The New Nation - Internet Edition

Pulack Ghatack

The country tolerated sever economic pressure through-out the calendar year 2007 while the crises exacerbated in the last part, for the hurricane Sidr preceded by twin floods damaged crops in millions of acres of farmland in the country.

Bangladesh Bank Governor Dr Salehuddin Ahmed, however, was optimistic to predict that the economy is set to pick up at a 'supersonic speed' for the rest of the current financial year ending June 30, 2008.

'The economic situation is now largely stable and more or less consistent with the midterm economic framework during the first quarter of 2007-08 despite internal and external adversities,' the Governor told journalists last week.

The governor termed the first quarter of 2007-08 (July-September) as 'new moon' and the second quarter (October-December) a period of 'stabilisation' setting ground for the economy taking a 'supersonic' speed to boost the economy

to achieve 6.2 to 6.5 per cent growth during the rest of the year.

Economists on the other hand say, inflation that hit a record-high of 10.1 per cent in July, spurred by massive summer floods and higher global food prices, is likely to go up further. Budget deficit may widen, as the Government will have to shift its budgetary allocations for extra food import.

The country has to import more food items and other commodities to ensure sufficient supply in the market. The extra-import put pressure on current account balance.

Besides, the poor supply situation, global commodity price pressure as well as other factors pushed the inflation rate in Bangladesh to 10.10 percent in July this year for the first time in the last two decades. The rate went further up at 10.11 per cent in August.

Sidr has damaged bazars and shopping centres. Primary economic structures have been demolished in many areas of the country. Hundred per cent mud houses have collapsed in some of the areas.

Families have lost crops and livestock, houses and roads have been destroyed and livelihoods and schooling have been disrupted. The worst of it is the wide-ranging damage of ripe crops on the eve of harvesting.

About 40 per cent of the country's lands was inundated in the annual flooding few months back. Crops on 1.6 million acres of farmlands were completely or partially damaged and the country was striving to absorb the shock.

"It will take years to recover from the loss," said Prof Mustafizur Rahman, Executive Director of the Center for Policy Dialogue (CPD).

Shamunnay, a local socio-economic research organisation, estimated the GDP growth rate to be around 5.70 to 5.82 per cent, downsized from the seven per cent official projection, due to two successive floods and devastation by cyclone Sidr this year.

In late November, the Asian Development Bank (ADB) lowered its forecast of Bangladesh's GDP growth for the fiscal 2008 (July 2007-June 2008) to below 6.0 per cent due to the cyclone, while it made a prediction of 7.0 percent early this year.

However, the International Monetary Fund put it as 5.5 per cent following the cyclone.

The Bangladesh Bank (BB) on December 2 reviewed its earlier projections for GDP growth for FY08 and forecast the rate would be in the range of 6.2 per cent to 6.5 per cent.

It also made a prediction of 12-month average general CPI inflation in FY 08 to be in the range of 8.10 per cent and 8.50 per cent. The CPI inflation rate at the end of FY07 was 7.20 per cent.

It said the economy's growth momentum would generally be sustained during FY 08 although there is likely to be some moderation in growth in agriculture, industry and service sectors.

The Governor himself painted a gloomy picture of the economy in the first quarter of the current fiscal. He said the period witnessed galloping inflation, decline in imports related to production as well as exports, rise in default loans and less than expected industrial credit.

But he claimed that measures to contain inflation and stabilisation of supply position, ensured through imports of fuel oil, food and essential items from the international market would turn the economy around in the next half of the fiscal year.

The anti-corruption drive launched by the present interim government since February has netted scores of high profile politicians and businessmen. This had 'a surprising impact on the private sector to slow down the economy' Dr Salehuddin said.

The government has since decided to separately treat the economic defaulters among the business community and has also constituted a high-powered government-business body headed by Chief Adviser Fakhruddin Ahmed.

Despite these measures, investment growth was sluggish that gives a bad signal in the job market of the impoverished country.

Meanwhile, the economy has been enjoying a surplus position in overall balance of payments with a huge foreign exchange reserve in the exchequer, due mainly to a robust growth of remittances from overseas workers.

Foreign exchange reserve touched $5.24 billion in December. The current account balance recorded a surplus of US$952 million during the fiscal 2006-07 against the surplus of 824 million during the previous fiscal, despite US$3.458 billion trade deficits.

The overall balance showed a surplus of $1.493 billion during the last fiscal against the surplus of 338 million in the previous fiscal, due mainly to surplus in current account balance of $ 952 million and surplus of $ 721 million in the financial account (including foreign direct investment).