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Content02-04

Executive Summary

05-06Agriculture

07-09Industry

09-14Monetary and Credit Developments

14Capital Market

14-15Public Finance

16Exports

16-17Imports

17Remittances

17-18Foreign Aid

18Foreign Direct Investment (FDI)

19Balance of Payment

20Exchange Rate

20-21Foreign Exchange Reserves

21Employment Situation

22Price Situation

23Chamber’s Projection on Some Selected Economic Indicators

24Concluding Observations

Issue 3 January-March 2014

2 QUARTERLY REVIEW

General

The inadequate infrastructure, shortage of power and energy, and political instability - all have become serious impediments to the growth of the economy. All donor agencies have revised down their forecast of Bangladesh’s GDP growth to between 5.4-5.6 percent as against the government’s original growth target of 7.2 percent and the revised target of 6.5 percent for the present fiscal. The key reasons behind the low growth forecasts by the multilateral donor agencies are political unrest, weak external and domestic demand, and poor infrastructure.

There is no alternative to raising the level of investment, if Bangladesh is to attain the status of a middle income country by 2021. The Sixth Five-Year Plan (2011-15) targeted at achieving an eight percent GDP growth rate by its terminal year. This would require the economy’s total investment to grow from the present 26-27 percent of GDP to reach 32.5 percent by fiscal 2015. All-out efforts will therefore be needed to encourage private investment, enhance public investment, and attract foreign direct investment (FDI).

Agriculture

Farmers suffered substantial losses during the political turmoil of October-December months of the present fiscal because they could not procure necessary inputs nor could they easily market their products during that period. Nevertheless, the crop agriculture performed reasonably well in the quarter under review. With continuing policy support from government to ensure easy and timely availability of agricultural inputs and fair price to farmers for their products, the target set for food grains production in the present fiscal should not be difficult to achieve. The non-crop agriculture, viz., livestock, poultry and fisheries, too, suffered a serious setback due to shutdowns and blockades, but were making recovery in the quarter under review.

Industry

In the broad industrial sector, many industrial units were found operating below capacity because of irregular supply of energy, both power and gas. The sector also suffered heavily from the impact of shutdowns and blockades during the second quarter of FY14. One can therefore assume that the industrial sector growth in the quarter under review was much below the recorded 8.99 percent growth in the past fiscal.

Construction, Power and Services

Construction sector was still bearing the brunt of sluggish sales despite an improvement in the political situation in the aftermath of the January 5 elections. Continued downtrend in sales in the quarter under review severely affected both the realtors as well as their employees and associated firms. The problem further intensified as the flow of bank credit to the sector almost stopped. Along with developers, the associated backward linkage industries were also in difficulty as demand for their products fell by over 50 percent. According to the REHAB, a total of 22,572 flats worth around Tk.215.06 billion remained unsold over the last one year.

The power supply situation improved in the quarter under review. The demand for power also shot up due to rising temperature as the summer approached and people were watching the ICC T20 World Cup cricket on TV at night. As the Bangladesh Power Development Board (BPDB) took special measures to produce adequate power during the T20 World Cup, there was no shortfall in power generation. As of 31 March 2014, total actual generation during peak hours was 7,155 megawatt (mw) against the actual demand of 6,603 mw. The maximum generation in 2014 was 7,356 mw on 30 March 2014 and it was also the maximum generation in BPDB’s history. The installed capacity of power

ExECuTIvE SuMMArY

January-March 2014Issue 03

DSEX, gained 13.29 points or 0.29 percent to close at 4,491.98 points at the end of the session. The other two indices also closed positive.

Public Finance

The government had initially set a collection target of Tk.1,36,090 crore for NBr for FY14 but the target was later downsized at Tk.1,25,000 crore. In July-February of FY14, the NBr collected only 54.7 percent of the downsized revenue target. In July-February of FY14, NBR’s revenue collection grew only by 8.6 percent. The reason behind this slow growth was dull economic activities particularly in export and import and the political unrest. Total tax revenue collection (NBr and non-NBr) increased at 8.5 percent, compared to the 16.1 percent increase in the corresponding period of FY13.

The rate of implementation of the Annual Development Programme (ADP) in the first nine months of the current fiscal was 43 percent, 6 percentage points below the implementation rate achieved in the corresponding period of the previous fiscal (49%). The recent political unrest badly hit the government’s development works, which affected overall ADP implementation. Even in the relatively calm political situation prevailing since the January 5 parliamentary elections, the implementing agencies could not enhance the rate of project execution.

External Sector: Export, Import, Remittances, Foreign Aid, FDI and Exchange Rate

Export earnings grew by only 1.05 percent month-on-month in March 2014 as the country was yet to recover from the fallout of the political unrest amid concerns among global buyers over safety in garment units.

plants as of April 2014 is 10,241 mw. To combat the acute power shortage, the government plans to increase power generation to around 10,000 mw by 2015, and 24,000 mw by 2021.

All nine services sub-sectors that included transport, hotels & restaurants, community & social services, financial intermediation, education, and wholesale & retail trade, were recovering in the quarter under review from the losses they suffered due to the political turmoil during the previous months.

Money and Capital Market

Broad money (M2) recorded a 15.9 percent increase but domestic credit recorded a lower growth of 11.2 percent (y-o-y) at the end of February 2014. Within domestic credit, private sector credit registered a lower growth of 10.7 percent, compared to the growth of 14.0 percent recorded in the corresponding period of 2013. Private sector credit growth slowed mainly because of the slowdown in import growth and political instability. Public sector credit, however, increased by 12.9 percent at the end of February 2014 compared to 7.8 percent at the end of February 2013.

Total liquid assets of the scheduled banks stood higher at Tk.2,044 billion as of end February 2014 compared to Tk.1,742 billion as of end June 2013. The excess liquidity of scheduled banks, however, stood lower at Tk.374 billion as of end February 2014 compared to Tk.794 billion as of end June 2013. About 73 percent of this excess liquidity is held in the form of government securities and the rest is held in the form of cash and balances with Sonali Bank and the Bangladesh Bank.

The capital market remained volatile despite a positive ending of the broad share price index in the quarter under review. On 31 March 2014, the benchmark general index of the Dhaka Stock Exchange (DSE),

4 QUARTERLY REVIEW

However, the overall exports in the first nine months of FY14 registered an increase of 12.88 percent over exports in the corresponding period of FY13.

Import payments during July-February of FY14 rose by 16.42 percent to US$26,115 million from US$22,432 million in the corresponding months of the previous fiscal. Imports increased during the period mainly due to higher imports of food gains, particularly rice and wheat, apart from capital machinery and industrial raw materials.

From the negative 8.12 percent and 8.87 percent growth in the first two quarters of the present fiscal, the inflow of remittances increased by a mere 0.11 percent in the quarter under review. Overall, remittance in the first nine months (July-March) of the fiscal was 5.63 percent lower than in the corresponding period of FY13.

Disbursement of foreign aid during July-February of FY14 increased by uS$147 million or 8.75 percent to US$1.827 billion from US$1.680 billion in the corresponding period of the previous fiscal year. However, the commitments of foreign aid decreased by 24 percent in July-February of FY14 compared to the same period of FY13. Total commitment came down to US$2.844 billion from US$3.780 billion.

Trade balance recorded a sharp improvement in the first eight months of FY14 as the trade deficit narrowed down by US$1,038 billion during the period. Despite the decline in remittances, the current account surplus

increased to uS$2.020 billion in July-February of FY14 from uS$1.995 billion in the corresponding period of FY13, thanks to the large improvement in trade balance. However, because of the sharp decline in the balance of financial account, the overall balance of payments decreased by 5.0 percent to US$3.329 billion in the first eight months of FY14 from uS$3.506 billion during the same period of FY13.

A lackluster situation prevailed in the country’s investment scenario, both in local private and foreign direct investment (FDI), mainly because of political uncertainties. Despite the country’s cheap labour and attractive incentives offered by government, weak infrastructure, shortage of power and energy, and political instability discourage local entrepreneurs as well as potential foreign investors to invest in the country.

Between end-June of 2013 and end-March of 2014, Taka appreciated marginally (by 0.11%) in terms of uS dollar, showing stability in the foreign exchange market.

Inflation

The general point-to-point inflation rose marginally to 7.48 percent in March 2014 from 7.44 percent in February 2014, mainly due to the rise in prices of some food items.

Food inflation rose in March 2014 to 8.96 percent from 8.84 percent in February. However, the non-food inflation slightly declined to 5.26 percent in March from 5.37 percent in February due to weak domestic demand and some appreciation of the nominal exchange rate.

In urban areas, the general point-to-point inflation was higher than in rural areas. In urban areas, the inflation rate was 7.98 percent in March 2014, slightly above 7.97 percent in the previous two months, while in rural areas the inflation rate was 7.21 percent in March against 7.17 percent in February 2014.


Food grains ImportAs of 3 April 2014, about 375 thousand metric tons (tmt) of rice was imported (mainly by the private sector). Over the same period last year, total imports of rice amounted to 25.8 tmt, of which 86 percent was by private sector. During the fortnight ending 3 April 2014, a total of 2,144 tmt of wheat was imported, of which about 64 percent was imported by the private sector. At the same time last year, imports of wheat amounted to 1,377.3 tmt, about 71 percent of which was by the private sector.

Domestic ProcurementThe government has revised upward the procurement target of parboiled aman rice to 0.4 mmt from 0.3 mmt at Tk.30 per kg from the domestic market to provide price incentive to the farmers. The drive began on 1 December 2013 and continued till 31 March 2014. As of 31 March 2014, some 355.14 tmt of aman rice was procured and also 355.60 tmt of aman rice was contracted.

Public DistributionThe government has enhanced its efforts to ease the hardship of poor households by distributing subsidized grains through open market sale (OMS) and fair price card (FPC) channels. The target is to distribute a total of 2.55 mmt from 2.73 mmt food grains to poor households this fiscal as against the actual distribution of 2.09 mmt in FY13. Over the fortnight ending 3 April 2014, a total of 90.8 tmt food grains was distributed through OMS, FFW, vGD, vGF, EP and Tr. As of that date, a total of 1,545.1 tmt was distributed through PFDS, which

1.0 AGrICulTurEThe agriculture sector employs about 47.5 percent of the country’s total labour force and accounts for about 18.7 percent of its GDP. Full data on agricultural production for the third quarter of the present fiscal (Q3 of FY14) is yet to be available, but steady growth in aus and aman production, strong growth of horticulture, and good growth (12.9%) in the exports of agricultural products in the first nine months of the present fiscal indicate that, despite political unrest in the past months, the growth of the agriculture sector in FY14 will be higher than in the last fiscal.

1.1 Food grains Situation Domestic Production For FY14, the Department of Agricultural Extension (DAE) had set the food grains production target at 35.89 million metric tons (mmt), of which individual targets for aman, aus, boro and wheat were 13.28 mmt, 2.41 mmt, 18.92 mmt, and 1.28 mmt, respectively. This target is 2.25 percent higher than the actual production of FY12 (35.10 mmt). Estimation of aus and aman production has been finalized by the BBS at 2.326 mmt and 13.023 mmt, which are, respectively, 7.69 percent and 0.95 percent higher than the previous year’s actual production (2.16 mmt and 12.90 mmt). According to unofficial estimates of DAE, wheat production may increase this season because of higher acreage. The area under wheat cultivation rose to about 4.53 lakh hectares this season from 4.17 lakh hectares last year. The growing interest of farmers, fair prices for wheat in the last couple of years, and lower production costs of wheat relative to boro paddy have encouraged farmers to cultivate more area than target. Thus, this season’s wheat production is expected to surpass the target. As regards boro, which is being cultivated in a larger area of nearly 48.03 lakh hectares of land this season compared to 47.60 lakh hectares last year, it may not be difficult to achieve the production target of 18.92 mmt as against last year’s record output of 18.78 mmt.

6 QUARTERLY REVIEW

was about 61 percent of the yearly target. The OMS drive, which was resumed in small scale only in major metropolitan areas, continues, with rice being sold at Tk.24 per Kg and atta at Tk.22 per Kg.

Public StockAccording to the Directorate General of Food, the public food grains stock, as of 3 April 2014, stood at 1,064.31 tmt - 823.28 tmt for rice and 241.03 tmt for wheat.

Domestic Market PricesIn the fortnight ending 3 April 2014, the wholesale price of rice (Swarna) in Dhaka city markets fell by 2.3 percent, down to Tk.32.50 per Kg, while the retail price remained unchanged at Tk.35.50 per Kg. The wholesale and retail prices now are, respectively, 14.7 percent and 11.3 percent higher than a year ago. Over the same period, the wholesale price of atta in Dhaka city markets fell by 2.1 percent, down to Tk.27.40 per Kg, while the retail price remained unchanged at Tk.33.50 per Kg. The wholesale and retail prices are, respectively, 10 percent and 5.3 percent lower now than a year ago.

International Market Prices In the fortnight ending 4 April 2014, the prices of vietnam 15% white, and Thai 5% parboiled rice declined by 5.2 percent, and 2.6 percent, down to US$365 per mt, and US$375 per mt, respectively. By contrast, the price of Kolkata coarse rice rose by 3.7 percent, up to uS$371 per mt, while the prices of India 5% parboiled and Pakistan 5% parboiled rice remained unchanged at US$415 per mt, and US$440 per mt, respectively. The wholesale price of rice in Dhaka city stood at uS$419 per mt on the same date. In the fortnight ending 4 April 2014, the price of Russia wheat increased by 0.3 percent, up to uS$298 per mt, while uS Soft red Winter (SrW) and ukraine wheat prices dropped by 3.2 percent, and 0.3 percent, down to US$285 per mt and US$295 per mt, respectively. On the same date, Dhaka city wholesale wheat price stood at US$355 per mt.

1.2 Fisheries, Livestock and PoultryAccording to the Bangladesh Bureau of Statistics (BBS), the fish sector now contributes 4.4 percent, and livestock and poultry sectors contribute around 2.5 percent to GDP, which, respectively, account for 22.8 percent and 13 percent of the total agricultural GDP. Nearly 17.1 million people are involved in the fish sector, while the poultry sector has created job opportunities for around 6.5 million people.

The production of fish did increase substantially in FY13, when the production of different varieties of fish rose to around 3.41 mmt from 3.26 mmt in FY12. The increasing trend perhaps continued in the first quarter of the present fiscal, but production suffered a setback as the political turmoil in October-December months (second quarter of the fiscal) prevented sales in the local markets and also obstructed export. The political situation improved in the quarter under review (January-March) after the January 5 national elections, and it is expected that the fish sector activities have been increasing fast to recover the losses suffered during the period of the political unrest.

The livestock and poultry industries, too, faced a serious of setback due to the political turmoil. livestock and poultry farm owners and entrepreneurs were incurring huge loses; similarly thousands of people who are involved with the industries became unemployed. Many farms shut down their businesses losing all their capital, many others were sinking in debts, all asking for government support to restart their business. There are, however, signs of renewed activity in the industry after the cessation of political hostilities. Government support is needed to boost their effort to overcome the damage caused by the political unrest.


2.0 INDuSTrYShort supply of energy, both power and gas, is taking its toll on production in the country’s industry sector, after the sector suffered the brunt of the impact of shutdowns and blockades during the second quarter of FY14. In FY13, the broad industrial sector managed to grow by 8.99 percent, but due to the above reasons, production in many industrial units is now well below their capacities. Thus, it is very likely that the industrial sector growth in the quarter under review was much below the achievement in the past fiscal.

2.1 Manufacturing IndustriesManufacturing industries, which contribute nearly 20 percent to the GDP, have long been experiencing difficulties in production due to power and gas shortages. There are over 0.24 million large, small and medium size manufacturing units in the country, but due to the shortage of gas and electricity these units can utilize only 60 percent of their overall capacity. Therefore, manufacturing units, mostly bulk gas users, producing glass and glassware, carpet and rugs, petroleum refinery, industrial chemicals, leather products, transport equipment, tobacco, pharmaceuticals, wood products, ceramic, cement and electronic goods recorded a slow growth due to the energy shortage in the quarter under review.

2.2 ConstructionThe construction sector experienced problems in the quarter under review despite an apparent improvement in the political situation since the January 5 elections. Continued downtrend in sales severely affected the realtors, which also has had its incidental effects on the overall economy. various professional firms, labourers and suppliers connected with the sector are facing serious problems with their livelihood. The problems intensified as the flow of bank credit to the sector almost stopped. Along with developers, the backward linkage industries were also hit hard as demand for their products dropped by over 50 percent. Manufacturers of construction materials like MS rod, cement, paints, furniture and tiles were facing tough times. The sale of land plots across the country declined to the lowest level. Besides, the government is also deprived of revenue from registration fee. The realtors are offering the lowest-ever prices to clear their backlog and roll their investment, but still there is no positive response from the buyers.

2.3 Power The power supply situation improved in the quarter under review but the demand for power, too, shot up more than ever due to the advent of the summer and also because people were watching the ICC T20 World Cup cricket on Tv at night. As the Bangladesh Power Development Board (BPDB) took special measures to produce adequate power during the T20 World Cup, there was no shortfall in power generation.

As of 31 March 2014, total actual generation during peak hours was 7,155 mw and demand was 6,603 mw. The maximum generation in 2014 was 7,356 mw on 30 March 2014 and it was also the maximum generation in BPDB’s history. According to the BPDB website, installed capacity of power plants as of April 2014 is

8 QUARTERLY REVIEW

10,241 mw, comprising coal 250 mw (2.4%), gas 6,615 mw (64.6%), HFO 1,963 mw (19.2%), HSD 683 mw (6.7%), Hydro 230 mw (2.2%) and imported 500 mw (4.9%).

The power generation got a boost following the installation of new plants in both public and private sectors. Fifty-eight power plants were set up in the country in between 2009 and 2013 with a total capacity to generate 4,483 mw. Contracts of some of these plants would expire this year and the next but some major base-load power plants like Summit Power’s Meghnaghat 340 mw and Bibiyana-2 340 mw would go into commercial operation soon. Another 34 power plants with capacity to generate 884 mw are under construction and these plants will start (operation) in phases between 2014 and 2018. The government is also planning to build 25 more plants with a capacity to generate at least 6,100 mw. The government plans to increase power generation to around 10,000 mw by 2015 and 24,000 mw by 2021.

As part of the efforts to cut carbon emissions under a green energy initiative, the BPDB has decided to set up a 7.5 mw solar power plant at rangamati’s Kaptai Hydro Power Station area, which would be the first of its kind to supply power to the national grid. The plant

would generate power uninterruptedly during day time. The power produced from the solar plant will be added to the national grid via a substation of the Kaptai Hydro Power Station. Meanwhile, the BPDB has decided to set up a separate 3 mw solar power plant at Sarishabari in Jamalpur which would be run as an independent power producer (IPP) on build-own-and-operate (BOO) basis. The BPDB has also plans to set up a 30 mw solar park on the banks of Dhorola river in Kurigram as an IPP on BOO basis. Currently the BPDB produces 2 mw power from solar panels installed on rooftops of many of its buildings.

The government has been negotiating electricity trading options with three neighboring countries - India, Bhutan and Nepal. There is a significant scope for Bangladesh to purchase power from India. Owing to its geographical location, Bangladesh can buy power by connecting to India’s power grids in the North-Eastern part where there is an energy surplus. This option has been actively pursued by Bangladesh and the first purchase, with an initial transfer capacity of 500 mw based on grid connectivity between Behrampur in India and Behramara in Bangladesh, took place in November 2013. In addition, a number of interconnecting power grids are planned like interconnection between Bongaigaon (India)-Jamalpur/Barapukuria (Bangladesh)-Purnea, Bihar (India), and between Shilchar in Assam and Fenchugonj in Bangladesh. Power from Bhutan through Bongaigaon and from Nepal through Purnea is to be transmitted. These are welcome developments and set a good example for future trade.

Recently the Bangladesh Energy Regulatory Commission (BErC) announced a new power tariff, adjusting the tariff structure in 10 user slabs. The first slab is for the poor people who use less than 50 kilowatt (kw) per month and will pay no additional price. Similarly, the agriculture sector has been kept out of the purview of the upward price adjustment. In the slabs 2 to 10, consumers will pay, in addition to their current power bills, Tk.15 per month for consuming up to 75 kw power, Tk.22 for 100 kw, Tk.36 for 150 kw, Tk.50 for 200 kw, Tk.68 for 250 kw, Tk.86 for 300 kw, Tk.111 for 350 kw, Tk.135 for 400 kw and Tk.461 for 1000 kw, respectively. The new price was made effective from the bill of March 2014.

2.4 Services SectorThe heightened political unrest in the three months prior to the quarter under review harmed the services sector more than any other sector of the economy. There are indications that activities of most of the


3.0 MONETArY AND CrEDIT DEvElOPMENTSAccording to BB data, broad money (M2) recorded a 15.9 percent increase y-o-y at the end of February 2014 compared to the increase of 18.9 percent at the end of February 2013. Domestic credit recorded a lower growth of 11.2 percent (y-o-y) at the end of February 2014 compared to 12.6 percent growth at the end of February 2013.

Among the components of domestic credit, private sector credit registered a growth of 10.7 percent during the period between February 2013 and February 2014, which was lower than the 14.0 percent growth recorded for the corresponding 12-month period up to February 2013. Private sector credit growth slowed mainly because of the slowdown in import growth and the political unrest. Public sector credit on the other hand, increased by 12.9 percent at the end of February 2014 compared to the increase of 7.8 percent at the end of February 2013. Among components of public sector credit, credit to government (net) increased by 19.5 percent, while credit to the other public sector decreased by 25.4 percent, during the period (Table 1).

nine sub-sectors under the broad services sector, viz., transport, hotels & restaurants, community & social services, financial intermediation, education, and wholesale & retail trade suffered heavily due to the political unrest.

The financial sector suffered badly because there were no new investments because of the unrest and the demand for bank loans declined. As a result, most of the banks suffered decline in profits and the number of debt defaulters increased. Tourism activities were hit hard because of non-stop shutdowns and blockades. The arrival of domestic tourists at resorts declined by a margin of about 90 percent and many foreign tourists cancelled their tour programmes at that time.

The political unrest also badly affected the transport sector. Digging roads and uprooting railway tracks caused a serious damage to road transports and road and rail communications in most of the regions of the country. Apart from this, almost all CNG filling stations had to be kept closed because of shutdowns and blockades causing a huge loss. On the other hand, retail and wholesale businesses had alarmingly declined because of the transport crisis. The producers could not bring raw materials to their factories in time and supply finished goods to the consumers. Also the country’s courier services lost their business during those months of restive politics.

Recovery efforts were underway in all sub-sectors during the quarter under review but these efforts will need to be stretched much longer in the future to overcome the losses affected by the political crises.

Telecommunications was the only services sub-sector that performed well in the quarter under review. The mobile telephony showed positive progress as the number of mobile telephone subscribers increased. The buoyancy of telecom services sector can be attributed mainly to the 3G services that were introduced in September last year.

10 QUARTERLY REVIEW

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

Particulars

Outstanding Stock Changes in Outstanding Stock

June, 2012R

June, 2013p

Feb.2014P FY13

July-Feb.FY14

Feb. 2014 over

Feb. 2013

July-Feb. FY13

Feb. 2013 over

Feb. 2012

Total Domestic Credit 514973 571737 608809 56765(+11.02)

37072(+6.48)

61208(+11.18)

32629(+6.34)

61359(+12.62)

Credit to Public Sector 107071 119580 128633 12509(+11.68)

9053(+7.57)

14660(+12.86)

6902(+6.45)

8242(+7.80)

Net Credit to Government Sector 91729 110125 116021 18396

(+20.05)5896

(+5.35)18950

(+19.52)5342

(+5.82)7616

(+8.51)

Credit to Other Public Sector 15342 9455 12612 (-)5887

(-38.37)3157

(33.39)(-)4290(-25.38)

1561(+10.17)

626(+3.85)

Credit to Private Sector 407902 452157 480176 44256(+10.85)

28019(+6.20)

46548(+10.73)

25727(+6.31)

53117(+13.96)

reserve Money (rM) 97803 112489 121439 14687(+15.02)

8949(+7.96)

14271(+13.32)

9365(+9.58)

15767 (+17.25)

Broad Money (M2) 517110 603505 662311 86396(+16.71)

58806(+9.74)

90629(+15.85)

54573(+10.55)

90883(+18.90)

Note: P=Provisional; R=Revised; Figures in brackets indicate percentage changes

Source: Bangladesh Bank

Total liquid assets of the scheduled banks stood higher at Tk.204,364 crore as of end February 2014 compared to Tk.174,170 crore as of end June 2013. The required liquidity (Slr) of the scheduled banks also stood higher at Tk.166,995 crore as of end February 2014 against Tk.94,731 crore as of end June 2013. Hence, the excess liquidity of scheduled banks stood lower at Tk.37,369 crore as of end February 2014 compared to Tk.79,439 crore as of end June 2013 (Table 2).

Table 2: Liquidity Position of Scheduled Banks (Taka in crore)

Bank Group

As of end June, 2013R As of end February, 2014P

Total liquid assets

Required liquidity

(SLR)

Excess liquidity

Total liquid assets

Required liquidity

(SLR)

Excess liquidity

1 2 3 4 (2-3) 5 6 7 (5-6)

State owned banks 53467 26434 27033 70933 61345 9588

Private banks (other than Islamic) 79516 47538 31978 89515 72848 16667

Private banks (Islamic) 21836 11297 10539 22428 15863 6565

Foreign banks 14274 6396 7878 16998 14872 2126

Specialized banks* 5077 3066 2011 4490 2067 2423

Total 174170 94731 79439 204364 166995 37369

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 shows that, of the total liquid assets of scheduled banks as of end February 2014, some 4.15 percent is held in the form of Cash in vault and Balances with Sonali Bank, 22.87 percent in the form of Balances with Bangladesh Bank, and the remainder 72.98 percent in the form of unencumbered approved securities.


3.1 Interest Rate Developments

Bangladesh Bank (BB) employs repo, reverse repo, and BB bill rates as policy instruments for influencing financial and real sector prices. Effective from 1 February 2013, the repo and reverse repo rates have remained unchanged at 7.25 percent and 5.25 percent, respectively (Table 3).

Table 3: Interest Rate (weighted average) movements in FY13 and FY14 (in percent)

Month/Quarter Repo Reverse Repo Lending Rate Deposit Rate Interest Spread

FY13R

July 7.75 5.75 13.77 8.30 5.47

December 7.75 5.75 13.80 8.47 5.33

January 7.75 5.75 13.73 8.60 5.13

February 7.25 5.25 13.73 8.68 5.05

April 7.25 5.25 13.73 8.67 5.06

April 7.25 5.25 13.64 8.65 4.99

May 7.25 5.25 13.63 8.65 4.98

June 7.25 5.25 13.67 8.54 5.13

FY14P

July 7.25 5.25 13.63 8.61 5.02

August 7.25 5.25 13.56 8.55 5.01

September 7.25 5.25 13.51 8.50 5.01

October 7.25 5.25 13.42 8.47 4.95

November 7.25 5.25 13.42 8.45 4.97

December 7.25 5.25 13.45 8.39 5.06

January 7.25 5.25 13.39 8.40 4.99

February 7.25 5.25 13.40 8.34 5.06

March 7.25 5.25 NA NA NANotes: P=Provisional, R=RevisedSource: Bagnladesh Bank

Interest Rate Spread: The weighted average spread between commercial banks’ lending and deposit interest rates increased to 5.06 percent in February 2014 from 4.99 percent in January 2014. Despite BB’s persuasion and pressures from businessmen and industrialists, the spread remained above 5.0 percent, which is required by the central bank. The spread was below 5.0 percent briefly in January 2014 but again rose thereafter (Table 3). The average lending rate and deposit rate in February 2014 was 13.40 percent and 8.34 percent, respectively. These rates were, respectively, 13.39 percent and 8.40 percent in January 2014 (Table 3).

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3.2 Industrial Term Loan

Data on industrial term loans are available only up to the 2nd quarter (October-December) of the current fiscal year (FY14). According to BB data, the disbursement of industrial term loans during October-December of FY14 stood just 3.7 percent higher at Tk.12,685 crore, compared to Tk.12,233 crore during the corresponding quarter of the previous fiscal (Table 4). The relatively low growth in industrial term loans was due to the unstable political situation in the country. The recovery of industrial term loans on the other hand increased by 24.5 percent to Tk.11,582 crore during October-December of FY14 from Tk.9,299 crore during October-December of FY13. The net disbursement of term loans in absolute terms was, therefore, significantly lower during the said quarter.

Table 4: Disbursement and Recovery of Industrial Term Loans

QuarterDisbursement (Tk. in crore) Recovery (Tk. in crore)

LSI MSI SSCI Total LSI MSI SSCI Total

October-December of FY13R 8323 3237 673 12233 (25.9) 6144 2403 752 9299 (13.5)

January-March of FY13R 6162 3111 788 10061 (- 17.8) 5504 2464 670 8638 (- 7.1)

April-June of FY13P 7285 2319 909 10513 (4.5) 7409 2225 787 10421 (20.6)

July-September of FY14P 6411 1605 865 8881 (-15.5) 7081 2304 850 10235 (-1.8)

October-December of FY14P 8932 2803 950 12685 (42.8) 7919 2673 990 11582 (13.2)

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

3.3 SME Loans

Data on SME loans are not available for Q3 of FY14. According to BB data, total SME loans by all banks and non-bank financial institutions (NBFIs) increased by 14.9 percent to Tk.115,884 crore at the end of December 2013 from Tk.100,813 crore at the end of December 2012. The outstanding position of SME loans was 23.9 percent of total loans by all banks and NBFIs at the end of December 2013 (Table 5). All institutional providers, viz. the foreign banks (FBs), the state-owned banks (SOBs), the specialized Banks (SBs), private banks (PBs), and non-bank financial institutions (NBFIs) extended credit support to the SME enterprises.


3.4 Agricultural Credit and Non-farm Rural Credit

In the quarter (Q3) under review, the disbursement of agricultural credit and non-farm rural credit by banks increased by 5.7 percent or Tk.216 crore over the corresponding period of the previous fiscal (Table 6 and Fig. 1). The disbursement of Q3 was much lower than in the previous two quarters (11.2% and 24.8%) due to a decreased credit demand from the agricultural sector amid political unrest. The recovery, however, increased by 36 percent to Tk.4,070 crore in Q3 of FY14 from Tk.2,993 crore in the corresponding period of the previous fiscal year. The improvement in recovery was partly the result of strong monitoring by the BB. While in the first nine months of the present fiscal, the disbursement and recovery of agricultural credit and non-farm rural credit by banks increased by 12.2 percent and 23.2 percent, respectively, over the corresponding period of the previous fiscal. Earlier, the Bangladesh Bank (BB) had set a Tk.14,595 crore target for disbursement of agricultural credit and non-farm rural credit for FY14, which is 3.3 percent higher than the target set for the previous fiscal year (FY13).

Table 5: Outstandig Position of SME Loans (Tk. in crore)

Quarter Types of Loans SOBs PBs FBs SBs NBFIs Total

Oct.-Dec. of FY13P Total loansSME loans

9013316371

(+18.2)

28468271985

(+25.3)

239522138

(+8.9)

273867220

(+26.4)

249443100

(+12.4)

451097100813(+22.3)

Jan.-Mar. of FY13R Total loansSME loans

9020812944

(+14.4)

28719469520

(+24.2)

230302222

(+9.7)

282627558

(+26.7)

258073280

(+12.7)

45450095523

(+21.0)

April-June of FY13P Total loansSME loans

9022513351

(+14.8)

29583673789

(+24.9)

233472403

(+10.3)

296127951

(+26.9)

271423370

(+12.4)

466162100864(+21.6)

July-Sept. of FY14P Total loansSME loans

8404514946

(+17.8)

30539179021

(+25.9)

241352349

(+9.7)

298878805

(+29.5)

297853478

(+11.7)

473243108599(+22.9)

Oct.-Dec. of FY14P Total loansSME loans

8404015445

(+18.4)

31532985333

(+27.1)

238532265

(+9.5)

312149269

(+29.7)

314493572

(+11.4)

485885115884(+23.9)

% change of SME loans at the end of December 2013 over December 2012 -5.7 +18.5 +5.9 +28.4 +15.2 +14.9

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 loansSource: Bangladesh Bank

14 QUARTERLY REVIEW

The foreign investment in the capital market makes up only 1 percent of the total DSE investment, which is lowest in the South Asia region. Net foreign investment in the DSE dropped by 19.83 percent month-on-month in March 2014 compared with that in the previous month as foreign investors adopted a ‘go-slow’ policy amid cautious stance. The net foreign investment declined to Tk.0.97 billion in March from Tk.1.21 billion in February 2014. In January 2014, the foreign investors invested in the DSE worth Tk.2.78 billion, which was the highest after Tk.3.39 billion in June 2013.

Table 6: Disbursement and Recovery of Agricultural Credit and Non-farm Rural Credit

(Taka in crore)

Month FY14P FY13R

Disbursement Recovery Disbursement Recovery July 981.95 800.23 737.32 1605.56 August 567.55 1000.82 619.21 537.01 September 1312.08 1306.45 936.00 548.22

Total of Q1 2861.58(24.8)

3107.50(15.5)

2292.53(11.7)

2690.79(-16.0)

October 1260.87 1511.39 1035.26 1265.39 November 1378.50 1476.39 1233.92 1171.41 December 1949.30 2257.39 1858.74 1963.71

Total of Q2 4588.67(11.2)

5245.17(19.2)

4127.92(12.2)

4400.51(36.4)

January 1369.71 1475.47 1303.15 861.24

February 1287.89 1301.31 1062.45 1024.25

March 1337.94 1293.18 1414.02 1107.60

Total of Q3 3995.54(5.7)

4069.96(36.0)

3779.62(9.3)

2993.09(22.2)

Total of July-March

11445.79(12.2)

12422.63(23.2)

10200.07(11.4)

10084.39(11.7)

Notes: P=Provisional, R=Revised; Figures in parentheses indicate the percentage change over the previous fiscal yearSource: Bangladesh Bank

4.0 CAPITAl MArKET The capital market remained volatile despite a positive ending of the broad share price index in the quarter under review. On 31 March 2014, the stocks inched up amid see-saw trading throughout the session with turnover remaining sluggish that kept investors cautious. The benchmark general index of the Dhaka Stock Exchange (DSE), DSEx, gained 13.29 points or 0.29 percent while the other two indices also closed positive. The Chittagong Stock Exchange (CSE) also closed positive with its selective categories index, CSCx, gaining 14.74 points.

5.0 PuBlIC FINANCEIn the first eight months of the current fiscal year (July-February of FY14), the National Board of revenue (NBr) collected Tk.68,314 crore or 54.7 percent of the downsized revenue target set for the entire fiscal year. The government had initially set a collection target of Tk.1,36,090 crore for FY14 for the NBr but as the growth in revenue collection remained slow, the target was later downsized at Tk.1,25,000 crore. To achieve the new target, the NBr now will have to collect Tk.56,686 crore in the last four months of this fiscal which would be very difficult for NBr officials.In July-February of FY14, revenue collection grew by only 8.6 percent, much below the target of more than 15 percent set for the whole year. The key reason for the slow growth was the political unrest, which affected all economic activities. There was a sharp decline in import, which resulted in negative growth in customs duties (-1.6%). Collection of income tax and vAT also saw an unexpectedly slow growth, 14 percent and 8.1 percent, respectively. All this compares very unfavourably with revenue collection in July-February of FY13, when customs duties, income tax and vAT had increased by 4.5 percent, 31.6 percent and 15.4 percent, respectively (Table 7 and Fig. 2).


Total tax revenue collection (NBr and non-NBr) also rose at a much lower rate of 8.5 percent in July-February of FY14, compared to the 16.1 percent increase in the corresponding period of FY13. The slide may be attributed mainly to stagnant investment, decline in the import of revenue-generating products, and fall in businesses of major corporate taxpayers.

Table 7: Government Tax Revenue Collections

Month

Tax Revenue Collections ( in crore Taka)NBR Non-

NBR GrandTotal Customs

Duties VAT IncomeTax Others* Total

FY14P

July 1201 3412 1906 1353 7872 392 8264August 974 2990 2063 1273 7300 256 7556September 1096 3442 3551 1635 9724 398 10122October 1022 3259 2948 1638 8867 287 9154November 1000 3302 2617 1449 8368 315 8683December 1042 3256 2550 1377 8225 315 8540January 1067 3496 2697 1838 9098 402 9500February 1047 3443 2568 1802 8860 378 9238

Jul. – Feb. 8449(-1.6)

26600(8.1)

20900(14.0)

12365(8.8)

68314(8.6)

2743(5.5)

71057(8.5)

FY13R

July 1131 2830 1465 1022 6448 363 6811August 946 2698 1547 1234 6425 221 6646September 1101 2876 2751 1461 8189 327 8516October 1094 3125 2122 1387 7728 299 8027November 1098 3147 2108 1416 7769 307 8076December 956 3077 2993 1340 8366 334 8700January 1212 3743 2526 1687 9168 431 9599February 1051 3113 2823 1817 8804 317 9121

Jul. – Feb. 8589(4.5)

24609(15.4)

18335(31.6)

11364(6.4)

62897(16.1)

2599(16.2)

65496(16.1)

Notes: P=Provisional; R=Revised, NA=Not Available, *=include supplementary duties and travel taxSources: NBR and Office of the Controller General of Accounts

5.1 Public ExpenditureThe implementation of the Annual Development Programme (ADP) failed to pick pace in the first nine months of current fiscal (July-March of FY14) as the implementation rate was 43 percent, 6 percentage points below the implementation rate achieved in the corresponding period of the previous fiscal (49%). All the implementing ministries and agencies utilized Tk.284.28 billion during July-March of FY14, out of the total ADP outlay (except self-financed) of Tk.658.72 billion. The political unrest badly hit the development works of the government, which affected overall project implementation. However, even in the relatively calm political situation prevailing since the January 5 parliamentary elections, the implementing agencies could not increase the pace of project execution.

In the first nine months of FY14, Tk.184.97 billion used in ADP came from the government’s own fund and Tk.99.31 billion from foreign aid. The government ministries and divisions have shown their highest capability in spending funds allocated from internal resources rather than from external sources. The inability to fully utilize the available external resources (project aid) in ADP has affected the overall foreign aid inflow to the country.

According to provisional data of IMED, the record of ADP implementation was relatively better for three of the 10 big ministries and divisions. These are the local Government Division, the Ministry of Primary & Mass Education, and the Ministry of Railway, which spent 60 percent, 54 percent, and 49 percent, respectively, of their allocation in the first nine months of the present fiscal. In contrast, the implementation rate in seven other big ministries and divisions, such as, the Roads Division, the Ministry of Health and Family Welfare, the Ministry of Education, the Energy and Mineral Resources Division, the Power Division, the Ministry of Housing and Public Works, and the Bridges Division ranged between 6 percent and 48 percent.

Among the 54 ministries and divisions, 13 implemented 1 to 27 percent of their allocations. The Ministry of Foreign Affairs was the worst performer in executing projects, which spent only 1 percent of its allocation (Tk.0.24 billion). The Bridges Division, the legislative and Parliamentary Affairs Division, and the Ministry of Public Administration were also in the list of the poor performers in terms of their fund utilization rate. The Ministry of Expatriates’ Welfare and Overseas Employment, the Ministry of Youth and Sports and the Ministry of Religious Affairs, however, were the top three performers during the first nine months of the current fiscal year.

16 QUARTERLY REVIEW

6.0 EXPORTSExports grew by only 1.05 percent month-on-month in March 2014 as the country was yet to fully recover from the fallout of the political unrest as well as from the image crisis of the country’s major export, garments. In March, export earnings stood at uS$2,414 million, 10.19 percent below the monthly target of US$2,660 million. However, exports rose 4.82 percent year-on-year in March 2014. The overall exports in the first nine months of FY14 registered an increase of 12.88 percent to US$22,242 million, compared to the corresponding period of FY13 (Table 8 and Fig. 3). But, because of the political unrest, export earnings in the third quarter of the fiscal witnessed a lower growth of 6.38 percent, compared to 11.87 percent and 21.23 percent growth in the second and first quarters, respectively.

Table 8: Monthly Trends in Exports

Month Exports (million US$) Growth RateFY14P FY13R

July 3024 2439 23.99August 2014 1952 3.18September 2590 1901 36.24 Total of Q1 7628 6292 21.23October 2119 2077 2.02November 2212 1765 25.33December 2726 2466 10.54 Total of Q2 7057 6308 11.87January 2754 2554 7.83February 2389 2247 6.32March 2414 2303 4.82 Total of Q3 7557 7104 6.38Total of July-March 22242 19704 12.88

Notes: P=Provisional; R=Revised Sources: EPB and Bangladesh Bank

7.0 IMPOrTSImport payments in the first eight months (July-February) of FY14 rose by 16.42 percent to uS$26,115 million from US$22,432 million in the corresponding months of the previous fiscal. Imports increased during the period mainly due to higher imports of food gains, particularly rice and wheat, apart from capital machinery and industrial raw materials. In February 2014, imports stood higher by US$410 million or 15.72 percent at US$3,018 million, against uS$2,608 million in February 2013 while this was lower by 17.20 percent than in the previous month (Table 9 and Fig. 4)..

Table 9: Monthly Trends in Imports

Month Imports (million US$) Growth RateFY14P FY13R

July 3453 2836 21.76August 2852 2520 13.17September 3449 2977 15.85October 3092 2627 17.70November 3268 2925 11.73December 3338 2570 29.88January 3645 3369 8.19February 3018 2608 15.72July-February 26115 22432 16.42

Notes: P=Provisional; R=RevisedSource: Bangladesh Bank

According to the EPB data, knitwear items registered a growth of 16.40 percent in July-March of FY14, exceeding the strategic target by 5.44 percent. Exports earnings from woven garments rose by 13.99 percent and also crossed the target by 1.39 percent during the same period of the current fiscal. Among other products, exports of agricultural products, including vegetables, dry food and tea, showed a 13.44 percent growth while earnings from jute and jute goods, plastic products, engineering products, and home textiles witnessed a negative growth of 20.01 percent, 4.89 percent, 6.17 percent, and 1.33 percent, respectively, during July-March of FY14 compared to the corresponding period of the previous fiscal year.


Import of food grains jumped by 119.78 percent to uS$898.77 million during July-February of FY14 from US$408.95 million in the corresponding period of the previous fiscal year. The import of consumer goods including food items may increase in the next month ahead of the holy ramadan. Import of capital machinery increased to US$1,610.20 million from US$1,357.52 million, up by 18.61 percent. Import of intermediate goods, like coal, hard coke, clinker and scrap vessels, increased by 1.78 percent and that of industrial raw material rose by 10.57 percent in July-February of FY14. However, import of petroleum & petroleum products dropped by 3.63 percent while the import of machinery for miscellaneous industries witnessed 18.54 percent growth during the period.

Table 10: Monthly Trends in Remittances

MonthRemittances (million

US$) Growth RateFY14P FY13R

July 1238 1201 3.08

August 1006 1179 (-) 14.67

September 1026 1179 (-) 12.98

Total of Q1 3270 3559 (-) 8.12

October 1231 1454 (-) 15.34

November 1061 1102 (-) 3.72

December 1210 1287 (-) 5.98

Total of Q2 3502 3843 (-) 8.87

January 1261 1327 (-) 4.97

February 1173 1163 0.86

March 1289 1229 4.88

Total of Q3 3723 3719 0.11Total of

July-March 10495 11121 (-) 5.63


9.0 FOrEIGN AID According to the Economic relations Division (ErD) data, the disbursement of foreign aid during July-February of FY14 increased by uS$147 million or 8.75 percent to US$1.827 billion from US$1.680 billion in the corresponding period of the previous fiscal year. Out of the US$1.827 billion received by government, US$0.318 billion was in grants and US$1.509 billion in loans. The disbursed US$1.827 billion included mainly: US$668 million from the World Bank (WB), uS$348 million from the Asian Development Bank (ADB), uS$224 million from China, uS$223 million from Japan International Cooperation Agency (JICA) and uS$71 million from India. While in February 2014, the disbursement increased

8.0 rEMITTANCESThe inflow of remittances witnessed a mild recovery, growing by 0.11 percent in the quarter under review, from the negative growth of 8.12 percent and 8.87 percent in the first and second quarters of the present fiscal (Table 10 and Fig.5). In the first nine months of the fiscal (July-March of FY14), remittances fell 5.63 percent to uS$10.495 billion from the same period of FY13 (uS$11.121 billion). The lower outflow of migrant workers in the past fiscal is mainly responsible for the declining trend in remittance inflow.

18 QUARTERLY REVIEW

On the other hand, a number of foreign investors are showing interest in telecom, automobile, paints, pharmaceutical and other sectors for new or re-investment, thanks to lower production cost here than in any other countries as well as higher rate of return. According to a JETrO (Japan External Trade Organisation) survey, more than 80 percent of Japanese companies are planning to expand their business activities in Bangladesh in next two years.

To attract investors, government will have to solve problems of infrastructure bottlenecks, including the scarcity of lands, the lack of policy continuity, bureaucratic red tape, weak governance, political instability, poor skills of the labour force, administrative impediments and inadequate utilities, including gas, electricity and water. Government policy is under way to address these problems. Also the BoI has planned to arrange several meetings with local and foreign entrepreneurs in order to restore confidence of the investors.

However, according to the Board of Investment (BoI) data, a total of 432 investment proposals (local, joint-venture and foreign) registered with the BoI involving an aggregate investment of Tk.154.96 billion in January-March of FY14. The proposed investment was 12.07 percent higher than that in the previous quarter (Tk.138.27 billion). Of the 432 proposals, 392 were local involving Tk.143.29 billion. Besides, 22 proposals were foreign and 18 were joint-venture worth Tk.11.67 billion. Among the proposals, 25.33 percent were registered for the textiles sector, 19.94 percent for the engineering sector, 18.53 percent for the services sector, 18.42 percent for the chemical industry, 1.82 percent for agro-processing and 15.96 percent for the other sectors. Once the investment proposals are implemented, it would create employment opportunities for around 84,128 people.

by 32.28 percent to US$250 million from US$189 million in the previous month of the present fiscal (January 2014). Meanwhile, the commitments of foreign aid decreased by 24 percent in July-February of FY14 compared to the same period of FY13. Total commitment came down to US$2.844 billion from US$3.780 billion. Of the total commitment of US$2.844 billion, US$0.385 billion was in grant and US$2.459 billion was in loan. Due to the recent political turmoil, no significant financing deals were signed with the major donors like the WB, the ADB, Japan, uK’s Department for International Development (DFID) and uSAID in the last few months. According to the ERD, the government is trying to revive loan negotiations with the development partners and lenders.

During July-February of FY14, the government had to pay back uS$788 million, uS$640 million in principals and US$148 million in interest on loans.

Recently the ERD has lowered the target of foreign aid in FY14 at uS$2.95 billion from uS$3.37 billion. Because of slow utilisation of project aid, the ministries and divisions could not improve implementation rate of projects funded by donors.

10.0 FOrEIGN DIrECT INvESTMENT (FDI)

FDI fell drastically in the first two months of the calendar year 2014, although in the first eight months of the present fiscal the FDI inflow rose slightly by 3.7 percent (see Section 11 below). According to industry insiders, the investors are still to get back the confidence, fearing further political turmoil. The prospective foreign investors have adopted a ‘go-slow’ strategy in making fresh investments since 2013. A large number of foreign or joint venture companies are supposed to invest in the country for fresh or re-investment but, in the absence of political stability, they are lukewarm in taking decisions over investment.


11.0 BAlANCE OF PAYMENTSTrade balance recorded a sharply lower deficit of uS$3.561 billion in the first eight months of FY14 compared to the deficit of uS$4.599 billion in the corresponding period of FY13. The rise in export earnings as well as the fall in import payments contributed to the improvement in trade balance. Remittances, on the other hand, dropped 6.6 percent year-on-year to uS$9.138 billion and the deficit in services trade also increased. However, the current account surplus still increased to uS$2.020 billion in July-February of FY14 from uS$1.995 billion in the corresponding period of FY13, mainly because of the large improvement in trade balance.

The foreign direct investment (FDI) rose slightly, to uS$1.148 billion during July-February of FY14, compared to uS$1.107 billion during the same period in the previous fiscal. Portfolio investments, too, rose to uS$390 million in July-February of FY14 from uS$210 million in the same period of the previous fiscal. However, because of the sharp decline in the balance of financial account, the overall balance of payments recorded a 5.0 percent decline to uS$3.329 billion in the first eight months of FY14 from uS$3.506 billion during the same period of FY13 (Table 11).

Table 11: Balance of Payments (in million US$)

Items July-February of FY14P July-February of FY13R Change

Trade Balance -3561 -4599 +1038

Exports f.o.b (including EPZ)* 19583 17185

Imports f.o.b (including EPZ)* 23144 21784

Services -2675 -2150 -525

Credit 2185 1808

Debit 4860 3958

Primary Income -1408 -1506 +98

Credit 120 89

Debit 1528 1595

Of which: Official Interest Payment 298 295

Secondary Income 9664 10250 -586

Official Transfers 22 49

Private Transfers 9642 10201

Of which: Workers’ remittances (current a/c portion) 9138 9787 -649

Current Account Balance 2020 1995 25

Capital Account 296 382

Capital Transfers 296 382

Financial Account 585 2288 -1703

Foreign Direct Investment (net) 1148 1107

Portfolio Investment (net) 390 210

Of which: Workers’ remittances (financial a/c portion) 68 89

Other Investment (net) -953 971

Errors and Omissions 428 -1159 1587

Overall Balance 3329 3506 -177

Notes: P=Provisional; R=Revised; * = Exports and Imports both are compiled on the basis of shipment data Source: Bangladesh Bank

20 QUARTERLY REVIEW

12.0 EXCHANGE RATE Between end-June of 2013 and end-March of 2014, Taka appreciated marginally (by 0.11%) in terms of uS dollar, showing stability in the foreign exchange market. On the inter-bank market, the uS dollar was quoted at Tk.77.6700 at the end of March 2014 and Tk.77.7593 at the end of June 2013 (Table 12).

Table 12: Monthly Exchange Rate

Month2013-14P (Taka per US$) 2012-13R (Taka per US$)

Month Average

End Month

Month Average

End Month

June - - 77.7550 77.7593

July 77.7570 77.7500 81.7715 81.6049

August 77.7537 77.7500 81.5160 81.7199

September 77.7502 77.7505 81.7286 81.5900

October 77.7506 77.7500 81.3123 81.2005

November 77.7509 77.7540 81.4540 81.3811

December 77.7510 77.7500 80.5349 79.7521

January 77.7505 77.7500 79.5484 79.2000

February 77.7502 77.7311 79.0110 78.8500

March 77.7113 77.6700 78.5819 78.1500

Note: i) P=Provisional; R=Revisedii) Exchange rate represents the mid-value of buying and selling ratesSource: Bangladesh Bank

13.0 FOrEIGN ExCHANGE rESErvESBB’s gross foreign currency reserves rose to US$19.295 billion (with ACu liability of uS$539 million) on 31 March 2014 breaking the earlier record set in February (Table 13 and Fig. 6). The reserve crossed the uS$19 billion mark on 19 February 2014 for the first time. BB’s reserves on 31 March last year were US$13,971 billion. Despite a slight fall in remittances, the foreign exchange reserves rose mainly because of higher export income and comparatively slower growth in imports. The amount is enough to cover more than six months’ import bills. The BB has also continued purchasing US dollars from the commercial banks directly, in order to keep the exchange rate stable, which, incidentally has also contributed to the increase in the foreign exchange reserve.

The BB had purchased around uS$5 billion in FY13 and around uS$3 billion so far in this fiscal, which is also a reason behind the increase of foreign exchange reserve.

Table 13: Monthly Trends in Foreign Exchange Reserves

MonthForeign Exchange Reserve (million US$)

FY14P FY13R

July 15534 10570

August 16252 11435

September 16155 11252

October 17346 12339

November 17106 11754

December 18075 12751

January 18119 13076

February 19152 13848

March 19295 13971



As in the case of BB’s reserves, gross foreign exchange balances held abroad by commercial banks also increased by 27 percent and stood higher at US$1,744 million as of end-March 2014 as against US$1,363 million as of end-March 2013. The balances held at end-March 2014 were, however, 3 percent lower than the balances held in end-February 2014.

14.0 OvErSEAS EMPlOYMENT SITuATION

Overseas employment of Bangladesh migrant workers has been witnessing a slow trend since August 2012 following suspension of visa issuance by the United Arab Emirates (uAE) to Bangladeshi workers. Only 96,068 Bangladeshis entered the international markets with jobs during January-March of the calendar year 2014. Of them, 34,200 went in January, 28,510 in February and 33,358 in March, according to Bureau of Manpower, Employment and Training (BMET). In 2013, some 409,253 Bangladeshis got overseas jobs while the number was 607,798 in 2012.

The decline in out-migration in 2014 was mainly due to various types of restrictions imposed by major labour-importing countries, in particular the UAE, which has been the biggest recruiter of Bangladeshi workers in recent years. The private recruiting agents blamed the government for its poor or ineffective initiatives to raise manpower export under the present circumstances. They claimed that the government could not properly take advantage of the job opportunities in Malaysia, Qatar and Bahrain. The country is also unable to open the ‘closed’ markets of Saudi Arabia, uAE and Kuwait, they alleged.

Meanwhile, the government is reportedly taking various efforts in order to reverse the existing trend of overseas jobs. For raising the trend of increased labour migration, the government recently held several meetings with stakeholders in Bangladeshi embassies in various potential job markets in the Middle East and libya. It is trying to send more workers following the government-to-government migration process to Malaysia. The government is also trying to explore markets in Europe, Russia and Belarus as there is potential demand for foreign workers in those countries. The government, in the meantime, has increased the number of labour wings in the overseas Missions from 16 to 28 in the worker receiving countries. At present, nearly 8.6 million Bangladeshis are working in 159 countries across the world but only a handful of these countries (20 or so) have absorbed the bulk of the Bangladeshi workers working overseas.

A growing number of female workers are now going abroad to seek jobs. In fact, 16,393 female workers entered the international markets with jobs during January-March of 2014. Among them, 4,958 went in January, 5,274 in February, and 6,161 in March. The overseas employment of female workers increased remarkably to 56,400 in 2013 from 37,304 in 2012, according to the BMET data. Female workers, mostly housemaids and garment sectors, were being employed in Jordan, lebanon, uAE, Oman and Qatar.

recently the Government of Malaysia has expressed interest to recruit 150,000 farm workers from Bangladesh for the development of their agriculture sector. Such a big recruitment will create a good opportunity for our youth interested to go abroad and change their life. Bangladeshis in Malaysia form a large proportion of Malaysia’s foreign labour force and the country is a very popular destination for Bangladeshi workers.

22 QUARTERLY REVIEW

15.0 PrICE SITuATIONAccording to the BBS, the general point-to-point inflation slightly rose in March 2014 mainly due to the upward trend in prices of some food items. The point-to-point inflation rose by 0.04 percentage point and stood at 7.48 percent in March from 7.44 percent in February 2014 (Table 14). Though the rise in the inflation rate is not very significant, it crossed the target of 7.0 percent set by government for FY14.

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

PeriodPoint to Point-All Point to Point-Rural Point to Point-Urban

General Food Non-food General Food Non-food General Food Non-food

FY13R

July 5.21 2.23 9.94 4.84 2.07 10.19 5.92 2.62 9.59

August 4.97 2.25 9.29 4.60 2.07 9.48 5.68 2.71 9.03

September 4.96 1.75 10.18 4.46 1.61 10.04 5.93 2.09 10.36

October 5.86 2.51 11.28 5.14 2.16 10.97 7.26 3.35 11.72

November 6.55 3.94 10.68 5.60 3.15 10.30 8.41 5.88 11.23

December 7.14 5.28 10.03 6.17 4.31 9.67 9.04 7.65 10.55

January 6.62 5.02 9.09 5.69 4.02 8.82 8.44 7.50 9.45

February 7.84 7.45 8.44 7.27 6.77 8.18 8.97 9.10 8.82

March 7.71 7.50 8.04 7.16 6.88 7.66 8.80 9.02 8.58

April 8.37 8.68 7.91 7.80 7.96 7.52 9.46 10.42 8.47

May 7.98 8.13 7.76 7.42 7.40 7.47 9.04 9.89 8.17

June 8.05 8.26 7.75 7.53 7.58 7.43 9.08 9.94 8.21

FY13 avg. 6.78 5.22 9.17 6.14 4.64 8.94 8.02 6.64 9.50

FY14P

July 7.85 8.14 7.40 7.43 7.52 7.27 8.64 9.65 7.59

August 7.39 8.09 6.35 6.90 7.50 5.83 8.34 9.52 7.08

September 7.13 7.93 5.94 6.77 7.43 5.59 7.82 9.11 6.44

October 7.03 8.38 5.02 6.78 7.86 4.84 7.52 9.64 5.28

November 7.15 8.55 5.08 6.92 8.06 4.88 7.58 9.67 5.35

December 7.35 9.00 4.88 7.22 8.63 4.69 7.58 9.89 5.13

January 7.50 8.81 5.53 7.24 8.39 5.17 7.97 9.80 6.04

February 7.44 8.84 5.37 7.17 8.42 4.92 7.97 9.84 5.99

March 7.48 8.96 5.26 7.21 8.53 4.83 7.98 9.98 5.88

Notes: i) P=Provisional; ii) Food includes food, beverages and tobacco Source: Bangladesh Bureau of Statistics


16.0 CHAMBEr’S PrOJECTION ON SOME SElECTED ECONOMIC INDICATOrS

On the basis of observations in the previous nine months, projections on some selected economic indicators are made here for the fourth quarter of the present fiscal year (Q4 of FY14) (Table 15).

Table 15: Projection on Some Selected Indicators in Q4 of FY14

IndicatorsFY14

July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. April May June

Export(million uS$) 3024 2014 2590 2119 2212 2726 2754 2389 2414 2450 2465 2490

Import (million uS$) 3453 2852 3449 3092 3268 3338 3645 3018 3125 3150 3200 3250

Remittance(million uS$) 1238 1006 1026 1231 1061 1210 1261 1173 1289 1310 1340 1390

Forex reserve(million uS$) 15534 16252 16155 17346 17106 18075 18119 19152 19295 20100 20300 20600

Inflation, Point to Point (percent) 7.85 7.39 7.13 7.03 7.15 7.35 7.50 7.44 7.48 7.60 7.50 7.70

Note: July – March of FY14: actual figures except March value of Import; April – June of FY14: projections (figures in bold & italic) Sources: Bangladesh Bank, Bangladesh Bureau of Statistics and Author’s calculation

It is assumed that the calm of post-election political situation will continue and export, import, remittances and foreign exchange reserve will increase. The rate of inflation can be expected to fall in May as the supply situation will very likely improve with further improvements in the political environment but then it will go up because of increased demand during the Holy Ramadan.

The food inflation rose to 8.96 percent in March from 8.84 percent in February 2014. However, the non-food inflation slightly declined to 5.26 percent in March from 5.37 percent in February due to a fall in international commodity prices, weak domestic demand and some appreciation of the nominal exchange rate, combined with a restrained monetary policy. The food inflation increased mainly because the traders hiked the price of products like rice, pulse, wheat, vegetables, fruits, edible oil, spices and milk powder to recover their losses suffered during the political unrest before the January 5 elections.

The inflation rate in urban areas was higher than in rural areas. The food and non food inflation in rural areas were 8.53 percent and 4.83 percent in March while these were, respectively, 8.42 percent and 4.92 percent in February 2014. In comparison, the food inflation in urban areas increased to 9.98 percent in March from 9.84 percent in February when the non-food inflation declined to 5.88 percent from 5.99 percent.

24 QUARTERLY REVIEW

17.0 CONCluDING OBSErvATIONS

Major conclusions that emerge from this Review can be discerned in the foregoing Sections. A few of these conclusions are briefly summed up here without making monotonous

repetitions. Some additional observations are also made in this closing Section.

The agriculture sector performed well in the quarter under review, but continuous government support with inputs and finance will be needed to sustain the sector’s growth.

The performance of manufacturing and services sectors will need to be improved by removing all bottlenecks in physical infrastructure and the persistent crisis in power and energy sectors.

There is the need for close surveillance of macroeconomic developments, and for creating policy space by pressing ahead with tax reforms, harnessing concessional external resources, and improving public expenditure management.

Boosting economic growth and investments will be the biggest challenges for the government in the upcoming fiscal year.

Rebuilding the image of the readymade garment sector that accounts for nearly 80 percent of the country’s total exports will be another tough task. Employment generation, infrastructure development, inflation control, reducing inequalities in income, poverty alleviation and environment issues would be the major areas to focus.

Growth prospects of the economy are being badly hurt by political uncertainty. Entrepreneurs, whether local or foreign, are not encouraged to make any new investment in the turbulent political environment. Foreign investors have adopted a ‘go-slow’ strategy in making fresh investments since 2013.

loan default is increasing. Bankers are unwilling to take risks.

All donor agencies, the WB, the ADB and the IMF have lowered down their growth projection well below 6.0 percent, due mainly to political instability but also partly to weaker external demand.

Government is doing its best to heal the economy from the destruction caused by the political turmoil, restore the growth momentum, and rebuild the confidence of local industrialists and businessman as well as foreign buyers and investors.

The external environment is also turning favourable with the recovery of the country’s major trade partners. After long 5 years, the World Bank looks likely to extend budget support to government in the next fiscal, which demonstrates the multilateral donor’s renewed faith in the Bangladesh economy. Besides, the World Bank has recently expressed interest in investing in the country’s infrastructure.

The most important challenge for government is to restore political stability, without which GDP growth will falter and it will be difficult to reap full gains from the global economic recovery.

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