Economic Growth
Although the
growth of Bangladesh economy slowed down in the context of negative growth in
world trade at the beginning of the global financial crisis in FY 2008-09, next
year this growth bounced back and average growth remained above 6 percent in
the last three years. According to BBS, GDP grew to 6.71 in FY 2010-11 and the
estimated GDP growth rate for FY 2011 -12 is 6.32 percent. However, because of
high base effect induced by more than 5 percent growth in agriculture sector
during the last two years, the growth of FY 2011-12 dipped a little which is
still satisfactory. Alongside, substantial growth in industry and service
sector has contributed to overall GDP growth. In FY2011-12, growth in
agriculture, industry and service sectors has been
estimated to 2.53 percent, 9.47 percent and
6.06 percent respectively. This year GDP and GNI per capita stood at US$ 772
and US$ 848 which were US$ 748 and US$ 816 respectively in the last fiscal
year.
Savings and Investment
Estimated
domestic savings slightly increased from 19.3 percent of GDP in FY 2010-11 to
19.4 percent of GDP in FY 2011-12. Investment in FY 2011-12 also showed similar
feature with a slight increase and stood at 25.4 percent of GDP in FY 2011-12
from 25.2 percent of GDP in FY2010-11. Of which the share of private investment
stood at 19.1 percent of GDP while that of public investment was 6.3 percent in
FY 2011-12. In FY 2010-11, the private and the public sector investments were 19.5
and 5.6 percent of GDP respectively. Major initiatives of the Government
implemented in infrastructure sector including power and reduction in cost of
doing business helped create investment-friendly environment. In addition to
this, because of satisfactory growth of remittances, national savings in FY
2011-12 upturned to 29.4 percent of GDP from 28.8 percent of GDP in the
previous year.
Inflation
The 12 month
average inflation rate reached to 10.62 percent in FY 2011-12 which was 8.80
percent in FY 2010-11. Oil and food inflation in global market and excessive
credit flows to unproductive sectors were mainly responsible for this upturn.
Inflation on point to point basis in June 2012 stood at 8.56 percent. From the
trend analysis of inflation in Bangladesh, it is clear that in the first half
of FY 2011-2012 general inflation went up because of food inflation. However,
at the end of FY2011-12, non-food inflation was the key factor in pushing
general inflation upward. At this point in time, food inflation receded to 7.08
(monthly rate, point to point basis) percent from about 13 percent in the same
month of FY2010-11. Satisfactory food production and supply of essential
commodities including demand management through Open Market Sale (OMS) of the
essential commodities and sufficient stock of food grains contributed to the
efforts of pulling down food inflation. On the
other hand,
there was a non-food inflationary pressure due to price hike in international
market, depreciation in exchange rate and adjustment of oil price. In order to
contain inflation, the Government has undertaken necessary steps by forging
better coordination between fiscal and monetary policies. Although there was a
pressure of oil price adjustment on food price, it was transitory. It is
expected that actions like discouraging credit flows to unproductive sector
alongside adopting restrained and effective monetary policy will reduce the
inflationary pressure.
Fiscal
Situation
Revenue A
target for revenue receipt was set at Tk.1, 18,385 crore (12.94 percent of GDP)
in FY 2011-12 of which NBR tax revenue accounted for Tk.9,1870.00 crore (10.0 percent
of GDP), non-NBR revenue, Tk.3,915 crore (0.4 percent of GDP) and non-tax
revenue Tk.22,600 crore (2.47 percent of GDP). Against these targets, tax
revenue from NBR sources stood at Tk. 91,597 crore while revenue receipts from
non-NBR source and non-
tax revenue
receipts were Tk. 3,633 crore and Tk.18,550 core respectively in FY 2011-12.
Total revenue receipts increased by 19.53 percent from Tk. 95,188 crore in FY
2010-11 to Tk.1,13,781 crore in FY 2011-
12.The
growth of tax revenues from NBR sources was 17.47 percent in FY 2011-12 which
was 20.95 percent in
FY 2010-11.
During this period, VAT at import level registered a remarkable growth of 16.06
percent and VAT at local level17.48 percent and income tax 24.68 percent.
Money and
Credit
During FY
2011-12, year on year growth in broad money (M2) and reserve money (RM)
decreased by 17.39 per
cent and
8.99 percent respectively which was much lower than 21.34 percent and 21.09
percent growth in FY 2010-11. There was a deceleration in narrow money (M1)
growth which was largely due to the sharp decrease in growth of both currency
notes and coins with the public and demand deposit. Time deposit growth
slightly decreased to 20.74 percent compared to the increase of 22.68 percent
in the previous year. On the other hand, demand deposit decreased by 6.21 percent
in FY2011-12 from 15.48 percent in FY 2010-11. The supply of broad money
increased from Tk. 4,40,520.00 crore in FY 2010-11 to Tk. 5,17,109.50 crore in
FY 2011-12. Similarly, the growth of domestic credit on year -on-year basis was
19.53 percent during FY 2011-12, much
lower than 27.43 percent during FY 2010-11. Sector-wise analysis of domestic
credit indicates that the net credit to the government sector increased by
25.15 percent at the end of June 2012 compared to the growth of 35.01 percent
during the previous year. The private sector credit growth was 19.72 percent in
FY 2011-12, much lower than year -on-year growth of 25.84 percent of the
previous fiscal year. Reserve money increased by 8.99 percent at the end of
June 2012, as compared to 21.03 percent growth in the previous year. Due to an
increase of 12.53 percent in net foreign assets (NFA) of Bangladesh Bank, the
growth of reserve money was observed. However, net domestic assets (NDA) of
Bangladesh Bank increased by only 1.17 percent during the period. Bangladesh
Bank’s claims on other public sector, claims on government sector (net),
deposit money banks (DMBs), and non-bank depository corporations (NBDCs)
increased by 39.26 percent, 18.70 percent, 21.60 and 14.47 percent respectively
which eventually pushed upwardthe growth of reserve money. On the other hand,
net other assets also increased by 39.21 percent. Money multiplier increased to
5.29 in FY2012 as compared to 4.90 at the end of June 2011. This increase was
attributable to the decline in reserve-deposit ratio and currency-deposit
ratio.
Interest Rate
Bangladesh
Bank conducted its liquidity management with an aim to contain inflation and
support attaining inclusive growth. To this end, repo and reverse repo rates
were raised twice by a total of 100 basis points to .75 and 5.75 percent
respectively during FY 2011-12. There was a maximum cap of 7 percent interest
rate on export credit fixed since January 10, 2004 to facilitate export
earnings. Recently, the cap on interest rate on lending in all sectors other
than pre-shipment export credit and agricultural loans has been withdrawn. This
has brought competitiveness among banks in fixing rate of interest on lending
in a rational manner. Banks are allowed to differentiate interest rate up to a
maximum of 3 percent considering comparative risk elements involved among
borrowers in the same lending category. With progressive deregulation of
interest rates, banks have been advised to announce the mid-rate of the limit
(if any) for different sectors and they may change interest 1.5 percent more or
less than the announced mid-rate on the basis of the comparative credit risk. The
weighted average rate of interest on commercial lending increased to 13.75
percent at the end of June 2012, from 12.42 percent at the end of June 2011. On
the other hand, the deposit rate increased to 8.15 percent from 7.27 percent
over the same period. As a result, the interest rate spread widened to 5.60
percent at the end of June 2012 from 5.15 percent at the end of June 2011.
Overseas
Employment and Remittances
Although export of manpower slowed down in the
first half of FY 2010-11 because of the impact of global recession,
particularly on the real estate markets in the Middle East, and on industrial
labour demand in some South East Asian economies such as Malaysia, it began to
increase from January, 2011. The amount of remittances increased by 6.03
percent to US $ 11,650.32 million in FY 2010-11 compared to that of the
previous year. Bangladesh earned remittancesof US$12,843.40 million in FY
2011-12 which was 10.24 percent higher than the amount of the previous year.
The Government has undertaken several initiatives including diplomatic
approaches to explore new markets. As a result, the rate of manpower export has
started moving upward. As many as 6.91 lakh workers went abroad in quest of
jobs in FY 2011-12, which was 57.40 percent higher than the number stood at in
the previous year. In the recent past, there is an upward trend in both the
number of manpower export and the amount of inward remittances to Bangladesh.
The remittance sent by the Bangladeshi expatriates substantially increased to
11.11 percent of GDP which was again 52.92 percent of the total export earnings
in FY 2011-12. During FY 2011-12, the highest amount of remittance (28.69
percent) came from Saudi Arabia keeping the trend as usual followed by the
United Arab Emirates (18.72 percent), Kuwait (9.27 percent) and Malaysia (6.60
percent). Among the western and European countries, the United States of
America secured the first position (11.67 percent), followed by the United
Kingdom (7.69 percent). To begin manpower export in full swing to Africa, East
Europe and Latin America, a number of diplomatic initiatives have been
undertaken alongside establishing new labour wings in several countries.
is
the real interest rate, 
is
the nominal interest rate, and the inflation 
is
a measure of the increase in the price level. When inflation is sufficiently
low, the real interest rate can be approximated as the nominal interest rate
minus the expected