The Asian Development Bank (ADB) has apprehended that Bangladesh's revenue collections and mobilization of foreign aid are likely to fall short of the target in the current fiscal year. The near term downside risks to the economy would also include a delayed recovery of the global economy and the onset of natural disasters, although the economy grew by 5.9 percent in FY2009, slightly lower than 6.2% in FY2008.

The ADB raised the concerns in its Quarterly Economic Update June 2009 released here Tuesday, while the country observed the tax-day on the same day eyeing an income tax more than Tk 20,000 crore by the end of the tenure of the present government. It said revenue collection remained unchanged at 11.2 percent of GDP in FY2009 because of the sharp fall in import growth due to the fall in international fuel and commodity prices, the global economic crisis and slower expansion of economic activity.

Revenue from the NBR sources increased by 10.7 percent, far below the budget target of 18.6 percent and 27.4 percent growth of the previous fiscal year. The report said the country's economy grew last fiscal year because of the moderation in aggregate demand affected by a slowdown in exports and remittance inflows, and also underpinned by private consumption (about 75% of GDP), which rose by 6.0%. Public investment declined further, sliding from 5.0% of GDP to 4.6%, as the Annual Development Program (ADP) implementation remained weak.

The quarterly report said that taking the economy to a higher growth trajectory and more rapid and sustainable poverty reduction will require large-scale infrastructure investment well beyond what the government can provide. "The government's strategy to address the infrastructure gap includes action on two fronts: building a more conducive environment and enhancing the framework for public-private partnerships (PPPs)," it added.

The report said the agriculture sector grew by 4.6 percent in FY2009, up from 3.2 percent in FY2008, owing to high growth in food-grain production aided by favorable weather and strong government support. "Measures to speed up delivery of seeds, fertilizers, power, and credit and scaled up subsidies for fertilizer and power used for irrigation were key factors in boosting sector output."

Industry sector growth declined to 5.9 percent in FY2009 from 6.8 percent in the previous fiscal year as export production in the second half of the fiscal year slowed due to the global slowdown. Weak investor sentiment also affected manufacturing growth, as did slow implementation of power and energy projects, and weak construction activity. Growth in the power and gas sub-sectors dropped to 4.5 percent in FY2009 from 6.8 percent in FY2008 while growth in the construction sector dipped slightly to 5.7 percent.

The service sector growth also slowed slightly to 6.3 percent in FY2009 due to the slowdown in remittance inflows, lower trade activities, and moderation in industry growth. Slower export growth and a fall in import volumes affected trade and transport services. Retail and wholesale services were affected by moderating consumer demand. Annual inflation declined to 6.7 percent in FY2009 from 9.9 percent in FY2008. The successive cuts in domestic fuel prices in October and December 2008 and January 2009, in line with the fall in international commodity prices and rise in domestic food supplies, has helped ease price pressures in recent months, particularly of foodstuffs.

On a year-on-year basis, inflation fell steadily throughout the fiscal year, reaching 2.3 percent year-on-year in June 2009, its lowest level since December 2001. The Bangladesh Bank's inflation target of 6.5 percent in FY2010 appears realistic in view of recent trends. Private sector credit growth slowed to 14.6 percent year-on-year in June 2009, down from 24.9 percent in June 2008, because of the slower trade growth and slack in investment activities due to the global economic recession.

Exports grew by only 10.3 percent in FY2009, a sharp deceleration from the 15.9 percent in FY2008. Retail sales in developed economies fell, leading to a slowdown in garment export orders and shrinking profit margins for Bangladeshi exporters through price reductions. Imports in FY2009 rose by only 4.1 percent, mainly due to the sharp fall in imports of food items and capital machinery. As a result, the trade deficit narrowed to $4.7 billion in FY2009, from $5.3 billion in FY2008.

Growth of workers' remittances remained robust at 22.4 percent and pushed the current account surplus of $2.5 billion from $680 million in FY2008. The overall balance of payments surplus ballooned to $2.1 billion in FY2009 from $331 million in FY2008. Gross foreign exchange reserves were $7.5 billion (3.8 months of imports) at end-June 2009, up $1.3 billion during the fiscal year.

The FY2010 budget struck a prudent balance between the need to stimulate the economy against the backdrop of the global recession (fiscal deficit is targeted to widen to 5.0% of GDP). It increased spending on social safety net programs to protect the poor, while preserving macroeconomic stability. "In view of the widening infrastructure gap, the new budget also unveiled bold initiatives to create a framework for PPP to enhance private investment and streamline project approval processes (among other measures) to accelerate ADP utilization," said the report.

-New nation