Economy on recovery path, picks pace in Q2: MCCI

Bangladesh's economic recovery from Covid-19 shocks gained further momentum in the second quarter of the ongoing 2021-22 fiscal year as almost all of the major macroeconomic indicators were in a satisfactory position, says the Metropolitan Chamber of Commerce and Industry (MCCI).

In its review of the economic situation in Bangladesh for October-December 2021, the chamber has observed that economic condition seems to have been gradually improving following the easing of pandemic-related disruptions in late May 2020, thanks to the time-befitting steps of the government alongside implementation of the stimulus packages.

In October-December 2021, exports and imports – two important drivers of the economy – did well, observes the trade body in its quarterly review report released on Friday.

Robust export earnings have facilitated economic recovery in recent times, says the report, adding the export-oriented garment, leather sectors, and domestic market-oriented steel, food-processing and transport sectors are running in full scale.

Foreign currency reserves are in a satisfactory position and the exchange rate has long remained stable, it adds.

There are, however, some economic indicators that appear to be less promising than were projected earlier, the report says adding inflation rate increased while the fiscal framework continues to be weak in view of poor achievements, more specifically, both in terms of revenue mobilisation and public expenditure.

The inward remittances decreased, which has multiplier effects on other economic sectors, especially small and medium enterprises.

The MCCI also observes that there are emerging challenges to be faced due to recent hikes in prices of essential commodities, decreasing remittances, emergence of any new Covid wave, and slow vaccine rollout.

Unemployment situation and low investment are also challenges, it continues.

On the basis of observations in the preceding nine months, the Chamber has made its own projections on some selected economic indicators for the third quarter of FY22.

The performances of export, import, and remittances may increase in all three months of the quarter while the forex reserves are likely to fall in January and March owing to the payment to the Asian Clearing Union (ACU) against imports.

The rate of inflation, however, can be expected to go up in February 2022 because of the probable rise in some essential commodities, the chamber continues.

Export-import

According to the MCCI's quarterly review, export earnings in July-December 2021 increased by 28.41% to $24.70 billion from $19.23 billion in the corresponding period of the previous year, thanks to the highest ever single month export earnings of $4.91 billion in the last month of the quarter.

Export earnings in December 2021 grew year-on-year by 48.28% riding on readymade garments. The December earnings also surpassed the target of $3.91 billion, set for the month.

Total value of custom-based imports increased by 54.47% to $42.12 billion year-on-year in the July-December quarter of FY22. A gradual decline in the Covid-19 infection rates and the subsequent relaxation of restrictions has encouraged businesses to rescue imports.

Foreign aid

The disbursement of foreign aid increased by 39.0% to $4.17 billion in July-December of FY22 from $3 billion in the corresponding period a year ago, says the MCCI.

Development partners' commitments of foreign aid, however, marked a 31.14% year-on-year fall to stand at $4.40 billion in the second quarter of FY22.

Foreign direct investment

Citing the Bangladesh Bank's balance of payments data, the MCCI in its review report says the net foreign direct investment (FDI) in July-December of FY22 increased by 4.57% to $870 million from $832 million in the corresponding period of the previous fiscal year.

On the other hand, the gross inflow of FDI during the period under review also increased year-on-year by 3.66% to $1,900 million.

The chamber, however, observes that FDI inflow to Bangladesh is low compared to that in many countries at similar levels of development.

Balance of payments

The country's trade deficit with the rest of the world crossed $15 billion in July-December of FY22. Trade imbalance increased year-on-year by 127.21% or $8.75 billion to $15.62 billion during the said period.

Even though the import and export grew substantially, the import growth was higher than the export earnings that kept the country's trade deficit high.

Meanwhile, the country's current account deficit deteriorated further in the first half (July-December) of FY22 following higher import payment obligations along with lower inflow of remittances. The current account deficit stood at $8.18 billion during the period under review against $3.52 billion surplus in July-December of FY21.

However, the financial account's surplus improved further following higher inflows of medium-and long-term loans as well as aid flows, mentions the MCCI, citing Bangladesh Bank's data. The financial account's surplus stood at $6.68 billion in July-December of FY22 against a surplus of $2.22 billion in H1 of FY21.

Actually, the soaring deficit in trade as well as the current account reflects the growing imbalance of the external account, thus creating mounting pressure on the country's overall balance of payments (BoP), observes the MCCI.

The BoP posted a negative balance of $1.79 billion in the first six months of FY22 against a positive balance of $6.16 billion in the corresponding period of FY21.

Exchange rate and foreign exchange reserves

Between end-June of FY21 and end-December of FY22, the value of Taka depreciated by 1.16% in terms of US dollar. On the inter-bank market, the US dollar was quoted at Tk84.8054 at the end of June 2021 and Tk85.8 at the end of December 2021.

The Bangladesh Bank's gross foreign exchange reserves stood at $46.15 billion (with ACU liability of $1.94 billion) at the end of December 2021, compared to $43.17 billion (with ACU liability of $1.27 billion) at the same point of time a year ago.

Inflation

The point-to-point inflation over the last few months increased as per the latest BBS data, according to the MCCI.

The general point to point inflation rate rose by 0.07 percentage points to 6.05% in December 2021 from 5.98% in November 2021 and the inflation in November also increased by 0.28 percentage points from October 2021.

The inflation increased mainly due to increase of prices of both food and non-food items. A year ago, in December 2020, the inflation rate was lower at 5.29%.

Both food and non-food inflation rates increased in December 2021 compared to the previous month (November).

Agriculture

Full data on agricultural production for the second quarter of the current fiscal are not available yet, as the harvesting of the three major crops – aman, aus and boro - will be spread over the coming months of the fiscal, says the MCCI.

The chamber in its quarterly review, however, mentions that the sector employed about 39% of the country's labour force and accounted for about 13.47% of the GDP in FY21.

The favourable natural factors and strong government support in terms of timely availability of inputs and finance notwithstanding that the sector witnessed its growth rate go down to 3.45% in FY21 from 4.59% a year ago.

Industry

The MCCI says the country's industry sector registered a 6.12% growth in FY21, which was 3.25% in the previous year.

Besides, the share of the industry sector in the GDP increased slightly by 0.21 percentage points to 34.99% in FY21 from 34.78% in FY20.

Data on the sector for the second quarter of FY22 are yet to be available, says the trade body.

In the broad industry sector, the manufacturing sub-sector registered a growth of 5.77% in FY21, compared to the previous fiscal year's 1.80%.

Within manufacturing, the large and medium scale industries sub-sector performed comparatively better than it did in the previous fiscal, growing at 6.56% in FY21, compared to 1.39% in FY20.

The small scale manufacturing industries grew by 1.73% in FY21, down from 3.96% a year ago. However, the share of the manufacturing sub-sector in GDP increased to 23.66% in FY21 from 23.59% in the previous year.

Within manufacturing, the share of the large and medium scale industries sub-sector in GDP rose to 19.92% in FY21 from 19.72% in FY20, and the share of small scale industries sub-sector in GDP, however, decreased to 3.73% from 3.87%.

Power

The power supply situation improved in the quarter under review but the demand for power also shot up during the period.

Citing the power development board, the demand for electricity was 7,922 megawatt (MW) on 31 December 2021 and there was no load-shedding. The actual generation was 6,768 MW during the day peak and was 8,193 MW during evening peak.

In 2021, the maximum generation was 13,792 MW, which was recorded on 27 April.

Total installed capacity rose to 22,031 MW on 31 December 2021 and present capacity rose to 20,934 MW, but production remained low because of gas shortage and also because of the suspension of production at some power stations for maintenance.

Public finance

The tax revenue collection by the National Board of Revenue (NBR), year-on-year, grew by 16.82% in July-December of FY22, thanks to the reopening of the economy following the pandemic-induced lockdown.

The NBR collected Tk1,29,090 crore in July-December of FY22 compared to Tk1,10,501 crore in the same period a year ago. Even then, the revenue collection in the first half of FY22 was only 39.12% of the target set for the fiscal.

Implementation of the annual development programme (ADP) by the ministries and divisions remained sluggish in the first half of the current fiscal like in the previous year.

The MCCI, citing the latest data provided by the Implementation Monitoring and Evaluation Division  (IMED), says 58 ministries and divisions could spend Tk56,962 crore in July-December of FY22, which is 24.06% of the total allocation of Tk2,36,793 crore for the entire fiscal. In the first of FY21, the rate of ADP implementation as against the total allocation for the year was 23.89%.