Leading chamber says costly credit, political unrest to hurt investment and GDP growth
Higher costs of credit, coupled with the ongoing political turmoil, are discouraging private investment, a leading chamber said yesterday.
“Unless the costs of bank credit are brought down to reasonable levels, private investment will not rise, and the expected GDP growth for the new financial year will be difficult to achieve,” said the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI).
Credit growth in the private sector remained subdued and stayed much below the central bank’s target, the chamber said in its Review of Economic Situation in Bangladesh: April-June 2013.
It said the overall credit to the public sector increased by 17 percent during July-April of FY13 against a 32.4 percent rise in the same period the previous year.
The domestic credit growth at 9.5 percent in the 10-month period of FY13 was lower than the 15.2 percent growth recorded in the same period a year ago.
Credit to the private sector registered a lower growth of 7.9 percent during July-April of FY13, which was 14.7 percent during the same period in the previous fiscal year, the chamber said.
The credit growth fell although the weighted average spread between the lending and deposit interest rates offered by banks declined slightly to 4.98 percent in May from 4.99 percent in April.
Pressures from the central bank as well as businesspeople and industrialists helped narrow the spread.
The average lending and deposit rates in May were 13.63 percent and 8.65 percent respectively, which were 13.64 percent and 8.65 percent a month back.
The year-on-year decline in the domestic credit growth at the end of April was due to the lower growth in both public and private sector credit.
The MCCI also said a lacklustre situation prevails both in local and foreign direct investments mainly because of political uncertainties.
“The ongoing political unrest, accompanied by a shortage of power and energy, and a scarcity of lands are discouraging entrepreneurs from investing. Potential foreign investors are shying away from the country.”
However, Bangladesh received the highest ever foreign investment, at around $1.29 billion, in 2012.
The MCCI said perennial power and energy shortages and inadequate infrastructure continue to remain the major impediments to the growth of the economy.
“Added to these is the debilitating effect of persistent political chaos that has been disrupting all types of economic activity,” it said, referring to the deadly violence the opposition parties have unleashed in the last several months.
The chamber said, despite an “uneasy” political situation, the overall economic condition was positive in the fiscal year that ended in June.
“The economy experienced stable growth and the rate of inflation was falling due to tight monetary policy and steady domestic supply conditions. The foreign currency reserves are pretty satisfactory.”
The MCCI anticipates a slower growth in exports in the next quarter from July to September, while performance in imports, remittances, foreign exchange reserves, and inflation could be mixed.
The chamber said the performance of the manufacturing and services sectors was better in 2012-13 though it needs to be improved by removing bottlenecks in physical infrastructure and the persistent crisis in power and energy.
“However, to achieve the government’s growth and inflation targets, the existing political conflict must be resolved. Violence caused by political unrest hurts economic activity thus hindering growth, and disrupts the supply chain of goods which pushes up inflation.”
The export and import sectors are now facing a tough situation as most of the banks have maintained large margins for opening letters of credit, the chamber said.
The MCCI fears export earnings might decrease in the coming days following the suspension of trade preferences by the US.
The real estate business, which makes up a major share in the construction sector, is also back on track after three agonising years as the government resumed gas connections to households, enlivening the customers.
However, the MCCI said, the construction sector, which accounts for 11 percent of the country’s gross domestic product, faces major challenges in the absence of proper urban planning and land administration.
The broad agriculture sector recorded a low growth of 2.17 percent last fiscal year, compared to 3.11 percent in FY12, the review said quoting data from Bangladesh Bureau of Statistics, the national statistical agency.
The decline is attributed to the high base in the last few years.
The industrial sector was expected to fare well in the quarter under review, particularly because of the substantial improvement in the power supply situation.
“But because of the present political turmoil, low disbursements of industrial term loans, a sharp decline in private sector credit growth, fall in the import of capital machinery, and infrastructural bottlenecks, it is very likely that the performance of the sector was below that in the past two quarters.”
The services sector recorded a slightly lower growth of 5.73 percent in FY13, compared to 5.96 percent in the previous fiscal year.
The growth fell mainly due to the lower growth in agriculture and large-scale industry, and slower expansion in trade activities caused by continuous shutdowns and associated acts of vandalism, arson and terrorism.
Trade balance recorded a lower deficit of $5,921 million in the first 10 months of last fiscal year compared to the deficit of $7,532 million in the corresponding period of FY12.
About inflation, the chamber said the point-to-point inflation rose in June by 0.11 percentage point to 7.97 percent compared to May because of a rise in prices of some food items ahead of Ramadan.
Source: The Daily Star