Content · power, too, shot up. As of 31 December 2015, total ... though both the Dhaka Stock...

ContentExecutive Summary 2Agriculture 4Industry 7Monetary and Credit Developments 10Capital Market 15Public Finance 15Exports 16Imports 17Remittances 18Foreign Aid 19Foreign Direct Investment (FDI) 20Balance of Payment 20Exchange Rate 21Foreign Exchange Reserves 21Overseas Employment Situation 22Price Situation 23Chamber’s Projection on Some Selected Economic Indicators 23Concluding Observations 24

2 QUARTERLY REVIEW

General

Bangladesh has plenty of opportunities to achieve a better GDP growth in the current fiscal year than 6.55 per cent achieved in FY15. In the Monetary Policy Statement for H2 of FY16, Bangladesh Bank forecasts 6.8 to 6.9 per cent GDP growth in FY16, which is slightly lower than the government’s target of 7.0 per cent. The development partners - World Bank and ADB – also forecast that the economy would grow between 6.7 per cent and 6.8 per cent in FY16.

Bangladesh’s economy is progressing well, but below its true potential, as infrastructure bottlenecks, shortage of power and energy, lack of policy continuity, absence of investment-friendly climate and political harmony keep it from performing at full capacity. Government effort should be intensified to overcome these impediments in order to enhance the country’s growth opportunities.

Agriculture

The quarter under review was relatively free from political unrest, and crop cultivation did not suffer as farmers got necessary inputs and also could easily market their products in urban and semi-urban areas. Ufashi aus and broadcast aman rice have already been harvested, and nearly 40 per cent boro plantation has been completed so far.

Industry

The broad industrial sector grew by 9.60 per cent in FY15, compared to 8.16 per cent in FY14. The share

of the industry sector in GDP also increased by 0.87 percentage points to 30.42 per cent in FY15 from 29.55 per cent in FY14.

In the quarter under review, manufacturing activities showed signs of regaining momentum, thanks to the apparently calm political situation. The manufacturing sub-sector witnessed a higher growth of 10.32 per cent in FY15, compared to 8.77 per cent in FY14. The small scale manufacturing industries performed slightly better, growing by 10.70 per cent in FY15, compared to 6.33 per cent in FY14. Besides, the large and medium industries sub-sector grew by 10.24 per cent in FY15, compared to 9.32 per cent in FY14.

Construction, Power and Services

The construction sub-sector grew at 8.63 per cent in FY15, compared to 8.08 per cent in FY14. Despite the high potential of the construction sector, various factors like land value distortion, absence of secondary property market, asset securitization and sale of mortgages, and backward linkage industries such as cement, ceramic, brick manufacturing industries, etc. impeded its growth.

Government has achieved commendable success in short-term actions for power sector crisis management but the long-term goals for sustainable power and energy supply issues remain unresolved. The power supply situation, however, improved in the quarter under review but the demand for power, too, shot up. As of 31 December 2015, total generation was 5,039 megawatt (mw) during day peak hours and 6,553 mw during evening peak hours. The maximum generation in 2015 was 8,177 mw on 13 August 2015.

The services sector witnessed a better performance in FY15 compared to the previous fiscal. The sector grew by 5.83 per cent in FY15 as against 5.62 per cent in FY14. Of the different sub-sectors, electricity, gas & water supply, hotel & restaurant, financial intermediation, real estate, renting & other business activities, health & social work, education, and public administration & defence performed better in FY15 compared to that of the previous fiscal.

EXECUTIVE SUMMARY

Improveinfrastructure-such as road,rail, port

Increase power & gas

production

Continue policy

Attract moreinvestments

Bangladesh’s Economy Needs to

OCT.-DEC. 2015 (Q2 of FY16) Issue 02

Public Finance

Total tax revenue collection (NBR and non-NBR) during July-October of FY16 stood higher by 12.0 per cent to Tk.44,144 crore against the collection of Tk.39,404 crore during the corresponding period of FY15. Tax revenue collection by NBR during this period increased by 11.4 per cent.The implementation of the Annual Development Programme (ADP) failed to pick pace in the first six months of the current fiscal year (H1 of FY16). The implementation rate in July-December of FY16 was only 23.54 per cent, a record low in eight years. The implementation rate was 28 per cent in the corresponding period of the previous fiscal (FY15).

External Sector: Export, Import, Remittances, Foreign Aid, FDI and Exchange RateExport earnings in July-December of FY16 rose by 7.84 per cent to US$16.084 billion from US$14.915 billion in the corresponding period of the previous fiscal. Exports were also 1.38 per cent higher than the strategic target (US$15.865 billion). The readymade garment (RMG) industry played a major role in the overall export rise.

Import payments (C&F) during July-November of FY16 stood at US$16.863 billion, which is 7.45 per cent lower than import payments during the corresponding five months of FY15.

Remittance inflow in July-December of FY16 dropped a little by 0.04 per cent to US$7.483 billion, year on year, compared to US$7.486 billion mainly due to appreciation of Bangladesh Taka against the US dollar. However, remittances in the quarter under review rose by 2.10 per cent to US3.549 billion from US3.476 billion.

Money and Capital Market

Broad money (M2) recorded a higher growth of 13.81 per cent at the end of November 2015 compared with 12.84 per cent at the end of November 2014. Domestic credit, on the other hand, recorded 10.31 per cent growth at the end of November 2015, which was lower than 10.85 per cent growth recorded at the end of November 2014. Among components of domestic credit, private sector credit registered a growth of 13.72 per cent during the period between November 2014 and November 2015 while public sector credit recorded a negative growth of 3.54 per cent at the end of November 2015, compared with the increase of 4.66 per cent at the end of November 2014.

Total liquid assets of the scheduled banks increased by 7.33 per cent and stood higher at Tk.257,151 crore as of end November 2015 compared with Tk.239,579 crore as of end June 2015.

Interest rate spread in the banking sector increased a bit as the interest rate on deposits was lowered more than that on lending. The weighted average spread between lending and deposit rates rose to 4.81 per cent in November 2015 from 4.77 per cent in the previous month.

The disbursement of industrial term loans during July-September of FY16 stood 15.2 per cent lower compared to the immediate previous quarter (April-June) of FY15. During this period the recovery decreased by 17.3 per cent.

In the quarter (Q2) under review, the disbursement of agricultural credit and non-farm rural credit by banks increased by 28.5 per cent year on year due mainly to strong monitoring by the BB. The recovery of loans also increased by 15.2 per cent in Q2 of FY16.

The country’s capital market passed yet another gloomy year as trading activities were dull almost throughout 2015. Various efforts taken by the government and regulators to shore up the market in the past five years since the 2011 debacle, virtually failed to bring the desired results in the capital market, though both the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) closed on a positive note on 31 December, the last trading day of 2015.

July-Dec. of FY16

Remittanceinflow:

US$7.483billion

Fell0.04%

Export earnings:US$16.084

billion

Growth7.84 %

4 QUARTERLY REVIEW

The commitment of foreign aid to Bangladesh by major development partners declined by 63.13 per cent year on year to US$257 million in July-October of FY16. The fall in commitment was due to the delay in project approval and slow completion of project works by government agencies. The disbursement of aid, however, showed a positive 4.6 per cent year on year growth to US$731.45 million during July-October of FY16.

In July-November of FY16, the net foreign direct investment (FDI) increased by 6.88 per cent to US$730 million from US$683 million in the same period of FY15. Foreign investors consider the underdeveloped infrastructure, shortage of power and energy, lack of consistency in policy matters and reflection of the rules and regulations into reality, procedural bottlenecks, lack of proper regulatory framework, scarcity of industrial lands, administrative weakness of the Board of Investment, lack of coordination among the government agencies, and political uncertainty as major impediments to new investment. Government needs to address these impediments to attract more FDI.

Trade deficit slightly widened up to November 2015 of the present fiscal with import payments outstripping export earnings. However, because of the fall in the deficits of services trade and official interest payments abroad, the current account balance improved year on year to US$1.057 billion in July-November of FY16 from US$582 million in July-November of FY15. The net foreign direct investment increased by 6.88 per cent while the surplus in the financial account rose by 73.96 per cent. Consequent upon the favourable position

of most components of the balance of payments, the overall balance increased by 76.66 per cent to US$2.044 billion in July-November of FY16.

Between end-June and end-December of 2015, Taka depreciated marginally (by 0.90%) in terms of the US dollar, showing stability in the foreign exchange market. On the inter-bank market, the US dollar was quoted at Tk.78.5000 at the end of December 2015 and Tk.77.8000 at the end of June 2015. The foreign exchange reserve rose to US$27.493 billion as of end December 2015 from US$26.408 billion at the end of November 2015.

Inflation

In December 2015, the general point to point inflation increased slightly by 0.05 percentage points to 6.10 per cent from 6.05 per cent in November 2015. The uptrend in prices of some non-food items in the domestic market during the Christmas, Victory Day, and the year-end, apart from tourism, pushed up the point-to-point inflation in December after registering a slight fall in the previous month. The food inflation, however, fell by 0.24 percentage points to 5.48 per cent in December 2015 from 5.72 per cent in the immediate past month of November. On the other hand, non-food inflation increased by 0.49 percentage points to 7.05 per cent in December 2015 from 6.56 per cent in the previous month.

A comparison of inflation data for urban and rural areas in December of FY16 (general point to point) showed that the inflation rate was higher in urban areas than in rural areas. Thus, the point to point general, food, and non-food inflation in rural areas in December were 5.58 per cent, 4.76 per cent, and 7.10 per cent, respectively, while these inflation rates in urban areas were 7.07 per cent, 7.14 per cent, and 6.98 per cent, respectively.

1.0 AGRICULTUREComplete data on agricultural production in the second quarter of the present fiscal (Q2 of FY16) is yet to be available. However, boro, the biggest crop, will be harvested in the coming months of the fiscal. The quarter under review was relatively free from political unrest, and cultivation did not suffer as farmers got necessary inputs and also could


market their products in urban and semi-urban areas. Ufashi aus and broadcast aman rice have already been harvested, and nearly 40 per cent boro plantation has been completed so far, according to the Department of Agricultural Extension (DAE).

1.1 Food Situation Domestic Production

For FY16, the Department of Agricultural Extension (DAE) set the target of domestic food grains (rice and wheat) production at 36.425 million metric tons (mmt), which is 0.57 per cent higher than that of FY15 (36.220 mmt). Production targets for aman, aus, boro and wheat are 13.555 mmt, 2.475 mmt, 19.000 mmt and 1.395 mmt, respectively.

According to the latest monitoring report of DAE, area for aus almost reached the target, registering 1.03 million hectares (mh) out of the target of 1.08 mh. Aman plantation area also reached 5.67 mh, marginally exceeding the target of 5.65 mh. Although aman plantation had some early setback due to flood in the northern districts, the loss was recovered by quick raising of seedling through the initiatives of DAE. Aman season has so far experienced conducive weather conditions. It is, therefore, expected that aman production target of 13.555 mmt for FY16 will be achieved.

As regards boro, farmers are now busy preparing the seed beds. They have been assured of timely supply of irrigation water and fertilizer. With the weather conditions remaining favourable, boro crop this year can be expected to reach the target. The imposition of 20 per cent import duty (regular 10 per cent and supplementary 10 per cent) on rice import has also encouraged many farmers to expand boro lands this season in expectation of making profits after incurring consecutive losses in last three rice cropping seasons. About 40 per cent plantation on the targeted 4.78 mh of land were completed by 17 January 2016, according to the DAE.

It is worth noting that the actual production of food grains during FY15 stood at 36.056 mmt which exceeded the production in FY14 (35.731 mmt) by 0.91 per cent, but fell 0.45 per cent short of the FY15 target.

Food Grains Import

As of 7 January 2016, about 204.15 thousand metric tons (tmt) of rice was imported by the private sector. No rice was imported by the public sector. Over the same period of last year, no rice was imported by the public sector but 600.01 tmt of rice was imported by the private sector. During the fortnight ending 7 January 2016, a total of 291.80 tmt of wheat was imported by the public sector and 1,836.64 tmt by the private sector. Over the same period of last year, a total of 68.50 tmt of wheat was imported by the public sector and 1,516.63 tmt by the private sector.

Domestic Procurement

To provide price incentive to farmers, government decided to procure at least 0.2 mmt of aman rice at Tk.31.00 per kg from the domestic market. The drive began on 15 December 2015 and will continue till 15 March 2016. As of 7 January 2016, about 19.33 tmt of aman rice was procured and 199.14 tmt was contracted.

Public Distribution

The 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 2.78 mmt food grains this fiscal (FY16) as against the actual distribution of 1.84 mmt in FY15. Over the fortnight ending 7

January 2016, a total of 60.20 tmt food grains was distributed mainly through OMS (14.20 tmt), TR (10.10 tmt), VGD (9.60 tmt), EP (9.60 tmt) and FFW (7.80 tmt). As of that date, a total of 633.40 tmt had been distributed through PFDS, which is

6 QUARTERLY REVIEW

about 22.78 per cent of the yearly target. The OMS drive, which was resumed in small scale - only rice in Dhaka and Chittagong areas, and atta all over the country - continues, with rice being sold at Tk.20 per Kg and atta at Tk.19 per Kg.

Public Stock

According to the Directorate General of Food, the public food grains stock, as of 7 January 2016, stood at 1,487.87 tmt – 1,123.40 tmt for rice and 364.47 tmt for wheat.

Domestic Market Prices

In the fortnight ending 7 January 2016, the wholesale price of rice (Swarna) in Dhaka city markets increased by 2.9 per cent to Tk.26.25 per Kg, and the retail price increased by 3.4 per cent to Tk.30.00 per Kg. The wholesale and retail prices now are, respectively, 13.7 per cent and 15.5 per cent lower than a year ago. Over the same period, the wholesale price of atta in Dhaka city markets increased by 1.4 per cent to Tk.22.30 per Kg, but the retail price remained unchanged at Tk.27.00 per Kg. The wholesale and retail prices are, respectively, 15.8 per cent and 13.6 per cent lower now than a year ago.

International Market Prices

In the fortnight ending 8 January 2016, the prices of Vietnam 15% white, West Bengal coarse and India 5% parboiled rice declined by 3.3 per cent, 1.2 per cent and 2.4 per cent, respectively, to US$353 per mt, US$269 per mt and US$330 per mt. But the price of Thai 5% parboiled rice increased by 2.6 per cent to US$351 per mt. On the other hand, the price of Pakistan 5% parboiled rice remained unchanged at US$356 per mt. However, the wholesale price of rice in Dhaka city stood at US$333 per mt (increased by 2.2%) on the same date. In the fortnight ending 8 January 2016, the prices of US Soft Red Winter (SRW) and Ukraine wheat decreased by 1.6 per cent and 1.0 per cent, down to US$186 per mt and US$192 per mt, respectively. But the price of Russian wheat remained unchanged at US$198 per mt. On the same date, Dhaka city wholesale wheat price stood at US$277.30 per mt (decreased by 1.5%).

1.2 Fisheries and Animal Farming (Livestock and Poultry)

According to provisional estimates of BBS, fisheries and animal farming (livestock and poultry) sub-sectors contributed around 5.42 per cent to the GDP in FY15, of which the fish sector contributed around 3.69 per cent and the animal farming sector contributed 1.73 per cent. Nearly 17.1 million people are involved in the fish sector, while the animal farming sector has created job opportunities for around 6.5 million people.

Fish production in the country has been increasing to keep up with the growing demand at home and abroad for around a decade or so. According to the Department of Fisheries (DoF), the country produced 3.55 million tons of fish in FY15 and 3.45 million tons in FY14. For gearing up the production of fish, the government has set up 120 hatcheries in different parts of the country to provide training to the people and hatchery owners. The government also set a target to produce 4.52 million tons of fish by FY21. Proper utilization of the existing water bodies using the latest technologies could boost fish production.

After the recent detection of harmful heavy metal chemicals and elements in a few consignments of imported fish, especially those of ruhi fish from


2.1 Manufacturing Industries

In the quarter under review, manufacturing activities showed signs of regaining momentum, thanks to the apparently calm political situation, which earlier had badly affected production. The manufacturing sub-sector witnessed a higher growth of 10.32 per cent in FY15, compared to 8.77 per cent in FY14. The small scale manufacturing industries performed better, growing by 10.70 per cent in FY15, compared

to 6.33 per cent in FY14. Besides, the large and medium industries sub-sector grew by 10.24 per cent in FY15, compared to 9.32 per cent in FY14.

Data on manufacturing industries are available up to September 2015. During July-September of FY16, the general index (average, Base: 2005-06=100) of industrial production of medium and large scale manufacturing industries registered an increase by 3.38 per cent to 250.24 points compared to 242.07 points over the corresponding period of FY15. According to industry insiders, the performance of industrial activity was not at the expected level due mainly to shortage of power and gas, bank’s high interest rate and also political uncertainty.

Among medium and large-scale manufacturing industries, the general indices of the following industries recorded an increase during July-September of FY16: basic metals (38.83%), non-metalic mineral products (32.68%), chemicals & chemical products (15.17%), food products (5.16%),

Myanmar, the Ministry of Fisheries and Livestock (MoFL) requested the Ministry of Commerce to initiate necessary steps to impose a ban on the import of all types of marine fish. Besides, the MoFL recommended the inclusion of necessary provisions in the country’s import policy to ensure quality tests of all types of imported fish on a regular basis. Fresh water and sea fishes are now imported from Myanmar, Pakistan, India, Oman, the United Arab Emirates, Thailand, Vietnam, Yemen and Uruguay, according to the DoF. The country imported 97,384 tons of fish worth US$39.07 million in FY15 against 69,778 tons worth US$27.82 million in FY14 and only 36,073 tons worth US$15.58 million in FY10.

The country’s poultry industry on the other hand has achieved self-sufficiency in meeting local demand for meat and eggs. The industry is now producing 1,500 mt of poultry meat per day against the target of 1,400 mt. It also produces 16 million eggs per day against the demand for 15 million, and almost 10 million pieces of chicken every week against the weekly demand for nearly 9 million pieces. As a result, the industry has now an exportable surplus. However, Bangladesh could not yet export poultry due to the inability to maintain international standard.

BB recently launched Tk.2.0 billion refinancing scheme to achieve self-sufficiency in milk production. Under the scheme, a total of 13 banks and financial institutions will provide dairy farmers with easy and cheaper loan for rearing milking cows and their artificial breeding. The participating banks and financial institutions will get necessary money from the BB’s refinancing scheme besides getting additional 5.0 per cent interest against their disbursed loans.

2.0 INDUSTRYData on the country’s industry sector are not available for Q2 of FY16. However, the broad industrial sector grew by 9.60 per cent in FY15, which was 8.16 per cent in FY14. Besides, the share of the industry sector in GDP also increased by 0.87 percentage points to 30.42 per cent in FY15 from 29.55 per cent in FY14.

8 QUARTERLY REVIEW

related industries are facing the consequence of the depression in the sector. According to industry-insiders, the real-estate sector has been passing through a tough time as apartment sales have declined significantly over the last two years. The situation has become so discouraging that realtors were forced to slash apartment prices by about 15-30 per cent on average to reinvigorate the depressed property market. According to the Real Estate and Housing Association of Bangladesh (REHAB), around 14,000 ready flats worth about Tk.120 billion remained unsold. Sale of apartments fell as much as 60 per cent in 2013 and the situation still remained the same. There are more than 2.0 million people working in this industry and their livelihood depends upon these apartment sales. To overcome the problems the REHAB recently demanded the formation of a fund of Tk.3,000 crore for housing loan with 7.0 per cent interest and allowing investment of black money in the housing sector. But nothing tangible was done in this regard.

2.3 Power

The government has achieved commendable success in short-term actions for power sector crisis management but the long-term goals for sustainable power and energy supply issues remain unresolved. Specialists and investors have been systematically raising concerns for sustainable development of primary energy sources in the country and their focus is concentrated on local coal and gas developments.

The power supply situation, however, improved in the quarter under review but the demand for power, too, shot up more than ever. As of 31 December 2015, total actual generation during day peak hours was 5,039 megawatt (mw) and during evening peak hours was 6,553 mw. The demand was 6,078 mw and no load shedding occurred. The maximum generation in 2015 was 8,177 mw on 13 August 2015 and it was also the maximum generation in BPDB’s history. Between January 2016 and October 2015, total installed capacity and derated/present capacity rose to 12,071 mw and 11,476 mw from 11,877 mw, and 11,282 mw, respectively, but production remained low because of gas shortage and also because some power stations were shut for maintenance.

and wearing apparel (3.48%). On the other hand, there was some decrease in the indices of fabricated metal products except machinery (23.64%), leather & related products (21.34%), tobacco products (11.66%), pharmaceuticals & medicinal chemical (1.44%), and textile (0.23%). The general index of small scale manufacturing industry during the first quarter (July-September) of FY16 increased by 1.10 per cent to 435.95 points from 431.21 points during the fourth quarter (April-June) of FY15. However, the index during the first quarter of FY16 (435.95 points) increased by 6.47 per cent as compared to the same quarter of the previous fiscal year.

2.2 Construction

Data on the country’s construction sector are not available for Q2 of FY16. However, in FY15, the sector performed better, growing at 8.63 per cent compared to 8.08 per cent in FY14. The real estate, renting and business activities have also performed better in the period as it marked a 4.66 per cent growth in FY15 from 4.25 per cent in FY14. In spite of the tremendous potential of the construction and real estate sector, various factors adversely affected its development. These factors are: land value distortion, absence of secondary property market, asset securitization and sale of mortgages, and backward linkage industries such as cement, ceramic, brick manufacturing industries, etc.

On the other hand, many construction projects are left incomplete, many people who have invested their money face an uncertain future and many


According to the BPDB website, about 12,071 mw installed capacity of power plants comprised of coal 250 mw (2.07%), gas 7,628 mw (63.19%), HFO 2,507 mw (20.77%), HSD 956 mw (7.92%), Hydro 230 mw (1.91%), and imported 500 mw (4.14%).

The government has set a target to generate 24,000 mw electricity by using 53 per cent coal as primary energy source within the Vision 2021. With this goal in view, the government increased the number of power plants, transmission lines and distribution lines to help Bangladesh become a middle income country by 2021. To reach the target, the government would concentrate on building big base-load power plants to generate electricity from coal as it eyes producing 50 per cent of the total electricity from coal. Furthermore, the government would take up more large-scale renewable power projects. Also, the government has decided to establish three new divisions - coal, renewable and independent power producer (IPP) - to ensure smooth implementation of energy projects. The government is also working to increase electricity import from neighbouring countries under regional cooperation and now giving priority on import from Nepal and Bhutan. But India’s help is essential to make it a success as it is located in-between.

Bangladesh is planning to import another 100 mw power from the Palatana plant in India’s Tripura from 26 March 2016 with a price of Tk.6.43 per unit at which Bangladesh had decided to bring the

first one. The infrastructure needed for importing the additional 100 mw has already been laid out. The Power Grid Corporation of India (PGCIL) and the Power Generation Company of Bangladesh (PGCB), both state-owned companies, tested the transmission lines on their respective sides in December 2015.

Recently a memorandum of Understanding (MoU) has been signed between the Power Division and the International Enterprise Singapore in order to set up a coal-fired power plant to generate 700 mw electricity in Maheshkhali of Cox’s Bazar. As per the MoU, the Bangladesh government will first develop land and infrastructure for the project. Then a joint company will be formed to implement it. The main project may cost more than US$1.0 billion, while the primary cost for acquiring land and infrastructure development has been estimated at Tk.7.45 billion. Currently, two 600 mw coal power plants funded by Japan are under construction at Maheshkhali.

2.4 Services Sector

The broad services sector has nine sub-sectors, data on which are yet insufficient to enable an understanding of how they have fared in the quarter under review. However, in FY15 the sector witnessed a better performance compared to the previous fiscal. The growth of services sector increased by 0.21 percentage points to 5.83 per cent in FY15 from 5.62 per cent in FY14. Of the different sub-sectors, electricity, gas & water supply, hotel & restaurant, financial intermediation, real estate, renting & other business activities, health & social work, education, and public administration & defence have performed better in FY15 compared to that of the previous fiscal.

10 QUARTERLY REVIEW

According to BB data, broad money (M2) recorded a higher growth of 13.81 per cent at the end of November 2015 compared with the 12.84 per cent growth at the end of November 2014. Domestic credit, on the other hand, recorded 10.31 per cent growth at the end of November 2015, which was lower than 10.85 per cent growth recorded at the end of November 2014.

Among components of domestic credit, private sector credit registered a growth of 13.72 per cent during the period between November 2014 and November 2015, compared with the lower growth of 12.49 per cent during the period between

Table 1: Monetary and Credit Indicators

Particulars

Outstanding Stock (Taka in crore) % Changes in Outstanding Stock

November 2013R

November 2014R

November 2015P

Nov. 2015 over Nov.2014

Nov. 2014 over Nov.

2013Total Domestic Credit 597246 662039 730276 10.31 10.85

Credit to Public Sector 125160 130988 126353 (-) 3.54 4.66

Net Credit to Government Sector 113932 114690 110110 (-) 3.99 0.67

Credit to Other Public Sector 11228 16298 16243 (-) 0.34 45.15

Credit to Private Sector 472086 531051 603923 13.72 12.49

Reserve Money (RM) 120565 137818 157651 14.39 14.31

Broad Money (M2) 642576 725065 825182 13.81 12.84

Note: P=Provisional; R=Revised

Source: Bangladesh Bank

November 2013 and November 2014. Public sector credit, on the other hand, recorded a negative growth of 3.54 per cent at the end of November 2015, compared with the increase of 4.66 per cent at the end of November 2014. Within public sector credit, however, credit to government (net) recorded a negative growth of 3.99 per cent, and credit to other public sector recorded a negative growth of 0.34 per cent, during the period (Table 1).

3.0 MONETARY AND CREDIT DEVELOPMENTS


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

Bank Group

As of end June, 2015R As of end November, 2015P

Total liquid assets Total Liquid Assets

Minimum Required

Liquid Assets

Excess Liquidity

1 2 3 4 5 (3-4)State owned banks 90500 95549 40719 54830

Private banks (other than Islamic) 98086 107798 68563 39235

Private banks (Islamic) 28412 30249 17986 12263

Foreign banks 21032 22071 6963 15108

Specialized banks* 1549 1484 1462 22

Total 239579 257151 135693 121458

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 (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 remained unchanged at 7.25 per cent and 5.25 per cent, respectively (Table 3), till they were lowered by 50 basis points in January 2016.

3.1 Interest Rate Developments

Total liquid assets of the scheduled banks increased by 7.33 per cent and stood higher at Tk.257,151 crore as of end November 2015 compared with Tk.239,579

crore as of end June 2015. The minimum required liquid asset of the scheduled banks was Tk.135,693 crore as of end November 2015 (Table 2).

Bangladesh Bank data shows that, of the total liquid assets of scheduled banks as of end November 2015, some 3.85 per cent is held in the form of Cash in tills and Balances with Sonali Bank, 19.54 per cent in the form of CRR, 2.38 per

cent in the form of Excess Reserves, 2.46 per cent in the form of Balances with Bangladesh Bank in Foreign Currency and the remainder 71.77 per cent in the form of Unencumbered approved securities.

12 QUARTERLY REVIEW

Table 3: Interest Rate (weighted average) movements in FY15 and FY16 (in per cent)

Month/Quarter Repo Reverse

RepoLending

RateDeposit

Rate

Interest Rate

Spread

FY15R

July 7.25 5.25 12.84 7.71 5.13

August 7.25 5.25 12.75 7.63 5.12

September 7.25 5.25 12.58 7.48 5.10

October 7.25 5.25 12.49 7.40 5.09

November 7.25 5.25 12.49 7.32 5.17

December 7.25 5.25 12.46 7.25 5.21

January 7.25 5.25 12.32 7.26 5.06

February 7.25 5.25 12.23 7.19 5.04

March 7.25 5.25 11.93 7.06 4.87

April 7.25 5.25 11.88 7.04 4.84

May 7.25 5.25 11.82 6.99 4.83

June 7.25 5.25 11.67 6.80 4.87

FY16P

July 7.25 5.25 11.57 6.78 4.79

August 7.25 5.25 11.51 6.74 4.77

September 7.25 5.25 11.48 6.66 4.82

October 7.25 5.25 11.35 6.58 4.77

November 7.25 5.25 11.27 6.46 4.81Notes: P=Provisional, R=Revised, NA=Not Available


Overall interest rate spread in the country’s banking sector increased a bit because of the relatively greater decline in the interest rate on deposits than the interest rate on lending. The weighted average spread between lending and deposit rates offered by the commercial banks rose to 4.81 per cent in November 2015 from 4.77 per cent in the previous month. Note that the weighted average interest rate on deposits came down to 6.46 per cent in November from 6.58 per cent in October 2015 while the interest rate on lending dropped to 11.27 per cent from 11.35 per cent as the businesspeople continued to show reluctance to borrow from the banking sector (Table 3). The spread may fall in the coming months following sufficient excess liquidity with the banks and also because the central bank is now working to bring down the spread to nearly 4.0 per cent from the existing level.

The central bank wants banks to reduce the interest rate spread by improving their efficiency instead of lowering the interest rate on savers’ deposits. The spread being maintained by 20 commercial banks out of 56 still ranges between more than 5.0 per cent and 9.78 per cent. BB data show that the average spread of the six state-owned commercial banks (SCBs) is 2.09 per cent, PCBs 5.02 per cent, foreign commercial banks (FCBs) 7.45 per cent, and specialized banks (SBs) 2.09 per cent. The country’s business community earlier urged the BB to take initiative to lower the lending rates to facilitate business activity, particularly to help augment the country’s industrialization.


3.2 Industrial Term Loans

Data on industrial term loans are available only up to the first quarter (July-September) of the current fiscal (FY16). According to BB data, the disbursement of industrial term loans during July-September of FY16 stood 15.2 per cent lower at Tk.12,700 crore, compared to Tk.14,980 crore during the immediate previous quarter (April-June) of FY15 (Table 4). However, the recovery of industrial term loans also decreased by 17.3 per cent to Tk.11,072 crore during July-September of FY16, compared to Tk.13,383 crore in the previous quarter (April-June of FY15).

Table 4: Disbursement and Recovery of Industrial Term Loans

Quarter

(Tk. in crore)

Disbursement Recovery

LSI MSI SSCI Total LSI MSI SSCI Total

July-September of FY15R 10325 1843 641 12809 (11.7) 7745 2778 1190 11713 (15.1)

October-December of FY15R 14074 3312 1259 18645 (45.6) 8682 2274 967 11923 (1.8)

January-March of FY15R 9888 2038 1425 13351(-28.4) 7939 1538 1044 10521(-11.8)

April-June of FY15R 11182 2497 1301 14980 (12.2) 8434 3308 1641 13383 (27.2)

July-September of FY16P 9493 2112 1095 12700 (-15.2) 7905 2013 1154 11072 (-17.3)

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 quarte


3.3 SME Loans

Data on SME loans are not available for Q2 of FY16. According to BB data, total SME loans by all banks and non-bank financial institutions (NBFIs) increased by 10.1 per cent to Tk.138,331 crore at the end of September 2015 from Tk.125,615 crore at the end of September 2014. The disbursement of SME loans was 22.7 per cent of total loans disbursed by all banks and NBFIs at the end of September 2015 (Table 5).

14 QUARTERLY REVIEW

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

Quarter Types of Loans SOBs PBs FBs SBs NBFIs Total

July-Sept. of FY15RTotal LoansSME LoansPercentag

8694616576(+19.1)

34996892907(+26.6)

233781905(+8.2)

334619906

(+29.6)

356544321

(+12.1)

529408125615(+23.7)

Oct.-Dec. of FY15RTotal LoansSME LoansPercentage

10239327215(+26.6)

369935101978(+27.6)

233851815(+7.8)

22126760

(+3.4)

367984380

(+11.9)

554637136148(+24.5)

Jan.-Mar. of FY15RTotal LoansSME LoansPercentage

10073722241(+22.1)

378556102868(+27.2)

223051857(+8.3)

22167917

(+4.1)

393354523

(+11.5)

563100132406(+23.5)

April-June of FY15RTotal LoansSME LoansPercentage

10377625477(+24.5)

394357103688(+26.3)

235281862(+7.9)

21425835

(+3.9)

408845046

(+12.3)

583970136908(+23.4)

July-Sept. of FY16PTotal LoansSME LoansPercentage

11246624518(+21.8)

408056105882(+25.9)

239431912(+8.0)

21112846

(+4.0 )

426135173

(+12.1)

608190138331(+22.7)

% change of SME loans at the end of Sept. 2015 over end of Sept. 2014 +47.9 +14.0 +0.4 -91.5 +19.7 +10.1

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 loans


3.4 Agricultural Credit and Non-farm Rural Credit

In the quarter (Q2) under review, the disbursement of agricultural credit and non-farm rural credit by banks increased by 28.5 per cent to Tk.5,552 crore from Tk.4,320 crore in the corresponding period of the previous fiscal (Table 6). In the first six months of the present fiscal (H1 of FY16), the disbursement of agricultural credit and non-farm rural credit by banks increased by 23.8 per cent to Tk.8,756 crore from Tk.7,071 crore over the corresponding period of the previous fiscal. The improvement in disbursement was partly the result of strong monitoring by the BB. Also, banks grappling with surpass liquidity amid dull business situation showed an increased interest in disbursing such credit. Of Tk.8,756 crore, the eight state-owned commercial banks (SCBs) disbursed Tk.4,656 crore, and the remaining Tk.4,100 crore was disbursed by the private commercial banks (PCBs) and the foreign commercial banks (FCBs). All scheduled banks have achieved more than 53 per cent of their annual agricultural loan disbursement target (Tk.16,400 crore), for FY16. The recovery, however, increased by 15.2 per cent to Tk.5,304 crore in Q2 of FY16

from Tk.4,605 crore in the corresponding period of the previous fiscal year. In H1 of FY16, the recovery also increased, year on year, by 7.1 per cent to Tk.8,421 crore from Tk.7,864 crore.

Table 6: Disbursement and Recovery of Agricultural Credit and Non-farm Rural Credit (Taka in crore)

MonthFY16P FY15R

Disbursement Recovery Disbursement Recovery

July 861.91 790.33 904.53 1017.59

August 952.43 999.44 802.43 1085.42

September 1389.90 1327.90 1043.45 1155.86

Total of Q1 3204.24(+16.50)

3117.67(-4.33)

2750.41(-3.88)

3258.87(+4.87)

October 1427.05 1379.96 1132.29 1241.13

November 1533.62 1613.84 1405.57 1349.60

December 2591.08 2309.88 1782.52 2014.09

Total of Q2 5551.75(+28.50)

5303.68(+15.18)

4320.38(-5.85)

4604.82(-12.21)

Total of H1 8755.99(+23.83)

8421.35(+7.09)

7070.79(-5.09)

7863.69(-5.85)

Notes: P=Provisional, R=Revised; Figures in parentheses indicate the percentage change over the same period of the previous fiscal year



4.0 CAPITAL MARKET The country’s capital market has passed yet another gloomy year as trading activities were dull almost throughout 2015. Various efforts taken by the government and regulators to shore up the market in the past five years since the 2011 debacle, virtually failed to bring the desired results in the capital market, though both the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) closed on a positive note on 31 December, the last trading day of 2015, as investors went on a final-hour buying spree.

The foreign investment in the capital market witnessed a 92.94 per cent year-on-year decline in 2015, driven by profit booking sales by overseas investors. The foreign investors bought shares worth Tk.38.25 billion and sold shares worth Tk.36.40 billion, to take their net investment for the year to Tk.1.85 billion, according to the DSE data. The net investment by the foreigners in 2014 was Tk.26.20 billion. The foreign investors sold bulk of their shares, especially in the second and third quarters of 2015, to realize the gains they made in the previous two years. Also known as portfolio investment, foreign investment accounts for less than 1 per cent of DSE’s total market capitalization. Investors include fund managers such as Morgan Stanley, JP Morgan, Goldman Sachs and Black Rock.

5.0 PUBLIC FINANCEData on tax revenue collections (NBR and non-NBR) are available only up to October of the current fiscal (FY16). According to provisional data of the National Board of Revenue (NBR), total tax revenue collection (NBR and non-NBR) during July-October of FY16 stood higher by 12.0 per cent to Tk.44,144 crore against the collection of Tk.39,404 crore during the corresponding period of FY15. NBR tax revenue collection during July-October of FY16 stood at Tk.42,343 crore, which is higher by Tk.4,346 crore or 11.4 per cent against the collection of Tk.37,997 crore during the same period of the previous fiscal year (Table 7).

Earlier, the NBR has set a revenue collection target of Tk.176,370 crore for FY16, which is about 17.8 per cent higher than that of the previous fiscal year’s original target (Tk.149,720 crore) and also about 30.6 per cent higher than the revised target of Tk.135,028 crore.

Table 7: Government Tax Revenue Collections

Month

Tax Revenue Collections (in crore Taka)

NBRNon-NBR

GrandTotal Customs

Duties VAT IncomeTax Others* Total

FY16P

July 1122 3529 2528 1549 8728 376 9104August 1261 3780 2703 1884 9628 611 10239September 1382 4835 4471 2071 12759 408 13167October 1309 4388 3371 2160 11228 406 11634

July-Oct. 5074(+9.4)

16532(+11.0)

13073(+11.9)

7664(+13.0)

42343(+11.4)

1801 (+28.0)

44144 (+12.0)

FY15R

July 1031 3594 2024 1316 7965 345 8310August 1261 3576 2300 1746 8883 372 9255September 1311 3923 4112 2024 11370 381 11751October 1035 3806 3242 1696 9779 309 10088

July-Oct. 4638(+11.5)

14899(+13.8)

11678(+13.7)

6782(+12.4)

37997(+13.2)

1407(+5.6)

39404(+12.9)

Notes: P=Provisional; R=Revised; NA=Not Available; *=include supplementary duties and travel tax; ^=Value of July-April; Figures in brackets indicate percentage changes over the corresponding period of the preceding year.

Sources: NBR and Office of the Controller General of Accounts

NBR Tax Collection

During July-Oct. of FY16

Tk. 42343crore

Gowth11.40%

During July-Oct. of FY15

Tk. 37997crore

Gowth13.25%

16 QUARTERLY REVIEW

5.1 Public Expenditure

The implementation of the Annual Development Programme (ADP) failed to pick pace in the first six months of the current fiscal year (H1 of FY16). The implementation rate in July-December of FY16 was only 23.54 per cent, a record low in eight years mainly due to the failure of Ministries and Divisions with higher allocation. The previous lowest ADP implementation rate was 20.70 per cent in July-December of FY08 when the size of the ADP was Tk.265.00 billion. The implementation rate was 28 per cent in the corresponding period of the previousfiscal (FY15).

According to the Implementation Monitoring and Evaluation Division (IMED) data, 53 ministries and divisions could spent only Tk.237.77 billion of the total allocation of Tk.1,009.97 billion. Top 10 ministries and divisions, which got 72.96 per cent of the total allocation of ADP, on an average spent only 24.90 per cent affecting the overall implementation rate. These ministries and divisions were implementing some mega projects including Padma Bridge, metro rail and power plants.Among the 10 large ministries and divisions, the performance of the Local Government Division was the best (33%), followed by the Ministry of Primary and Mass Education (31%), the Road Transport & Highways Division (29%), the

6.0 EXPORTSThe country’s export earnings in the first six months of the current fiscal year (H1 of FY16) rose by 7.84 per cent to US$16.084 billion from US$14.915 billion in the corresponding period of the previous fiscal year (Table 8). Export earnings were also 1.38 per cent higher than the strategic target (US$15.865 billion). The readymade garment (RMG) industry played a major role in the overall export rise. However, export earnings in the quarter under review grew by 15.32 per cent to US8.325 billion from US7.219 billion. In December 2015, year-on-year, exports grew by 12.66 per cent to US$3.204 billion, which is the highest export earnings in a month in the history of Bangladesh. It was also above the strategic target (US$2.986 billion).

According to industry insiders, improvement of safety standard in the RMG sector and peaceful political situation contributed to the export growth. The RMG sector, the main driver of Bangladesh’s export, alone earned U$13.136 billion or 81.67 per cent of the total export figure, with 9.24 per cent growth from U$12.025 billion in H1 of FY15.

Table 8: Monthly Trends in Exports

MonthExports (million US$) Growth

RateFY16P FY15R

July 2626 2983 (-) 11.97

August 2758 2160 27.69

September 2375 2553 (-) 6.97

Total of Q1 7759 7696 0.82

October 2372 1958 21.14

November 2749 2417 13.74

December 3204 2844 12.66

Total of Q2 8325 7219 15.32

Total of H1 16084 14915 7.84

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

Ministry of Education (26%), the Power Division (25%), the Energy & Mineral Resources Division (21%), the Bridge Division and the Ministry of Railway (18% both), the Ministry of Health and Family Welfare (16%) and the Ministry of Water Resources (14%).


An analysis of EPB’s export data for H1 of FY16 shows that the country’s major export products, i.e., woven garments, knitwear, home textile & specialized textiles, leather footwear & leather products, petroleum bye products, chemical products, engineering products, other manufactured products, raw jute and computer services experienced positive growth while leather, plastic products, frozen food & shrimps, agricultural products, jute yarn & twine, jute sacks & bags, cotton and cotton products showed negative growth compared to the corresponding period in the previous fiscal.

According to EPB data, woven garments earned U$6.704 billion with 12.43 per cent growth and the knitwear sector received U$6.432 billion showing 6.10 per cent increase. EPB data also showed that among major and potential sectors, pharmaceuticals earned U$43.09 million in July-December of FY16 posting 17.22 per cent growth. The leather products export rose by 60.68 per cent to U$176.86 million. Rubber export grew by 44.65 per cent, followed by raw jute (32.77%), engineering products (25.73%), home textile (16.68%), furniture (13.19%), and specialized textiles (11.06%). On the other hand, export earnings from agricultural products and shrimps during H1 of FY16 declined by 18.58 per cent and 22.40 per cent, respectively compared to the same period of last fiscal.

Country wise export data show that exports to the US market, the largest export destination for Bangladesh products, grew by a robust 16.80 per cent during the first five months of the current fiscal year (July-November of FY16), mostly due to the RMG sector’s good performance. Bangladesh exports to USA stood at U$2.461 billion in the said period compared to U$2.107 billion during the corresponding period of the previous fiscal. The amount represents 19.11 per cent of the country’s total export earnings during the period in FY16. The major exports to the US market during July-November of FY16 were woven garments

(U$1.636 billion), knitwear (U$619.76 million), frozen shrimp (U$12.69 million), home textiles (U$46.31 million) and cap (U$27.27 million).

Out of 53 Bangladesh missions abroad, 25 missions have failed to achieve their respective export targets for July-December of FY16. The key Bangladesh missions like Paris, Baghdad, the Hague, Pretoria, Male, Rabat, Brussels, Berlin, Beijing, Moscow, Hong Kong, Stockholm and Geneva have failed to achieve their July-December export targets while some other important missions like Washington, Canberra, New Delhi, Seoul, Jakarta, Singapore, Dubai, London, Kualalampur, Ottawa, Berlin, Madrid, Bangkok and Tokyo have been able to reach their targets. The overall export earnings for July-December period amounted to US$15.647 billion which is 97.28 per cent of total export earnings. However, only 18 missions, out of 53, have commercial wings to promote the country’s external trade and the export earning of these commercial wings for these six months is US$12.475 billion

7.0 IMPORTSImport payments (C&F) during July-November of FY16, for which H1 data are available till now, stood at US$16.863 billion, which is 7.45 per cent lower than import payments during the corresponding months of FY15 (Table 9). Import payments in November 2015 also decreased by 2.21 per cent over the same month of 2014 but increased by 23.54 per cent over the previous month of the same fiscal year (October 2015) because of higher demand for most of the importable items.

Table 9: Monthly Trends in Imports

MonthImports (million

US$) Growth Rate

FY16P FY15R

July 2977 3077 (-) 3.25

August 3583 3691 (-) 2.93

September 3608 4349 (-) 17.04

October 2995 2357 27.07

November 3700 4747 (-) 2.21

Total of July-November

16863 18221 (-) 7.45

Notes: P=Provisional; R=Revised


18 QUARTERLY REVIEW

8.0 REMITTANCESRemittance inflow in the first six months of the current fiscal year (July-December of FY16) dropped a little by 0.04 per cent compared to the corresponding period of the previous fiscal mainly due to appreciation of Bangladesh Taka against the US dollar. For this reason, workers also got discouraged in sending their hard-earned money through legal channel. According to the BB data, the country received US$7.483 billion in remittance in July-December of FY16 compared to US$7.486 billion during the same period of FY15 (Table 10). However, remittances in the quarter under review rose by 2.10 per cent to US3.549 billion from US3.476 billion. While in December 2015, year-on-year, remittances grew by 2.67 per cent to US$1.309 billion, in month on month, the amount is an increase of 14.62 per cent.

plastic, printing, packing and telecom industries have contributed to raise the overall capital machinery imports during the period under review. The import of industrial raw materials rose slightly by 0.65 per cent to US$6.20 billion in July-November of FY16 against US$6.16 billion in the same period of FY15. Industrial raw materials are the key ingredients for increasing industrial production, but the slower growth in the import of the products indicates that the country’s industrial sector remained sluggish in recent months. Imports of intermediate goods, like coal, hard coke, clinker and scrap vessels, increased by 7.32 per cent. During the period, imports of machinery for miscellaneous industries witnessed a 12.65 per cent growth to US$1.87 billion, from US$1.66 billion in the same period of the previous fiscal. On the other hand, the imports of petroleum products dropped by 41.18 per cent to US$1.10 billion during the period following lower prices of fuel oils in the global market, from US$1.87 billion in the same period of the previous fiscal. The import of consumer goods came down to US$1.92 billion in the first five months of FY16, compared to US$1.95 billion in the same period of the previous fiscal year. Food-grain imports, particularly rice and wheat, also dropped by 0.71 per cent to US$562 million during the period, from US$566 million in the same period of FY15.

According to BB data, the settlement of import Letters of Credit (LCs) increased slightly by 2.47 per cent to US$16.60 billion during July-November of FY16 compared to US$16.20 billion in the corresponding period of the previous fiscal as the businesspeople were still reluctant to import products due to the sluggish business situation in the country. However, the opening of fresh import LCs decreased by 1.47 per cent to US$17.48 billion during July-November of FY16 from US$17.74 billion in the same period of FY15 due to the falling trend of commodity prices, including petroleum products, in the global market.

However, the import of capital machinery or industrial equipment sustained a hefty growth of 20.0 per cent to US$1.38 billion in July-November of FY16 from US$1.15 billion in the same period of FY15 amid a marginal growth in the country’s overall imports. Also, higher imports for power and energy, food processing, garments, pharmaceuticals,


Table 10: Monthly Trends in Remittances

MonthRemittances (million US$)

Growth Rate

FY16P FY15R

July 1390 1492 (-) 6.84

August 1195 1174 1.79

September 1349 1344 0.37

Total of Q1 3934 4010 (-) 1.90

October 1098 1018 7.86

November 1142 1183 (-) 3.47

December 1309 1275 2.67

Total of Q2 3549 3476 2.10

Total of H1 7483 7486 (-) 0.04

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

The central bank along with commercial bankers had worked hard round the year to increase the flow of inward remittances from across the world. The delivery channel of inward remittances to the beneficiary has improved significantly because of the bank-led effective mobile banking under the leadership of the BB. As part of the move, the BB is allowing local banks to establish exchange houses and drawing arrangements abroad to facilitate the inflow of remittance. Currently, 34 exchange houses operating across the globe have set up 1,123 drawing arrangements abroad to scale up the

9.0 FOREIGN AID The government’s target was to receive external assistance worth nearly US$6.0 billion in FY16. However, according to the Economic Relations Division (ERD), the commitment of foreign aid to Bangladesh has plunged by 63.13 per cent to US$257 million in the first four months of the present fiscal year (July-October of FY16) compared to US$697 million in the corresponding period of the previous fiscal as the major development partners have not confirmed adequate loans during the period. Also, the delay in project approval and start-up delay for project work by the government agencies are the reasons behind the lower external fund commitment, though some development partners were willing to finance the much-needed infrastructure projects for accelerating economic growth in line with the country’s seventh five-year plan.

The disbursement of foreign aid, however, showed a positive 4.6 per cent year on year growth to US$731.45 million during July-October of FY16. Out of US$731.45 million, the government received US$584.60 million in loans and US$146.85 million in grants. Some major donors, including World Bank (WB), Asian Development Bank (ADB), Islamic Development Bank (IDB), Japan and Russia disbursed US$312 million, US$107.7 million, US$49 million, US$185.5 million and US$45.50 million, respectively. Earlier, the government set the target of foreign aid disbursement for FY16 at US$4.36 billion, up from US$3.35 billion last fiscal year.

According to the ERD, the government had to pay back US$394.40 million, of which US$299.20 million was in principal and US$95.20 million in interest on loans.

remittance inflow. The central bank earlier took a set of measures, including building mass awareness so that expatriate Bangladeshis remit their incomes through the banking channel (instead of the illegal ‘hundi’ system), which also helps boost the country’s foreign-exchange reserves.

20 QUARTERLY REVIEW

11.0 BALANCE OF PAYMENTSAccording to BB data, overall trade deficit widened slightly as of November 2015 with import payments outstripping export earnings. The gap increased after a declining trend in deficits had prevailed over the past few months of FY16. The overall trade deficit rose by 0.40 per cent to US$3.031 billion in the first five months of the current fiscal year (July-November of FY16) compared with that of US$3.019 billion during the corresponding period of FY15. BB data showed that the export earnings registered a 5.75 per cent growth to US$12.573 billion in July-November of FY16 while imports grew by 4.67 per cent to US$15.604 billion during the same period of FY16 (Table 11). The deficit in services trade decreased to US$1.236 billion during July-November of FY16 from US$1.588 billion in the corresponding five months of FY15.

Because of the fall in the deficits of services trade and official interest payments abroad, the current account balance improved to US$1.057 billion in July-November of FY16 from US$582 million in the corresponding period of the previous fiscal. The net foreign direct investment increased by 6.88 per cent while the financial account rose by 73.96 per cent. Because of the strong position in the current account balance, the overall balance increased by 76.66 per cent to US$2.044 billion in July-November of FY16 from US$1.157 billion during the same period of FY15.

10.0 FOREIGN DIRECT INVESTMENT (FDI)

In the first five months of the present fiscal (July-November of FY16), the net foreign direct investment (FDI) increased by just 6.88 per cent to US$730 million from US$683 million in the same period of FY15 (Table 11). According to industry insiders, this investment is not enough for the country’s development. The investors are still to get back the confidence. The prospective foreign investors have adopted a ‘go-slow’ strategy in making fresh investments since 2013. Investors consider the underdeveloped infrastructure, shortage of power and energy, lack of consistency in policy matters and reflection of the rules and regulations into reality, procedural bottlenecks, lack of proper regulatory framework, scarcity of industrial lands, administrative weakness of the Board of Investment, lack of coordination among the government agencies, and political uncertainty as major impediments to new investment. The government needs to address these impediments to attract more FDI in the country in line with its target of graduating to a middle-income country by 2021.

There are new eight export processing zones (EPZs) in Bangladesh, namely Chittagong, Dhaka, Mongla, Ishwardi, Comilla, Uttara, Adamjee, and Karnaphuli. More than 450 industrial units are now operating in the EPZs while 87 are

under implementation. Among all EPZs across the country, three categories of industrial units are now operating, i.e., A-category units (fully owned by foreigners): 250, B-category units (joint venture): 66, and C-category units (100 per cent locally owned): 135. As all investment-friendly atmospheres are prevalent now, investors have been urged to invest in all EPZs, especially in Ishwardi, Uttara and Mongla EPZ. Tax holiday, reduced rates for lands and factory building, including other logistic facilities and modern connectivity, could be playing an important role in promoting investment in these three EPZs.


Table 11: Balance of Payments (in million US$)Items July-Nov. of FY16P July-Nov. of FY15R Change

Trade Balance (-) 3031 (-) 3019 (-) 12 Exports f.o.b (including EPZ)* 12573 11889 Of which: Readymade Garments 10463 9691 Imports f.o.b (including EPZ)* 15604 14908Services (-) 1236 (-) 1588 352 Credit 1309 1256 Debit 2545 2844Primary Income (-) 1002 (-) 1244 242 Credit 32 34

Debit 1034 1278 Of which: Official Interest Payment 179 166Secondary Income 6326 6433 (-) 107 Official Transfers 11 22

Private Transfers 6315 6411 Of which: Workers’ Remittances (current a/c portion) 6076 6159 (-) 83

Current Account Balance 1057 582 475Capital Account 150 132 Capital Transfers 150 132Financial Account 755 434 321 Foreign Direct Investment (net) 730 683 47

Portfolio Investment (net) (-) 13 241 Of which: Workers’ Remittances (financial a/c portion) 99 53 Other Investment (net) 38 (-) 490Errors and Omissions 82 9 73Overall Balance 2044 1157 887

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


12.0 EXCHANGE RATE Between end-June and end-December of 2015, Taka depreciated marginally (by 0.90%) in terms of US dollar, showing stability in the foreign exchange market. On the inter-bank market, the US dollar was quoted at Tk.78.5000 at the end of December 2015 and Tk.77.8000 at the end of June 2015 (Table 12).

Table 12: Monthly Exchange Rate

MonthFY16P (Taka per US$) FY15R (Taka per US$)

Month Average

End Month

Month Average

End Month

June - - 77.8000 77.8000July 77.8007 77.8000 77.5907 77.5005August 77.8000 77.8000 77.4588 77.4000September 77.8008 77.8000 77.4006 77.4000October 77.8215 77.9978 77.4031 77.4009November 78.5274 78.9364 77.5149 77.7000December 78.7794 78.5000 77.8563 77.9500

Note: i) P=Provisional; R=Revised

ii) Exchange rate represents the mid-value of buying and selling rates


13.0 FOREIGN EXCHANGE RESERVES

BB’s gross foreign exchange reserves stood at US$27.493 billion (with ACU liability of US$0.94 billion) as of end December 2015, fuelled by steady export earnings and the rise in inward remittances. Also the slower pace of import growth and fall in global commodity prices helped boost reserves by 23.23 per cent over the corresponding period of last year. The reserves were US$26.408 billion (with ACU liability of US$0.41 billion) at the end of November 2015 (Table 13). The amount is sufficient to cover seven months’ import bills. Table 13: Monthly Trends in Foreign Exchange

Reserves

MonthForeign Exchange Reserve (million US$)

FY16P FY15R

July 25464 21383August 26175 22070September 26379 21837October 27058 22312November 26408 21590December 27493 22310

Notes: P=Provisional; R=Revised Source: Bangladesh Bank

22 QUARTERLY REVIEW

There are nearly one crore Bangladeshis living abroad. Their contribution accounts for about 60 per cent of the country’s foreign currency reserves.Recently the KSA has agreed to recruit more skilled and semi-skilled workers, including doctors and nurses, from Bangladesh especially in construction and health sectors. The KSA lifted a seven-year ban on hiring of Bangladeshi workers early last year and its ‘informal restriction’ on male workers very recently. The reopening of the Saudi labour market for Bangladeshi workforce will provide enormous potential for employment of professionals, skilled, semi-skilled and un-skilled manpower in various sectors of the KSA. About 1.5 million Bangladeshis now work in Saudi Arabia, making the oil-rich kingdom the country’s largest manpower market.Last year, the KSA signed an agreement with Bangladesh to recruit 10,000 female workers every month, but only 21,000 went for work due to negative perception of female workers’ situation there. To overcome the situation, now a female migrant who want to work in KSA can take one of her close male relatives with her to stay there. The males who would go with the female workers could also work as drivers, guards, gardeners and supervisors. The KSA government wants to hire 0.2 million female workers from Bangladesh. Apart from the KSA, the government is looking forward to sending female workers to Jordan. To that end, government will train 100 female workers at Kurigram Technical Training Centre from 12 former enclaves of the district and arrange jobs for them in the garment sector in Jordan this year.Besides, the number of female job-seekers has been rising now because the Philippines, Sri Lanka and Ethiopia stopped sending female workers to some of the Middle Eastern countries due to the negative perception about working conditions and poor salaries. Amid the growth of migration, workers’ training, monitoring and protection mechanisms and their functioning are crucial. Of the Middle Eastern countries, only Jordan has a labour law that incorporates domestic migrant workers. Bangladesh has to talk to other countries to persuade them to include issues of domestic workers in their labour laws.Some 31,474 female workers entered the international markets with jobs during October-December of FY16. The number of female emigrants was 22,918 during the previous quarter (July-September of FY16). The overseas employment of female workers increased by 37.33 per cent during the quarter. Female workers, mostly housemaids and garment workers, were being employed in UAE, KSA, Jordan, Oman, Qatar and Lebanon.

A healthy reserve allows a country to get higher credit rating and helps its private sector to get loans from foreign sources at low interest rates. Also, the current reserves will help keep the Taka stable against the US dollar.

14.0 OVERSEAS EMPLOYMENT SITUATION

The government has declared the overseas employment sector as a ‘thrust sector’ with maximum stress upon further expanding job markets for Bangladeshi job seekers abroad. Government has already undertaken a plan to construct vocational training centres at every upazila across the country with a view to sending trained Bangladeshi workers abroad. Bangladesh now sends job seekers to a total of 160 countries, compared to only 97 countries six to seven years ago. Considering vocational training an important prerequisite for workers to get jobs overseas, the construction of 17 vocational training centres is about to be complete shortly. A total of 1,50,000 workers would be trained annually in different trades through all the training centers including the 17 new ones. Besides, the government sent 64 Technical Interns (TIs) to Japan for three years under the Technical Intern Training Programme (TITP) in 2015, of which one year for training programme and two years for job there to enhance their skills. Moreover, the government is trying to explore markets in Europe, Russia, Belarus and Sudan as there is potential demand for foreign workers in those countries. At present, both public and private sectors are trying to expand manpower export in certain other countries, including Thailand, Australia, and Japan. As the key destinations like United Arab Emirates (UAE), Kingdom of Saudi Arabia (KSA), and Malaysia are not hiring manpower at the desired level, the overseas job market has shrunk somewhat. Yet, some 179,404 workers from Bangladesh entered the international markets with jobs during the quarter under review. The number of emigrants was 132,238 during the previous quarter.


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

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

General Food Non-food General Food Non-food General Food Non-foodFY15R

July 7.04 7.94 5.71 6.93 7.78 5.43 7.24 8.31 6.10August 6.91 7.67 5.76 6.83 7.56 5.46 7.08 7.89 6.19September 6.84 7.63 5.63 6.75 7.52 5.31 7.02 7.88 6.07October 6.60 7.16 5.74 6.49 7.11 5.36 6.79 7.27 6.26 November 6.21 6.44 5.84 6.05 6.38 5.45 6.51 6.61 6.39 December 6.11 5.86 6.48 5.89 5.78 6.12 6.50 6.07 6.99FY16P

July 6.36 6.07 6.80 5.88 5.43 6.69 7.28 7.58 6.96August 6.17 6.06 6.35 5.76 5.42 6.41 6.94 7.56 6.26September 6.24 5.92 6.73 5.86 5.26 6.99 6.96 7.47 6.37October 6.19 5.89 6.67 5.82 5.23 6.90 6.91 7.44 6.33November 6.05 5.72 6.56 5.61 5.00 6.76 6.88 7.42 6.29December 6.10 5.48 7.05 5.58 4.76 7.10 7.07 7.14 6.98

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

15.0 PRICE SITUATIONIn December 2015, the general point to point inflation in the country increased slightly by 0.05 percentage points to 6.10 per cent from 6.05 per cent in November 2015 (Table 14). Uptrend in prices of some non-food items on the domestic market during the Christmas, Victory Day, and the year-end, apart from tourism, mainly pushed up the point-to-point inflation in December after registering

a slight fall in the previous month. A year back, in December 2014, inflation was almost the same (6.11%). The food inflation, however, fell by 0.24 percentage points to 5.48 per cent in December 2015 from 5.72 per cent in the immediate past month of November. On the other hand, non-food inflation increased by 0.49 percentage points to 7.05 per cent in December 2015 from 6.56 per cent in the previous month.

16.0 CHAMBER’S PROJECTION ON SOME SELECTED ECONOMIC INDICATORSOn the basis of observations in the preceding nine months, projections on some selected economic indicators are made here for the third quarter of the present fiscal year (Q3 of FY16) (Table 15).

Table 16: Projection on Some Selected Indicators in Q3 of FY16

IndicatorsFY15 FY16

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

Export (million US$) 2399 2841 3065 2626 2758 2375 2372 2749 3204 3470 3660 3950Import (million US$) 4109 4184 3842 2977 3583 3608 2995 3700 4150 4460 4650 4940Remittance (million US$) 1297 1322 1439 1390 1195 1349 1098 1142 1309 1510 1650 1830Forex Reserve (million US$) 24072 23708 25026 25464 26175 26379 27058 26408 27493 27220 28250 28050Inflation, Point to Point (per cent) 6.32 6.19 6.25 6.36 6.17 6.24 6.19 6.05 6.10 6.08 6.05 6.02

Notes: April – December 2015: actual figures except December value of Import; January – March 2016: projections (figures in bold) Sources: BB, BBS and the Chamber’s own calculation

It is assumed that the relatively calm political situation of the present will continue in the third quarter of the present fiscal year (Q3 of FY16). Therefore, export, import, and remittances will increase further. The foreign exchange reserve can be expected to fall in January and March due to the payment to the Asian Clearing Union (ACU) against imports. The rate of inflation can be expected to decline further because of the decline in commodity and fuel prices in the global markets.

A comparison of inflation data for urban and rural areas in December of FY16 (general point to point) showed that the inflation rate was higher in urban areas than in rural areas. Thus, the point to point general, food, and

non-food inflation in rural areas in December were 5.58 per cent, 4.76 per cent, and 7.10 per cent, respectively, while these inflation rates in urban areas were 7.07 per cent, 7.14 per cent, and 6.98 per cent, respectively.

24 QUARTERLY REVIEW

During July-December of FY16, the agriculture sector performed well, but continuous government support with inputs and finance will be needed to sustain the sector’s growth. Infrastructure deficits and gas and power supply problems were undermining the performance of the manufacturing as well as the agriculture sector. Government will, therefore, need to adopt suitable measures to remove these bottlenecks in order to support the growth of these two all-important sectors.

Services sectors are doing well but these will also need government support in respective areas. Most importantly, the political harmony in the country should be maintained in order to achieve the government’s growth and inflation targets. Adequate infrastructure, energy, policy continuity, skilled manpower, political stability and investment-friendly climate are the key factors for higher economic growth.

Despite the weak external impetus because of the recession in the Euro area, Bangladesh has maintained a stable economic growth of more than 6.0 per cent in the last few years. However, in order to keep up the growth momentum, government will need to raise enough

resources to meet the heavy pressure on the budget caused by the salary hike for government employees and the essential spending on physical infrastructure.

To achieve the targeted GDP growth of 7.0 per cent in the current fiscal year, Bangladesh faces the major challenge of accelerating investment in the private sector. Political stability remains a major challenge for maintaining macroeconomic stability that is vital for achieving higher growth. Presently, the investment rate is much below the target of 35.0 per cent of GDP that is required for achieving 7.0 per cent GDP growth. Also, the business climate must be improved substantially. The local and foreign investors usually consider three things before going for investment in any country. First, there must be political stability. Second, they want to be assured of easy availability of reasonably priced utilities and infrastructural facilities. Third, in addition to getting adequate infrastructural facilities, the businesspeople want easy access to bank loans at low interest rates in order to cut the cost of doing business. Government must do everything to meet these pre-conditions in order to achieve the much-coveted middle income country status by the turn of the present decade.

17.0 CONCLUDING OBSERVATIONS

IIn the quarter under review (Q2 of FY16), the overall economic situation in the country was found positive as indicated by steady improvements in the major economic indicators. Although the progress made is below potential, the country

experienced stable growth, inflation was under control, the exchange rate remained stable, and foreign exchange reserves rose and remained at comfortable level.

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