production of 13.483 mmt and 2.289 mmt, respectively. According to unofficial estimates of DAE, wheat

In the period up to 6 July 2017, about 61.6 thousand metric tons (tmt) of rice was imported by the private sector alone. No rice was imported by the public sector. Over the same period of last year, too, there was no rice import by the public sector, while the private sector import of rice was 6.2 tmt. Regarding other food grains, however, up to the fortnight ending 6 July 2017, about 328.8 tmt of wheat was imported by the private sector, while no wheat was imported by the public sector. Over the same period of the previous year, a total of 230.30 tmt of wheat was imported by the private sector alone.

Domestic Procurement In order to provide price incentive to farmers, government procured about 444 tmt of aman rice during the aman procurement season that ended on 30 March 2017. Boro procurement started from 2 May 2017 and will continue till 31 August 2017. The procurement target was set at 0.70 mmt of paddy at Tk.24.00 per kg, 0.70 mmt Quarterly Review | 5

April-June 2017 (Q4 of FY17)

of parboiled rice at Tk.34.00 per kg and 0.10 mmt of white rice at Tk.33.00 per kg. As of 6 July 2017, about 83.13 tmt of boro rice was procured and about 222.55 tmt was contracted from the domestic market. The government has decided to procure 0.1 mmt of wheat at Tk.28.00 per kg from the domestic market. The procurement drive began on 18 April 2017 and closed on 30 June 2017. The target was almost fully achieved (about 99.99 tmt).

Public Distribution The government has enhanced its efforts to ease the hardship of poor households by distributing subsidized grains through public food distribution system (PFDS), mainly open market sale (OMS) and fair price card (FPC) channels. In FY18, the revised target of food grains distribution was 2.74 mmt as against the actual distribution of 2.24 mmt in FY17. During FY18, up to 6 July 2017, a total of 2.0 tmt of food grains was distributed mainly through essential priorities, EP (1.6 tmt), and gratuitous relief, GR (0.2 tmt). The OMS drive, which was resumed in small scale – for only rice in Dhaka and Chittagong Metropolitan areas, and atta all over the country - continues.

Public Stock According to the Directorate General of Food, the public food grains stock as of 6 July 2017 stood at 394.10 tmt – 139.70 tmt in rice and 254.40 tmt in wheat. At the end of FY17, the closing stock was about 378.4 tmt.

Domestic Market Price In the fortnight ending 6 July 2017, the wholesale and retail prices of rice (Swarna) in Dhaka city markets fell by 4.0 per cent and 5.3 per cent, respectively, to Tk.42.50 per kg and Tk.47.50 per kg. The wholesale and retail prices were, respectively, 58.0 per cent and 65.4 per cent higher than they had been a year ago. Over the same period, the wholesale prices of atta in Dhaka city markets increased by 1.3 per cent, up to Tk.19.75 per kg but the retail prices remained unchanged at Tk.24.0 per kg. The wholesale and retail prices are, respectively, 3.9 per cent and 1.5 per cent higher now than the prices that prevailed last year. Quarterly Review | 6

International Market Price In the fortnight ending 7 July 2017, the prices of India 5% parboiled, Vietnam 15% white, and Thai 5% parboiled rice fell by 1.2 per cent, 3.0 per cent, and 10.7 per cent, respectively, to US$410 per mt, US$393 per mt, and US$402 per mt. But the price of Pakistan 5% parboiled rice rose by 1.8 per cent to US$453 per mt. And, the price of West Bengal coarse rice dropped by only 0.2 per cent to US$371 per mt. However, the wholesale price of rice in Dhaka city fell by 4.6 per cent and stood at US$530 per mt. In the fortnight ending 7 July 2017, the prices of US Soft Red Winter (SRW), Russian and Ukraine wheat increased by 15.7 per cent, 2.1 per cent and 0.3 per cent to US$219, US$129 and US$186 per mt, respectively. On the same day, Dhaka city wholesale wheat price stood at US$273 per mt.

1.2 .

Fisheries and Animal Farming (Livestock and Poultry)

According to provisional estimates of BBS, fisheries and animal farming (livestock and poultry) sub-sectors accounted for about 5.21 per cent of the GDP in FY17, of which the fish sector contributed around 3.61 per cent and the animal farming sector contributed 1.60 per cent. Nearly 18.2 million people are involved in the fish sector, while the animal farming sector has created job opportunities for around 6.5 million people. Bangladesh is the fourth largest inland freshwater fish producer in the world. Fish production in the country has been increasing for around a decade now, to keep up with the growing demand at home and abroad. According to the Department of Fisheries (DoF), Bangladesh has become almost self-sufficient in fish production, which will help overcome the malnutrition problem of the younger generation. The country would achieve the milestone in ensuring 60 grams of fish a day per person by 2021 with an annual production of 4.52 million tons of both fresh and salt water fish. Currently, the country produces around 4.05 million tons of fish compared to 3.88 million tons in FY16, which has ensured the annual availability of 56 grams of the protein a day. Increased consumption of fish, however, is very important for the country to eradicate the curse of malnutrition to better achieve the Sustainable Development Goals (SDGs). Proper utilization of the existing water bodies using the latest technologies could boost fish production in the country.

April-June 2017 (Q4 of FY17)

In addition, the government has released 558.35 tons of fish fries throughout the country in FY17; moreover, a total of 1,251 beelhatcheries have been set up for raising the production of open water fishes. Even the government introduced registration and database of some 1.620 million fishermen, and 1.420 million fishermen have already been provided with identity cards under a development project. Apart from this, the government has enacted a law and formulated strategies for conserving jatka and mother hilsha which helped increasing the production of hilsha, the national fish, significantly. Hilsha accounts for one-tenth of the total fish production. The poultry industry now meets almost the entire local demand for meat and eggs, according to Bangladesh Poultry Industries Coordination Committee (BPICC). The industry produces 1,500 mt of poultry meat per day against the target of 1,400 mt. It also produces 16 million eggs per day against the demand for 15 million, and almost 10 million pieces of chicken every week against the weekly demand for nearly 9 million pieces. As a result, the industry has now an exportable surplus. However, Bangladesh could not yet export poultry due to the inability to maintain international standard.

2.0 INDUSTRY Data on the country’s industry sector are not available for the quarter under review. The sector grew by 10.50 per cent in FY17, compared to 11.09 per cent in FY16. However, the share of the industry sector in GDP increased by 0.94 percentage point to 32.48 per cent in FY17 from 31.54 per cent in the past year.

2.1

Manufacturing Industries

According to provisional estimates of BBS, the manufacturing sub-sector grew by 10.96 per cent in FY17, 0.73 percentage point lower than the previous fiscal year’s 11.69 per cent. The large and medium scale industries sub-sector grew by 11.32 per cent in FY17, compared to 12.26 per cent in FY16. The small scale manufacturing industries performed better than the previous fiscal, grew by 9.21 per cent in FY17 from 9.06 per cent.

2.2 Construction The construction sub-sector performed better in FY17, growing at 9.32 per cent during the fiscal, compared to 8.56 per cent in FY16. The real estate, renting and business activities have also performed better in the period when it marked a 4.78 per cent growth compared to 4.47 per cent in FY16. In spite of the tremendous potential of the construction and real estate sector, various factors adversely affected its development. The inhibiting factors are: land value distortion, absence of secondary property market, asset securitization and sale of mortgages, and backward linkage industries such as cement, ceramic, brick manufacturing industries, etc. However, real estate business saw an improvement in recent times, thanks to property price corrections, falling interest on home loans and return of political stability. The sector appears to have been recovering in the last few months. An increasing number of customers were placing new bookings. Most of the realtors were selling flats and plots at a low profit margin to maintain their cash flows. The realtors hope that the recent cut in lending rates by banks and financial institutions would help raise the apartment sales further.

2.3 Power The power supply situation improved in the quarter under review but the demand for power, too, shot up as anticipated. Unofficial estimates put the current demand for electricity at around 10,000 mw, while the maximum generation in 2017 was 9,479 mw (as of 7 June). As of 29 June 2017, total actual generation was 5,990 megawatt (mw) during day peak hours and 7,634 mw during evening peak hours. In July 2017, total installed capacity rose to 13,179 mw, and derated/present capacity rose to 12,578 mw, but production remained low because of gas shortage and also because some power stations were shut for maintenance. According to the BPDB website, the 13,179 mw installed capacity of power plants comprised of coal 250 mw (1.90%), gas 8,267 mw Quarterly Review | 7

April-June 2017 (Q4 of FY17)

(62.73%), HFO 2,800 mw (21.25%), HSD 1,032 mw (7.83%), Hydro 230 mw (1.75%), and imported 600 mw (4.54%).

In line with the Power System Master Plan 2016, the government has targeted meeting at least 30.0 per cent of the country’s power demand from coal-based plants by 2030. Producing electricity from coal would also help keep power tariff at an affordable level because coal is cheaper than other available sources of power generation. The target of producing more power from coal would be met in phases, with setting up of 22 coal-fired power plants in the next four years. Construction work on the 22 power plants would begin in 2019; out of 22 plants, 7 would be built by the government, 7 by the private sector, and the other eight under joint ventures. A memorandum of understanding (MoU) has already been signed for setting up a 1,320 mw capacity coal-fired power plant under a joint initiative of China Energy Engineering Corporation Limited (Energy China) and Ashuganj Power Station Company Ltd (APSCL). State-run Coal Power Generation Company Bangladesh Ltd (CPGCBL) has also planned for setting up a 1,200 mw plant in Cox’s Bazar with funding from JICA. According to the Ministry of Power, Energy and Mineral Resources (MoPEMR), 80 per cent of the country’s population has now come under electricity coverage and the government has set the goal of providing electricity to all citizens by 2021. To that end, government has undertaken a massive capacity expansion plan to have 24,000 mw capacity of power generation in 2021, which will be raised to 40,000 mw in 2030, and 60,000 mw in 2041. Countrywide electricity generation capacity has now reached 15,379 mw while it was 3,268 mw at the beginning of 2009. The power system has expanded to keep pace with the fast growing demand.

3.0 SERVICES SECTOR According to provisional estimates of BBS, the services sector performed better in FY17 compared to the previous fiscal. Despite the sluggish investment situation prevailing in the quarter under review, the services sector growth increased by 0.25 percentage Quarterly Review | 8

point to 6.50 per cent in FY17 from 6.25 per cent in FY16. Notable among the well-performing sub-sectors in FY17 are wholesale & retail trade; hotel & restaurants; transport, storage & communication; real estate, renting & business activities; construction; and community, social & personal services.

It is worth noting that the share of the services sector in GDP, which was at its peak at 55.59 per cent in FY06, has been continuously declining thereafter, dropping to 52.73 per cent in FY17. Among the different services sub-sectors, the wholesale & retail trade held the highest share in GDP (13.94%) in FY17 compared to 13.99 per cent in FY16. The GDP shares of certain other sub-sectors in FY17 were: transport, storage & communication (11.25%); community, social & personal services (8.86%); construction (7.39%); real estate, renting & business activities (6.48%); public administration & defence (3.72%); financial intermediations (3.41%); and education (2.48%).

4.0 MONETARY AND CREDIT DEVELOPMENTS According to BB data, broad money (M2) grew by 11.69 per cent at the end of May 2017 compared with the 14.02 per cent growth achieved at the end of May 2016. Domestic credit, on the other hand, recorded 11.07 per cent growth at the end of May 2017, while a higher rate of growth of 12.97 per cent was recorded at the end of May 2016. These two important anchors of the current monetary program, aiming at containment of CPI inflation, were well below the program ceilings which helped achieve the favorable inflation performance in FY17. Among components of domestic credit, private sector credit registered a growth of 16.03 per cent during the period between May 2016 and May 2017, compared with a relatively higher growth of 16.40 per cent during the period between May 2015 and May 2016. Private sector credit growth remained within the targeted

April-June 2017 (Q4 of FY17)

end-June 2017 ceiling of 16.5 per cent. Public sector credit, on the other hand, recorded a negative growth of 16.11 per cent at the end of May 2017, compared with the decrease of 2.76 per cent at the end of May 2016 as the government paid off maturing T-bills/Tbonds with proceeds of larger-than-planned sales of NSCs. Within public sector credit, however, credit to government (net) recorded a negative growth of 19.11 per cent, and credit to other public sector recorded a growth of 1.79 per cent, during the period (Table 1).

Table 1: Monetary and Credit Indicators Outstanding Stock (Taka in crore)

Particulars

May 2015R

May 2016R

May 2017P

% Changes in Outstanding Stock May 2017 over May 2016 (+) 11.07

February 2016 over February 2015 (+) 12.97

Total Domestic Credit

684438

773210

858836

Credit to Public Sector

122575

119192

99986

(-) 16.11

(-) 2.76

Net Credit to Government Sector

106003

102109

82598

(-) 19.11

(-) 3.67

Credit to Other Public Sector

16572

17083

17388

(+) 1.79

(+) 3.08

Credit to Private Sector

561863

654017

758850

(+) 16.03

(+) 16.40

Reserve Money (RM)

142984

172903

195969

(+) 13.34

(+) 20.92

Broad Money (M2)

768350

876094

978480

(+) 11.69

(+) 14.02 Note: P=Provisional; R=Revised Source: Bangladesh Bank



Total liquid assets of scheduled banks increased by 0.96 per cent and stood higher at Tk.264,744 crore as of end May 2017 compared with Tk.262,227 crore as of end June 2016. The minimum required liquid asset of the scheduled banks was Tk.161,541 crore as of end May 2017 (Table 2).

Table 2: Liquidity Position of Scheduled Banks

(Taka in crore)

As of end June, 2016R

Bank Group

As of end May, 2017P Excess Liquidity

3

Minimum Required Liquid Assets 4

108039

107824

48735

59089

103585

105511

82074

23437

Private banks (Islamic)

29091

27952

21426

6526

Foreign banks

19972

21750

7629

14121

Specialized banks*

1540

1707

1677

30

Total Liquid

Total Liquid Assets

2

State owned banks Private banks (other than Islamic)

1

Total

5 (3-4)

262227 264744 161541 103203 Notes: P=Provisional; R=Revised; *= SLR does not apply to Specialized banks (except BASIC Bank) as exempted by the government Source: Bangladesh Bank

Bangladesh Bank data show that, of the total liquid assets of scheduled banks as of end May 2017, some 4.80 per cent was held in the form of Cash in tills and Balances with Sonali Bank, 22.58 per cent in the form of CRR, 2.57 per cent in the form of Excess Reserves, 3.01 per cent in the form of Balances with Bangladesh Bank in Foreign Currency and the remaining 67.04 per cent in the form of Unencumbered approved securities.

Quarterly Review | 9

April-June 2017 (Q4 of FY17)

4.1 Interest Rate Developments Bangladesh Bank (BB) employs repo, reverse repo, and BB bill rates as policy instruments for influencing financial and real sector prices. Between 1 February 2013 and 13 January 2016, the repo and reverse repo rates remained unchanged at 7.25 per cent and 5.25 per cent, respectively. The rates were lowered down to 6.75 per cent and 4.75 per cent, respectively, with effect from 14 January 2016 (Table 3).

months. However, the weighted average interest rate on deposit decreased to 4.93 per cent in May 2017 from 4.97 per cent in April this year (Table 3). The overall interest rate spread stood at 4.73 per cent in May 2017 from 4.65 per cent in the previous month.

( in per cent )

Table 3: Interest Rate (weighted average) movements in . FY16 and July-May of FY17 Repo

Reverse Repo

Lending Rate

Deposit Rate

Interest Rate Spread

July

7.25

5.25

11.57

6.78

4.79

August

7.25

5.25

11.51

6.74

4.77

September

7.25

5.25

11.48

6.66

4.82

October

7.25

5.25

11.35

6.58

4.77

November

7.25

5.25

11.27

6.46

4.81

December

7.25

5.25

11.18

6.34

4.84

January

6.75

4.75

11.05

6.21

4.84

February

6.75

4.75

10.91

6.10

4.81

March

6.75

4.75

10.78

5.92

4.86

April

6.75

4.75

10.64

5.77

4.87

May

6.75

4.75

10.57

5.67

4.90

June FY17P

6.75

4.75

10.39

5.54

4.85

July

6.75

4.75

10.32

5.48

4.84

August

6.75

4.75

10.24

5.44

4.80

September

6.75

4.75

10.11

5.39

4.72

October

6.75

4.75

10.03

5.33

4.70

November

6.75

4.75

9.94

5.29

4.65

December

6.75

4.75

9.93

5.22

4.71

January

6.75

4.75

9.85

5.13

4.72

February

6.75

4.75

9.77

5.08

4.69

March

6.75

4.75

9.70

5.01

4.69

April

6.75

4.75

9.62

4.97

4.65

May

6.75

4.75

9.66

4.93

4.73

June

6.75

4.75

NA

NA

NA

Month/ Quarter FY16R

Notes: P=Provisional, R=Revised, NA=Not Available Source: Bangladesh Bank

Interest rates on bank lending increased in May 2017 after 29 months of fall as the private sector credit increased. The weighted average interest rate on lending rose to 9.66 per cent in May from 9.62 per cent in April 2017. Banks increased their lending rates after a long pause due to an increased credit demand from the businesspeople in the last few Quarterly Review | 10

4.2 Industrial Term Loans Data on industrial term loans are available only up to the third quarter (January-March) of FY17. According to BB data, the disbursement of industrial term loans during JanuaryMarch of FY17 stood 19.4 per cent lower at Tk.15,783 crore, compared to Tk.19,575 crore during the immediate previous quarter (October-December) of FY17 (Table 4). On the other hand, the recovery of industrial term loans increased by 6.3 per cent to Tk.14,547 crore during January-March of FY17, compared to Tk.13,679 crore in the previous quarter.

April-June 2017 (Q4 of FY17)

Table 4: Disbursement and Recovery of Industrial Term Loans Disbursement (Tk. in crore)

Quarter

Recovery (Tk. in crore)

LSI

MSI

SSCI

Total

LSI

MSI

SSCI

Total

January-March of FY16R

14264

2506

1495

18265 (+2.5)

9021

2029

1386

12436 (+4.1)

April-June of FY16R

11921

2493

2341

16755 (-8.3)

9088

2718

965

12771 (+2.7)

July-September of FY17R

9929

1977

1139

13045 (-22.1)

8757

2393

1273

12423 (-2.7)

October-December of FY17P

14175

3068

2332

19575 (+50.1)

9846

2137

1696

13679 (+10.1)

January-March of FY17P

11875

2297

1611

15783 (-19.4)

11069

2186

1292

14547 (+6.3)





Notes: LSI=Large Scale Industries, MSI=Medium Scale Industries and SSCI=Small Scale & Cottage Industries P=Provisional; R=Revised; Figures in parentheses indicate the percentage change over the previous quarter Source: Bangladesh Bank

4.3 SME Loans Data on SME loans are available only up to the October-December quarter (Q3) of FY17. According to BB data, total SME loans by all banks and non-bank financial institutions (NBFIs) increased by 16.03 per cent to Tk.172,639 crore at the end of December 2016 from Tk.148,793 crore at the end of December 2015. The disbursement of SME loans was 23.9 per cent of total loans disbursed by all banks and NBFIs at the end of December 2016 (Table 5).

Table 5: Outstanding Position of SME Loans Quarter

(Taka in crore)

Type of Loans

SOBs

PBs

FBs

SBs

NBFIs

Total

Total Loans SME Loans Percentage Total Loans SME Loans Percentage

110529 29049 (+26.3

428210 111429 (+26.0)

24399 1887 (+7.7)

21377 975 (+4.6)

44848 5453 (+12.2)

629463 148793 (+23.6)

112457 28831 (+25.6)

440555 114851 (+26.1)

24259 1863 (+7.7)

21377 970 (+4.5)

46807 5680 (+12.1)

645455 152195 (+23.6)

April-June of FY16P

Total Loans SME Loans Percentage

116837 29541 (+25.3)

465050 120891 (+26.0)

25881 1971 (+7.6)

22251 1700 (+7.6)

49309 6391 (+13.0)

679328 160494 (+23.6)

July-September of FY17P

Total Loans SME Loans Percentage

119061 29685 (+24.9)

469025 121393 (+25.9)

25650 2027 (+7.9)

22251 958 (+4.3)

46914 6595 (+14.1)

682901 160658 (+23.5)

October-December of FY17P

Total Loans SME Loans Percentage

123836 29774 (+24.0)

503053 132954 (+26.4)

25149 2413 (+9.6)

21842 594 (+2.7)

48853 6904 (+14.1)

722733 172639 (+23.9)

+2.50

+19.32

+27.86

-39.04

+26.61

+16.03

October-December of FY16P

January-March of FY16P

% change of SME loans at the end of December 2016 over end of December 2015

Notes: P=Provisional, R=Revised; SOBs= State Owned Banks, PBs= Private Banks, FBs= Foreign Banks, SBs= Specialized Banks, NBFIs= Non-bank Financial Institutions; Figures in parentheses indicate SME loans as percentage of total loans Source: Bangladesh Bank Quarterly Review | 11

April-June 2017 (Q4 of FY17)

4.4 Agricultural Credit and Non-farm . . Rural Credit The disbursement of agricultural credit and non-farm rural credit by banks increased by 19.03 per cent to Tk.20,999 crore in FY17 from Tk.17,641 crore in FY16. The improvement in disbursement was partly the result of strong monitoring by the BB. The disbursement exceeded the annual target by 19.65 per cent (Table 6). In the quarter under review, the disbursement increased, year on year, by 7.35 per cent to Tk.5,188 crore from Tk.4,833 crore. In this backdrop, the central bank has recently asked banks to increase disbursement of agricultural credit and non-farm rural credit to boost the private sector credit growth. The recovery increased by 10.46 per cent to Tk.18,841 crore in FY17 from Tk.17,056 crore in the previous fiscal year. In the quarter under review, the recovery, year on year, increased by 10.50 per cent to Tk.4,876 crore.

In FY17, the eight state-owned commercial banks (SCBs) and specialised banks (SBs) disbursed Tk.9,698 crore agricultural credit and non-farm rural credit, which is 4.39 per cent higher than the disbursement target of Tk.9,290 crore. The disbursement by private commercial banks (PCBs) and foreign commercial banks (FCBs) together was Tk.11,300 crore during the period. The amount actually disbursed was 36.80 per cent higher than the disbursement target of Tk.8,260 crore for the period.

Table 6: Disbursement and Recovery of Agricultural Credit and Non-farm Rural Credit (in crore Taka) Month July

FY17P

FY16R

Disbursement

Recovery

Disbursement

Recovery

1056.00

945.65

856.91

790.33

August

1006.63

1189.85

952.42

999.44

September

1381.22

1406.89

1389.90

1327.90

Total of Q1

3443.85 (+7.65)

3542.39 (+13.62)

3199.23 (+16.32)

3117.67 (-4.33)

October

1828.86

1584.44

1427.05

1379.96

November

2298.36

1842.59

903.69

999.03

December

2361.98

2021.89

3221.01

2924.69

Total of Q2

6489.20 (+16.89)

5448.92 (+2.74)

5551.75 (+28.50)

5303.68 (+15.18)

January

2225.66

1823.74

1323.46

1172.89

February

1770.74

1501.14

1296.97

1161.21

March

1880.97

1648.77

1436.89

1887.98

Total of Q3

5877.37 (+44.86)

4973.65 (+17.80)

4057.32 (-0.97)

4222.08 (+8.32)

April

1434.27

1378.34

1315.72

1266.20

May

1690.88

1305.79

1312.38

1397.76

June

2063.13

2192.07

2204.98

1749.04

Total of Q4

5188.28 (+7.35)

4876.20 (+10.50)

4833.08 (+0.47)

4413.00 (+12.56)

Total of July-June

20998.70 (+19.03)

18841.16 (+10.46)

17641.38 (+10.41)

17056.43 (+10.71)

Notes: P=Provisional, R=Revised; Figures in parentheses indicate the percentage change over the same period of the previous fiscal year Source: Bangladesh Bank

Quarterly Review | 12

5.0 CAPITAL MARKET Investor participation significantly increased in the country’s capital market in the quarter under review. On 29 June 2017, the last trading day of FY17, the key index of Dhaka Stock Exchange, DSEX, rose by 0.17 per cent and the shariah-based index, DSES, rose by 0.44 per cent, whereas the blue chip index, DS30, lost 0.16 points. Also, the Chittagong Stock Exchange (CSE) ended higher with its Selective Categories Index (CSCX), advancing 13.29 points. Net foreign investment in the DSE marked an increase, encouraged by positive macroeconomic indicators coupled with declining interest rate, stable exchange rate and a peaceful political situation. Month-wise, net foreign investment at DSE in April 2017 was Tk.700 million, Tk.1.54 billion in May 2017, and Tk.3.90 billion in June 2017. Banks are the foreign investors’ preferred sector, but non-bank financial institutions, power and energy, pharmaceuticals, multinationals, telecoms and IT also drew their attention. Investors include Morgan Stanley, JPMorgan, Goldman Sachs and BlackRock, among others. Known as portfolio investment, total foreign investment accounted for nearly 2.0 per cent of DSE’s total market capitalisation that stood at Tk.3,801 billion at the close of trade on 29 June 2017, the last trading day of FY17.

April-June 2017 (Q4 of FY17)

6.0 PUBLIC FINANCE Data on tax revenue collection (NBR and non-NBR) are available only up to April of the just concluded fiscal year (FY17). According to provisional data of the National Board of Revenue (NBR), total tax revenue collection (NBR and non-NBR) during July-April of FY17 stood 19.23 per cent higher at Tk.147,709 crore against the collection of Tk.123,889 crore during the corresponding period of FY16. NBR tax revenue collection during July-April of FY17 stood at Tk.142,759 crore, which is 19.62 per cent higher than the collection of Tk.119,344 crore during the corresponding period of the previous fiscal year (Table 7). The NBR had set a revenue collection target of Tk.203,152 crore for FY17, which is about 15.19 per cent higher than that of the previous fiscal year’s original target (Tk.176,370 crore) and also about 35.43 per cent higher than the revised target of Tk.150,000 crore.

Table 7: Government Tax Revenue Collection Tax Revenue Collections ( in crore Taka) Customs Duties

VAT

NBR Income Tax

July

1122

3529

August

1261

3780

Month

Non-NBR

Grand Total

Others*

Total

2460

1617

8728

376

9104

2634

1953

9628

611

10239

FY16R

September

1382

4835

5146

1396

12760

408

13168

October

1309

4394

3308

2224

11235

406

11641

November

1570

4986

3139

2820

12514

463

12977

December

1594

4488

4611

2531

13224

487

13711

January

1491

4329

3447

2618

11885

425

12309

February

1484

4175

3247

2486

11391

425

11817

March

1661

4681

5217

2515

14073

466

14539

April

1447

4516

5349

2594

13906

478

14384

14321 (+20.2)

43713 (+8.1)

37844 (+12.4)

23467 (+25.2)

119344 (+15.72)

4545 (+19.62)

123889 (+15.86)

July

1242

3862

2683

1807

9594

417

10011

August

1737

5074

2861

2755

12427

524

12951

July-April FY17P

September

1444

4999

5146

2825

14414

373

14787

October

1567

5265

3652

2897

13381

482

13863

November

1779

5510

3930

2827

14046

472

14518

December

1922

5629

5939

2845

16335

465

16799

January

2085

5914

4276

3317

15592

526

16118

February

1711

5251

3745

2770

13477

436

13913

March

1870

5947

6259

3253

17328

623

17950

April July-April

1901

5901

5153

3208

16164

634

16798

17259 (+20.5)

53352 (+22.1)

43644 (+15.3)

28503 (+21.5)

142759 (+19.6)

4950 (+8.9)

147709 (+19.2)

Notes: P=Provisional; R=Revised; NA=Not Available; *=include supplementary duties and travel tax; Figures in brackets indicate percentage changes over the corresponding period of the preceding year. Sources: BB, NBR and Office of the Controller General of Accounts Quarterly Review | 13

April-June 2017 (Q4 of FY17)

6.1

Public Expenditure

7.0 EXPORTS

In the just-concluded fiscal year (FY17), government was able

The country’s export earnings in the just-concluded financial

to implement 89.4 per cent of the total annual development

year (FY17) grew by only 1.69 per cent to US$34.835 billion

programme (ADP) which was the lowest in eight years. Eight

from US$34.257 billion in the previous fiscal year. This export

years ago, in FY09, the spending rate was the lowest 86 per

growth hit a 15-year low since FY02, when it was (-) 7.43 per

cent of the then total ADP. The implementation rate was low

cent. Export earnings decreased due to low growth of readymade

mainly because some mega projects could not mobilise foreign

garments (RMG) exports in the major export markets, including

funds, particularly those financed by Japan due to the militant

the European Union and the United States (Table 8). Export

attack at the Holey Artisan Bakery in July 2016. The government

earnings were also 5.85 per cent short of the strategic target

agencies and ministries spent 78 per cent of their Tk.357.97

(US$37 billion). Though the RMG played a major role in the

billion foreign fund allocations, whereas they performed better

overall increase in exports, the slow growth in apparel exports

in spending the government’s internal funds as they managed

was mainly responsible for the failure to meet the target. The

to spend 93 per cent of the government’s Tk.777 billion own

RMG exports accounted for 80.81 per cent of total exports in

fund in the fiscal. Among other reasons, the implementation

FY17, compared to 82.01 per cent in the corresponding period

capacity of the ministries and divisions has not kept pace with

of the previous fiscal year. In fact, export earnings in the quarter

the increase in the size of the development budget. According to

under review (Q4 of FY17) grew by a negative rate of 4.44 per

the Implementation, Monitoring and Evaluation Division (IMED),

cent, compared to the entire 12-month period (1.69%), 3.12

54 ministries and divisions spent Tk.1.066 trillion, the highest in

per cent in Q3, 4.73 per cent in Q2 and 4.12 per cent in Q1 of

history, out of the total Tk.1.193 trillion outlays in the ADP of FY17.

the fiscal. And in June 2017, year-on-year, exports witnessed a

ADP spending was 92.7 per cent in the previous fiscal year (FY16).

drastic fall by 15.28 per cent to US$3.044 billion. The exports in June were also below the strategic target (US$3.647 billion).

Table 8: Monthly Trends in Exports Month

together received 85 per cent of the total development budget, performed very well. These ministries and divisions are those of Science and Technology, the Road Transport and Highways Division, the Secondary and Higher Secondary Education Division,

Change (%)

FY17P

FY16R

July

2534

2626

(-) 3.50

August

3304

2758

19.80

September

2241

2375

(-) 5.64

8079

7759

4.12

October

2713

2372

14.38

November

2899

2749

5.46

December

3107

3204

(-) 3.03

Total of Q2

8719

8325

4.73

January

3312

3186

3.95

February

2726

2854

(-) 4.48

March

3110

2831

9.86

9148

8871

3.12

Total of Q1

Twelve ministries or divisions, or implementing agencies, which

Exports (million US$)

Total of Q3

the Ministry of Primary and Mass Education, the Local Government

April

2776

2682

3.50

Division, the Ministry of Housing and Public Works, the Ministry of

May

3069

3027

1.39

Water Resources, the Energy Division, and the Ministry of Disaster

June

3044

3593

(-) 15.28

Management and Relief. Some of the implementing agencies

Total of Q4

8889

9302

(-) 4.44

Total of JulyJune

34835

34257

1.69

even overshot their allocation: the Power Division spent 101 per cent, the Ministry of Post and Telecommunications 119 per cent, and the Ministry of Shipping spent 106 per cent. But the Ministry of Health, the Ministry of Railways, and the Bridges Division fell short of spending their total allocation, according to IMED data. Quarterly Review | 14

Notes: P=Provisional; R=Revised Sources: Export Promotion Bureau and Bangladesh Bank

April-June 2017 (Q4 of FY17)

driven growth and the diversification of markets and products. To remain competitive in the global market, Bangladesh should cut the cost of doing business. Like the RMG, the other major sectors did not perform any better either. The frozen foods including fish, agricultural products, petroleum bi-products, specialized textiles and leather sector, especially processed leather, witnessed negative growth. In July-June of FY17, export earnings from frozen & live fish and agricultural products declined by 1.74 per cent and 7.20 per cent to US$526.45 million and US$553.17 million, respectively. Specialized textiles, another potential sector, experienced negative growth of 2.37 per cent in the period. Export of finished An analysis of EPB’s export data for July-June of FY17 shows that

leather fell by 16.30 per cent to US$232.61 million but export of

the country’s major export products, i.e., knitwear, jute & jute

leather products and footwear increased as international retailers

goods, leather & leather products, chemical products, plastic

come to Bangladesh to buy leather goods, not finished leather,

products, paper & paper products, cotton & cotton products, home

because of environmental pollution.

textile, other footwear, engineering products, other manufactured products, ceramic products, and computer services showed positive growth while woven garments, agricultural products, frozen & live fish, petroleum by products, man-made filaments & staple fibres, carpet, and specialized textiles showed negative growth. The overall export growth was largely dependent on the RMG sector. The sector alone earned US$28.150 billion or 80.81 per cent of total exports in FY17 but registering only 0.20 per cent growth from US$28.094 billion in FY16. This growth is too low to achieve the US$50.0 billion export target by 2021. In order to achieve that goal, the industry will need to attain more than 12.0 per cent export growth every year. RMG earnings in FY17 were also 7.34 per cent short of the strategic target (US$30.379 billion). Within the sector, knitwear products earned US$13.757 billion, a 3.01 per cent increase over the corresponding period of

The country’s exports to major destinations, including the USA,

the previous year, and woven products earned US$14.393 billion,

Canada and some other EU countries, marked a downward trend

showing a negative growth of 2.35 per cent during the period.

in FY17. Factors like currency fluctuation and sluggish demand

Apparel shipment went down due to both external and internal factors - the global consumption for apparel declined by 5.0 per cent while Brexit had a negative impact on local garment exports. The value of Taka against US dollar remained unchanged while the currencies in competitor countries depreciated. Moreover, due to the ongoing safety activities carried out by the western retailers’ platforms - Accord and Alliance - many factories were shut while a good number of units are in the process of relocation. Apart from those, the prevailing gas and other infrastructural problems also affected the sector. According to businesspeople, the demand for apparel products decreased on the global market and all the exporting countries were losing their earnings but Bangladesh was losing more than others. Bangladesh needs productivity-

and ongoing safety issues in the RMG sector were mainly responsible for this poor performance. The country fetched US$5.84 billion from the US market, the single largest export destination, by exporting merchandise products, including garment, which recorded a 6.01 per cent negative growth in FY17. The downward trend was also seen in Canada that witnessed a 3.03 per cent negative growth in FY17. About 60 per cent of the country’s total exports are destined for the countries of Western Europe, where Germany, the United Kingdom (UK), Spain, France, Italy, the Netherlands, Belgium, Poland and Denmark are the big markets. Of them, export earnings fell in the UK and Belgium by 6.31 per cent and 9.50 per cent, respectively, while exports rose in Germany, Spain, France, Italy and Denmark at varying rates. Quarterly Review | 15

April-June 2017 (Q4 of FY17)

8.0 IMPORTS Import payments (C&F) in the first eleven months (July-May) of FY17 rose by 10.69 per cent to US$43.508 billion from US$39.307 billion in the corresponding period of the previous fiscal. Import payments increased mainly due to higher imports of capital machinery. In May 2017, imports stood higher by 2.02 per cent at US$4.352 billion against US$4.266 billion in May 2016 due to a rise in payment of bills for food products imported to meet the demand in Ramadan. Industrial raw materials and capital machinery imports also contributed to the growth of total imports in May 2017 (Table 9).

Table 9 : Monthly Trends in Imports Month

Imports (million US$) FY17P

FY16R

Change (%)

July

2942

2857

2.98

August

3797

3416

11.15

September

3531

3197

10.45

October

4125

3867

6.67

November

4222

3665

15.20

December

3994

3898

2.46

January

4302

3592

19.77

February

3761

3353

12.17

March

4311

3654

17.98

April

4171

3542

17.76

May Total of July-May

4352

4266

2.02

43508

39307

10.69

Notes: P=Provisional; R=Revised Source: Bangladesh Bank

9.0 REMITTANCES In spite of various measures taken by the country’s central bank, remittance inflow in FY17 has been the lowest in six years. The inflow dropped substantially - by 14.48 per cent – in FY17 compared to the previous fiscal. Remittance is a major source of foreign currency for Bangladesh and the declining trend since FY16 has progressively become a matter of concern for the government. The decline in remittance is indirectly linked with the decline in the price of petroleum products in the global market. The majority of Bangladesh’s expatriate workers now work in the oil-producing Gulf Cooperation Council (GCC) countries whose development activities mainly depend on their income from petroleum products. The fall in petroleum prices greatly squeezed the oil income of these GCC countries, and their wage payment to overseas workers declined as a result. Also, the depreciation of the Taka against the U.S. dollar and the rising trend of sending money by non-resident Bangladeshis (NRBs) using informal channels worked as a damper to the flow of inward remittances. According to BB data, Bangladesh received US$12.769 billion in remittance in FY17 compared to US$14.931 billion in FY16 (Table 10). Remittances in the quarter under review fell by 7.70 per cent to US$3.573 billion from US$3.871 billion, while year-on-year, remittances declined by 17.33 per cent in June 2017. Remittances in the last two months (May and June) of FY17 were higher than the previous months, but not enough to push the annual receipts up. Due to the Ramadan and Eid-ul-Fitr, remittances received in May and June 2017 went up to US$1.268 billion and US$1.212 billion, respectively.

According to BB data, the settlement of import Letters of Credit (LCs) increased by 11.83 per cent during July-May of FY17 mainly due to higher imports of capital machinery. On the other hand, opening of import LCs increased by 13.97 per cent to US$44.119 billion in the first eleven months of FY17 from US$38.712 billion in the corresponding period of the previous fiscal. Quarterly Review | 16

According to BB data, remittance inflow to Bangladesh from outside the GCC countries, especially the US, crashed in FY17 mainly due to uncertainty over the migration policy aimed at Muslims amid a spurt in militant activities. Bangladesh receives the third highest remittance from the US, but the inflows dropped by 30.15 per cent year-on-year in FY17 due to uncertainty over their job security. Remittance from the US normally comes through

April-June 2017 (Q4 of FY17)

legal channel, but due to the large divergence between formal and informal rates in the foreign exchange market, there might have been a rising tendency to send money home through hundi. Remittance inflow from Malaysia, Singapore and the UK also declined in FY17. Remittance from the UK declined 4.4 per cent, from Malaysia 17.42 per cent and from Singapore 22.48 per cent.

Table 10: Monthly Trends in Remittances Remittances (million US$)

Month

Change (%)

FY17P

FY16R

July

1006

1390

(-) 27.63

August

1184

1195

(-) 0.92

September

1057

1349

(-) 21.65

Total of Q1

3247

3934

(-) 17.46

October

1011

1098

(-) 7.92

November

951

1142

(-) 16.73

December

959

1313

(-) 26.96

Total of Q2

2921

3553

(-) 17.79

January

1009

1151

(-) 12.34

February

941

1136

(-) 17.17

March

1078

1286

(-) 16.17

Total of Q3

3028

3573

(-) 15.25

April

1093

1191

(-) 8.23

May

1268

1214

4.45

June

1212

1466

(-) 17.33

Total of Q4

3573

3871

(-) 7.70

12769

14931

(-) 14.48

Total June

of

July-

Notes: P=Provisional; R=Revised Source: Bangladesh Bank

Currently, 29 exchange houses are operating across the globe, setting up 1,155 drawing arrangements abroad, to expedite the remittance inflow. BB expects that the flow of inward remittances will improve in the ongoing fiscal year following different initiatives. Earlier, the central bank had taken a series of measures to encourage the expatriate Bangladeshis to send their money through formal banking channels, instead of illegal hundi system, to help boost the country’s foreign-exchange reserves. As part of the promotional measures for ensuring better remittance services, banks have been instructed to open ‘help desk’ at each branch concerned. Also, BB asked the banks to take measures for improving the quality of remittance services so that the NRBs send their hard-earned money home through formal channel. Following the innovative measures, the flow of inward remittances improved slightly in Q4 of FY17. The remittance receipts stood at US$3.573 billion in April-June of FY17 compared to US$3.028 billion three months ago.

10.0 FOREIGN AID According to the Economic Relations Division (ERD) provisional data, the disbursement of foreign aid in the just-concluded fiscal year (FY17) decreased by 12.32 per cent to US$3.56 billion from US$4.06 billion in the previous fiscal year mainly due to slow development work following the Holey Artisan café attack in July 2016. Aid disbursements could be higher had the Holey Artisan militant attack not hindered the development works. Some development partners, including Japan, withdrew their manpower from Bangladesh immediately after the attacks. Besides, the slow progress in aid-funded ADP projects has affected aid disbursement. Government agencies and ministries spent 78 per cent of their Tk.357.97 billion foreign fund allocations in FY17. However, they performed better in spending the government’s own funds as they utilised 93 per cent of such funds in the fiscal. Meanwhile, development partners’ commitments of foreign aid increased to a record high of US$17.86 billion in FY17, 153.33 per cent higher than that of the corresponding period of the previous Quarterly Review | 17

April-June 2017 (Q4 of FY17)

fiscal (US$7.05 billion) mainly due to a single-largest US$11.36 billion state credit commitment by the Russian government for Rooppur Nuclear Power Plant project. Out of the US$17.86 billion of aid commitment, government received US$17.49 billion as concessional loans and US$0.37 billion as grants from the development partners.

especially in readymade garments industry, are generally believed to be attractive to foreign investors, but yet they hesitate to make fresh investments in the country because of the country’s underdeveloped infrastructure, and such other impediments as the shortage of power and energy, lack of consistency in policy and regulatory framework, scarcity of industrial lands, and political uncertainty. The government needs to address these impediments to attract more FDI in the country. To boost FDI, BB has recently asked all banks dealing in foreign currencies to set up at least one ‘FDI Help Desk’ in their Dhaka and Chittagong offices with competent officials to help potential foreign investors in making productive investment. The government has also plans to develop 100 economic zones by 2030 on 75,000 acres of land to create jobs for one crore people and produce goods and services worth US$40 billion. Bangladesh Economic Zones Authority has so far awarded licence to eight local private companies to set up 10 economic zones. The government itself is setting up 4 economic zones - Mirsarai economic zone in Chittagong, Mongla economic zone in Bagerhat, Srihatta economic zone in Moulvibazar and Sabrang tourism park in Cox’s Bazar.

Bangladesh mainly takes Official Development Assistance (ODA) from multilateral organisations or countries, which are soft loans or grants. The country’s largest development partner is the World Bank (WB). Other development partners include the Asian Development Bank (ADB), Japan, the Islamic Development Bank (IDB), China, the United Nations (UN), the UK’s DFID, Russia, Germany, and India. In the current fiscal year (FY18), the government has targeted US$7.6 billion in concessional loans and grants from different bilateral and multilateral development partners. In the previous fiscal, the target was US$5.0 billion.

11.0 FOREIGN DIRECT INVESTMENT (FDI) In the first eleven months of FY17, the net foreign direct investment (FDI) in Bangladesh increased by 27.75 per cent to US$1.625 billion from US$1.272 billion in the same period of FY16 (Table 11). According to industry experts, however, the annual FDI inflow in the country is not enough to meet its development needs. Bangladesh’s low labour cost and efficient supply chain,

Quarterly Review | 18

April-June 2017 (Q4 of FY17)

12.0 BALANCE OF PAYMENTS According to BB data, overall trade deficit increased by 42.58 per cent to US$9.198 billion in July-May of FY17 (Table 11). Merchandise exports grew by 3.80 per cent while merchandise imports grew by 10.68 per cent during these eleven months. The disparate growth in imports visa-a-vis, exports had the effect of widening the trade deficit. The deficit in trade in services, too, widened to US$3.1 billion in July-May of FY17 from US$2.433 billion in the same period of FY16. Inward remittance fell by 14.15 per cent during the 11-month period. Because of higher trade and services deficit and the fall in inward remittances, the comfortable surplus in the current account prevailing in the previous fiscal turned into a deficit in FY17. The financial account, however, posted a sizeable surplus during July-May of FY17 - US$4.195 billion, compared to US$1.178 billion in the same period of FY16. Higher inflow of foreign investment and comparatively low pressure on external debt repayment contributed to the improvement in the financial account. The BoP data show that the net inflow of FDI increased by 27.75 per cent to US$1.625 billion in July-May of FY17 while portfolio investment jumped by around six times to US$324 million during the period. Other investment (net), too, recorded a handsome surplus of US$2.246 billion as against a deficit of US$150 million in the previous fiscal. However, because of the larger increase in the current account deficit balance relative to the surplus in the financial account, the surplus in the overall balance of payments shrank to US$2.682 billion in July-May of FY17 from US$4.143 billion in the same period of FY16.

Table 11: Balance of Payments

(in million US$)

Items

July-March of FY17P

Trade Balance

July-May of FY16R

(-) 9198

(-) 6451

Exports f.o.b (including EPZ)*

31055

29919

Of which: Readymade Garments

25625

25084

Imports f.o.b (including EPZ)*

40253

36370

(-) 3100

(-) 2433

Credit

3289

3125

Debit

6389

5558

Services

Primary Income

(-) 1800

(-) 1747

Credit

70

69

Debit

1870

1816

Of which: Official Interest Payment

375

352

Secondary Income

Change (-) 2747

(-) 667

(-) 53

11995

13824

Official Transfers

42

41

Private Transfers

11953

13783

Of which: Workers’ Remittances (current a/c portion)

11385

13261

(-) 1876

Current Account Balance

(-) 2103

3193

(-) 5296

Capital Account

288

382

288

382

4195

1178

2650

2330

1625

1272

Portfolio Investment (net)

324

56

Of which: Workers’ Remittances (financial a/c portion)

170

205

Other Investment (net)

2246

(-) 150

Errors and Omissions

302

(-) 610

Overall Balance

2682

4143

Capital Transfers Financial Account Foreign Direct Investment (gross inflows) Of which: Foreign Direct Investment (net inflows)**

(-) 1829

3017 353

912 (-) 1461

Notes: P=Provisional; R=Revised; * = Both exports and imports are compiled on the basis of shipment data ** = Disinvestment, loss and repayments of intracompany loans have been deducted from gross inflows as per BPM6 Source: Bangladesh Bank Quarterly Review | 19

April-June 2017 (Q4 of FY17)

14.0 FOREIGN EXCHANGE RESERVES

13.0 EXCHANGE RATE Between end-June of 2016 and end-June of 2017, the Taka depreciated by 2.81 per cent in terms of the U.S. dollar. On the inter-bank market, the U.S. dollar was quoted at Tk.80.5995 at the end of June 2017 as against Tk.78.4000 at the end of June 2016 (Table 12).

Bangladesh Bank’s gross foreign exchange reserves (Forex)

Table 12: Monthly Exchange Rate

remittance ahead of the Eid-ul-Fitr festival (Table 13). The stable

FY17P (Taka per US$) Month

FY16R (Taka per US$)

crossed US$33 billion-mark for the first time on 22 June 2017 and rose to US$33.407 billion in the last working day of FY17 (29 June 2017). The increase in reserves was mainly due to lower import payment pressure on the economy and higher inflow of exchange rate of the Taka against the US dollar has encouraged the expatriate Bangladeshis to send home their earnings, which has also helped boost the reserve. In addition, according to BB,

Month Average

End Month

Month Average

End Month

June

-

-

78.4000

78.4000

contributed to raise the reserve to some extent. The country

July

78.4000

78.4000

77.8007

77.8000

the existing forex reserve.

August

78.4000

78.4000

77.8000

77.8000

September

78.4000

78.4000

77.8008

77.8000

Table 13: Monthly Trends in Foreign Exchange Reserves

October

78.4010

78.4161

77.8215

77.9978

November

78.5417

78.7233

78.5274

78.9364

December

78.8030

78.7004

78.7794

78.5000

January

78.8573

79.0741

78.5008

78.5000

February

79.2353

79.3700

78.5517

78.4500

March

79.5398

79.6797

78.4130

78.4000

April

79.8376

80.2300

78.4000

78.4000

May

80.4896

80.5609

78.4000

78.4000

June

80.5850

80.5995

78.4000

78.4000



Note: i) P=Provisional; R=Revised, NA=Not Available ii) Exchange rate represents the mid-value of buying and selling rates Source: Bangladesh Bank

a fund of US$46 million received from the World Bank has also would be able to settle more than nine months’ import bills with

Month

Foreign Exchange Reserve (million US$) FY17P

FY16R

July

30039

25469

August

31165

26175

September

31386

26379

October

31895

27058

November

31371

26408

December

32092

27493

January

31724

27139

February

32557

28059

March

32215

28266

April

32519

29106

May

32246

28803

June

33407

30168 Notes: P=Provisional; R=Revised Source: Bangladesh Bank

Quarterly Review | 20

April-June 2017 (Q4 of FY17)

and Training (BMET) data, only 247,517 workers from Bangladesh entered the international markets with jobs during the quarter under review (April-June of FY17). The number of emigrants was 272,973 during the previous quarter. At present, there are nearly 11 million Bangladeshis working in 162 countries, mostly in the Middle East. Their contribution accounts for about 60 per cent of the country’s foreign currency reserves.

A healthy reserve allows a country to get higher credit rating and helps the private sector to get loans from foreign sources at low interest rates. Also, the current reserves will help keep the Taka stable against the US dollar and provide a more favourable economic environment.

15.0 OVERSEAS EMPLOYMENT SITUATION Manpower export of the country remained subdued in the last two and a half years as unstable situation was prevailing in

Since 1991 when Bangladeshi female workers started to go

different Middle-Eastern countries. The country faced difficulties

abroad for jobs, the number of oversees jobs for female workers

following the suspension of labour import by various Middle-

has gradually increased. Some 34,364 female workers entered the

Eastern countries. Both public and private sectors are now trying

international markets with jobs during the quarter under review,

to expand manpower export in certain other countries, including

a 13.02 per cent increase from 30,405 in the previous quarter

Thailand and Japan. Manpower demand from the Kingdom of

(January-March of FY17). Female workers, mostly housemaids and

Saudi Arabia (KSA), Kuwait, Qatar, Oman, Jordan and Bahrain has

garment workers, are employed mainly in KSA, Jordan, UAE, Oman,

also shrunken. According to the Bureau of Manpower, Employment

Lebanon and Qatar.

16.0 PRICE SITUATION In June 2017, the general point to point inflation in the country increased by 0.18 percentage point to 5.94 per cent, the highest in 18 months, from 5.76 per cent in May 2017. The rate of inflation, 18 months back in January 2016, was the highest at 6.07 per cent. The rise in inflation was due to an increase in the prices of some food and essential items (Table 14). A year ago, in June 2016, the inflation rate was 5.35 per cent. Economists predict higher inflationary pressures in the near term as the country is facing some supplychain problems with rice in addition to recent floods in some areas of the country with severe crop damage in haor regions.

Quarterly Review | 21

April-June 2017 (Q4 of FY17)

The food inflation increased by 0.14 percentage point to 7.51 per cent in June 2017 from 7.37 per cent in the previous month because of a rise in prices of rice, oil, meat, pulses, vegetable, green chilli, sugar, tea and milk. Non-food inflation also increased by 0.23 percentage point to 3.67 per cent in June 2017 from 3.44 per cent of the immediate past month (May). Besides, the average inflation in the justconcluded financial year (FY17) recorded a 13- year low at 5.44 per cent from 5.92 per cent in FY16 as the prices of essential items at home and fuel oils and some other commodities in external markets were maintaining a cool trend. The year-on-year average inflation in FY04 was the lowest at 5.83 per cent. Moreover, the average inflation in FY17 was within the government-set target of 5.80 per cent, leaving the major macroeconomic indicator in a comfortable zone.

Table 14: Monthly Trends in Inflation (Base: 2005-06=100) Period

Point to Point-All

(Percent)

Point to Point-Rural

Point to Point-Urban

General

Food

Non-food

General

Food

Non-food

General

Food

Non-food

5.40 5.37 5.53 5.57 5.38 5.03 5.15 5.31 5.39 5.47 5.76 5.94 5.44

4.35 4.30 5.10 5.56 5.41 5.38 6.53 6.84 6.89 6.94 7.37 7.51 6.02

6.98 7.00 6.19 5.58 5.33 4.49 3.10 3.07 3.18 3.30 3.44 3.67 4.61

4.54 4.41 4.63 4.87 4.75 4.46 4.92 5.14 5.19 5.24 5.57 5.65 4.96

3.59 3.40 4.27 4.89 4.83 4.78 6.28 6.66 6.72 6.73 7.18 7.20 5.54

6.26 6.28 5.31 4.83 4.60 3.88 2.52 2.46 2.49 2.61 2.77 2.94 3.91

7.00 7.15 7.21 6.87 6.56 6.07 5.57 5.62 5.76 5.88 6.11 6.49 6.37

6.11 6.39 7.03 7.09 6.74 6.74 7.11 7.22 7.28 7.41 7.78 8.21 7.10

7.98 7.99 7.42 6.63 6.35 5.35 3.91 3.91 4.14 4.24 4.37 4.67 5.60

6.36 6.17 6.24 6.19 6.05 6.10 6.07 5.62 5.65 5.61 5.45 5.53 5.92

6.07 6.06 5.92 5.89 5.72 5.48 4.33 3.77 3.89 3.84 3.81 4.23 4.90

6.80 6.35 6.73 6.67 6.56 7.05 8.74 8.46 8.36 8.34 7.92 7.50 7.43

5.88 5.76 5.86 5.82 5.61 5.58 5.29 4.76 4.79 4.75 4.59 4.63 5.26

5.43 5.42 5.26 5.23 5.00 4.76 3.63 3.04 3.15 3.11 3.08 3.44 4.20

6.69 6.41 6.99 6.90 6.76 7.10 8.37 7.97 7.82 7.80 7.32 6.79 7.22

7.28 6.94 6.96 6.91 6.88 7.07 7.53 7.22 7.27 7.22 7.06 7.23 7.11

7.58 7.56 7.47 7.44 7.42 7.14 5.96 5.48 5.61 5.51 5.50 6.06 6.55

6.96 6.26 6.37 6.33 6.29 6.98 9.25 9.14 9.12 9.11 8.76 8.48 7.72

FY17

P

July August September October November December January February April May June FY2016-17 FY16R July August September October November December January February March April May June FY2015-16

Notes: i) P=Provisional, R=Revised; ii) Food includes food, beverages and tobacco Source: BBS Quarterly Review | 22

April-June 2017 (Q4 of FY17)

A comparison of point to point inflation data for urban

rural areas in June were 5.65 per cent, 7.20 per cent, and 2.94

and rural areas in June of FY17 shows that the inflation

per cent, respectively, while these rates in urban areas were

rate was higher in urban areas than in rural areas. Thus,

6.49 per cent, 8.21 per cent, and 4.67 per cent, respectively.

the point to point general, food, and non-food inflation in

17.0 CHAMBER’S PROJECTION ON SOME SELECTED ECONOMIC INDICATORS On the basis of observations in the preceding nine months, this Chamber has made its own projections on some selected economic indicators for the first quarter of the present fiscal year (Q1 of FY18). These projections are presented in Table 15.

Table 15: Projection on Some Selected Indicators in Q1 of FY18

Indicators

Export

FY17

FY18

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

April

May

June

July

August

Sept.

2713

2899

3107

3312

2726

3110

2776

3069

3044

3080

3190

3210

4125

4222

3994

4302

3761

4311

4171

4352

4420

4490

4560

4650

1011

951

959

1009

941

1078

1093

1268

1212

1270

1310

1360

31895

31371

32092

31724

32557

32215

32519

32246

33407

33350

33990

33850

5.38

5.03

5.15

5.31

5.39

5.47

5.76

5.94

5.99

6.10

6.20

(million US$) Import (million US$) Remittance (million US$) Forex Reserve (million US$) I n f l a t i o n , 5.57 Point to Point (per cent)



Notes: October – June of FY17: actual figures except June value of Import; July – September of FY18: projections (figures in bold) Sources: Bangladesh Bank, BBS and the Chamber’s own calculation

It is assumed that the peaceful political situation that currently

the payment to the Asian Clearing Union (ACU) against imports. The

prevails will continue in the coming days. Therefore, export,

rate of inflation can be expected to go up in the coming months

import, and remittances will increase further. The foreign

because of increased demand ahead and during the Eid-ul-Azha.

exchange reserve is likely to fall in July and September due to

Quarterly Review | 23

April-June 2017 (Q4 of FY17)

18.0 CONCLUDING OBSERVATIONS

In the quarter under review (Q4 of FY17), though some risk factors i.e., negative growth in the remittances; marginal growth in the export receipts and higher inflationary pressures were present in the economy, the overall economic situation was positive as indicated by steady improvements in the major economic indicators. The economy is progressing well, but below its true potential. The country experienced stable growth; inflation was a bit higher but under control; the exchange rate remained stable; and foreign exchange reserves rose to a comfortable level.

In FY17, the agriculture sector performed well, but continuous government support with inputs and finance will be needed to sustain the sector’s growth. Services and manufacturing sectors are also doing well but they will need government support in different fields. In particular, infrastructure deficits and gas and power supply problems were undermining the performance of all productive sectors of the economy. Government will need to adopt suitable measures to remove these bottlenecks in order to support the growth of this allimportant sector.

Quarterly Review | 24

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