Bangladeshi’s FY11 GDP Growth at 6.7%
Bangladesh is on track to achieve a record 6.7 per cent economic growth this financial year (2010-2011), driven by an impressive turnaround in garment exports. The Bangladesh Bank has said economic activity had gained momentum since the start of the financial year in July 2010, with exports posting 37 per cent growth in the four months to October thanks to a huge rise in garment orders. Imports were also up 37 per cent, reflecting rising domestic demand, and imports of industrial machinery grew 36 per cent, indicating a major expansion in the country’s manufacturing sector.
The global economic crisis drove gross domestic product (GDP) growth to a seven-year low of 5.8 per cent in the year ended June 2010. Bangladesh previously clocked its highest annual GDP growth rate in the 2006 fiscal year, when the economy expanded by 6.6 per cent. The GDP growth of Bangladesh over the past five year has seen a volatile trend as evident from the following table:
The country’s growth is primarily dependent on garments exports, which constitute 80 per cent of Bangladesh’s annual export earnings and employ some 40 per cent of the country’s industrial workforce. Apart from same, another significant factor which makes key change in the growth of economy is driven by the inward remittances to the country from NRIs. It is estimated that Bangladesh usually earns about $10 billion a year from textile exports, mainly to the United States and Europe, while Bangladeshi workers overseas send home another $10 billion. The country is just now in a phase of recovery after slipping away following the global slowdown in US and Europe in 2008, which made a dent on the GDP growth in Bangladesh economy in the following two years.
In a steady capital market, foreign institutional investment (FII) comes as portfolio investment can stimulate the local market. In a country where infrastructure and administrative bottlenecks complicate FDI, FII becomes an easy alternative for foreign investors. However, the flow and impact of FII in Bangladesh is as unpredictable as its capital market. Lack of regulation and improper management of the capital market fails to attract regular inflow of FII, but encourages opportunistic short-term investment that results in boom-and-bust of the secondary market and repatriation of the capital.
This has typically been the case that has also been witnessed in Bangladesh, unlike the neighboring countries like India, China and Singapore, which continue to attract FII inflows due to well regulated and transparent stock markets, and have always been attract high inflow of FII portfolio investments year after year, due to attractive returns that are high above those coming from advanced economies like US, France, Germany and other European counterparts. For instance, India alone was able to attract FII inflow of over $21 billion in equities in the calendar year 2010, unlike Bangladesh, where the FII participation was where limited. Even the returns in BSE index and Nifty 50 in India was over 18% in 2010.
This was much lower than 82% return gain made by Dhaka General Index in the calendar 2010, despite of which the FII participation remained very limited. Bangladesh was also placed 15th in the international ranking of potential countries for investors and businessmen in 2010 while the country was in the 28th place in 2009, according to a Japanese survey report. China had got the first position followed by India, Vietnam and Thailand which kept their positions intact. Bangladesh and Myanmar have obtained positions in the top 20 list for the first time. The returns in Dhaka Genreal Index over the past five year years have been impressive as under:
||Index at Close
The ADB has noted that Bangladesh needs to improve power and gas supplies, while tackling inflation will be another front to confront for better economic growth in 2011. It forecast inflation at 7.5 percent in 2010 and said it might rise to 7.8 percent in 2011. The report also stated robust growth in the agriculture sector along with satisfactory growth in the services sector more than compensated for the lower industry sector growth, which was hampered for a major part of 2010 due to lack of infrastructure and power facilties. The country’s economy is likely to start expanding in a better manner, once the government puts more focus on improved infrastructure in the country, which could pave way for higher FDI inflows.