The New Nation - Internet Edition

Staff Reporter

The Asian Development Bank (ADB) Country Director Hua Du has said Bangladesh is going through a very difficult and challenging situation in its history after the country's independence in 1971 due to natural calamities and impact of the international market.

"The government and people of Bangladesh are really going through a difficult and challenging situation because of two severe floods and one devastating cyclone which never happened in one year together in recent years," she told reporters yesterday at the launching of ADB's Quarterly Economic Update (QEU) on Bangladesh at the ADB's Resident Mission in Dhaka.

"Now, the most urgent priority is to restore flood and cyclone damages, and reach fertilizers and seeds to farmers as quickly as possible," she suggested.

At the same time, the government must pay attention to ensure food security at any cost, she said.

Senior economists, including Dr Rezaul Karim, and the ADB's External Relations Officer Gobinda Bar were present.

Shifting from its previous stands, the ADB has suggested the government not to raise the prices of oil and gas despite the higher prices in international market.

The ADB report says that the natural calamities in Bangladesh will take their toll on the country's GDP growth bringing it down to below 6 per cent in the current fiscal (2007-'08) instead of its earlier predicted 6.5 percent.

It shows the country has incurred a loss of US$1.4 billion in economic terms, which is 1.1 percent of the GDP due to floods. The agricultural production loss because of flooding is estimated at 1.3 million tons, it said. "The losses could be offset by a bumper boro crop production."

On the other hand, the QEU observes that the recent cyclone has damaged 38 per cent of Aman crops in coastal areas. The ADB, however, is yet to assess the total loss of lives and crops caused by the cyclone.

Hua Du said the ADB and some other donor agencies are going to announce a soft loan of US$ 180 million for Bangladesh as assistance for the cyclone-hit areas.

"This is an emergency disaster rehabilitation loan and ADB's share is US$ 120 million while Japan, Sweden, Canada and the Netherlands will provide the rest," she said.

The ADB's Country Director said this is highly concessional loan and it would be disbursed by mid-January next. And besides this soft loan, a US$ 400 million loan is already in the pipeline, which would be utilised to develop flood-related infrastructures in flood-affected areas.

The ADB update presents a bleak picture of the country's economic situation as the key export-oriented garment industry, which had a robust growth over the past years, experienced a downtrend in recent months alongside a sharp fall in investment sector.

Besides, erosion in business confidence has affected the manufacturing sector while construction sector has seen a decreased growth because of the ongoing anti-corruption drives and rise in the prices of materials.

Growth of industry and services sectors is also declining because of a drop in external demand for exports, erosion in business confidence and vigorous anti-corruption drive.

Exports in July-September period of 2007-08 fell by 5.4 percent compared with the same period of the last fiscal year.

The report says pressures on fiscal balance are likely to heighten by a rise in spending for the post-cyclone relief operations, expansion of food-assisted safety nets and imports of food grains and fertiliser.

"The fiscal deficit of 4.2 per cent projected in the budget may exceed this year," Rezaul Karim Khan, Head of Economics in ADB, Dhaka office, said.

The ADB sees the rising inflation (9.6 per cent), staggering losses of Bangladesh Petroleum Corporation and other state-owned enterprises, huge subsidy in fertiliser, and also rising trend in the prices of goods on the international market as the biggest challenge for the economy.

Tackling soaring inflation and the food shortage would make the challenges more difficult for the government, Hua Du said.

The ADB mentioned that the BPC's loss is US$ 794 million, which is 1.1 per cent of the GDP, but said they do not call the government to raise the fuel price, particularly of diesel, as it is directly linked with the poor people.

But, the ADB country chief parried a question when asked what measures should be taken immediately to address the BPC's loss. "We're working with the government to find out a way so that farmers are not affected," she said.

Replying to a question, Hua Du said they do not think the GDP growth will be 5.5 per cent as said by the International Monetary Fund (IMF).

"Because, we believe, after the floods and cyclone, huge activities will start in the affected areas to recover the losses."

The report hails the government's efforts to boost revenue earnings.

"The revenue collection increased by 21.8 per cent in July-October of FY 2007-08 over the corresponding period of the previous fiscal year."

The ADB report says that rising oil and food grain prices had been threatening the balance of payments outlook. But the workers' remittances continue to provide a cushion to the balance, it observes.

Rise in international commodity prices (oil and non-oil) and shortfall in domestic food grain would continue to threaten the price pressure, it says.