Dhaka, Mar 8 (UNB)-Despite increases in import business and bank credits to the private sector, Bangladesh’s overall economic growth is likely to decrease in the current fiscal 2009-20l0 as the Asian Development Bank (ADB) counts the costs of the twin-problem of power and gas crises.

“Even if the opening of import letters of credit (L/Cs) and private-sector credit have picked up, the overall economic growth in FY2010 is expected to slip to 5.5 percent from 5.9 percent in
FY2009,” said the multilateral donor agency in its quarterly economic update on Bangladesh economy that came out today (Monday) from its Dhaka office.

The ADB prediction is based on appraisal of the country’s economic performance up to December 2009-halfway through the fiscal year.

According to the ADB, the industrial sector continued to be affected by power and gas shortages. Subdued trade, transport, and real-estate activities affected the performance of the services sector during the same period.

Supply-side bottlenecks, stemming from the country's fragile investment climate, have lowered the industry sector's growth outlook. In particular, the acute power and gas shortages are key
constraints on growth. As a result, industrial sector’s growth in the fiscal 2009-2010 is set to slow to 5.6 percent from 5.9 percent in the fiscal 2008-2009, said the ADB report on the country’s economic health.

It observed that the global economic recession belatedly affected Bangladesh economy in the first half (July-December) of the fiscal 2009-10. “Investment was sluggish, and exports - one of the key drivers of growth - performed poorly.” Remittances, the other major growth driver, held up well, its growth rate slowed down.

The ADB has regularly been preparing updates on the country’s overall economic performance on quarterly basis in March, June, September and December of the year.

Analysing different indicators of the economy, the donor agency said that inflation rose from 2.3 percent year-on-year in June 2009 (a 90-month low) to 4.6 percent in September, and further to 8.5 percent in December 2009. Both food and non-food inflation contributed to the inflation spike.

It noted that while food inflation jumped to 9.5 percent in December 2009 from 0.3 percent in June, non-food inflation rose to 7.0 percent from 5.9 percent. Inflation is more pronounced in urban areas (9.1 percent in December 2009) than in rural areas (8.3 percent).

Lower crop production and the rising prices of rice and other commodities, including oil, on the international market contributed to the recent price escalation, the donor agency observed.

About the crop production, the ADB found that the Aus crop was seriously affected by drought. However, broad-based support from the government helped partly offset the adverse weather effects on the Aman (monsoon) crop.

The development-financing agency suggested that to cushion the economy's vulnerability to global economic shocks, the government rebalance the country’s economy by diversifying its base.

“To attain higher medium-term growth, the government needs to identify new drivers of growth. It also needs to improve the country's investment climate to encourage domestic and foreign
investments.”

The ADB said the government needs to develop the capacity of key agencies to boost public-sector investment and encourage higher private-sector investment. In addition, it needs to push for job creation to make growth more inclusive resulting in an accelerated decline in poverty.

The multilateral financier found that the agriculture growth in the fiscal 2009-2010 is expected to be lower at 4.1 percent as compared to the 4.6 percent growth in previous fiscal 2008-2009 due to the weather and farmers’ response to lower farmgate prices after last year’s harvest season.

In the quarterly economic update the ADB pointed out that the global economic recession has greatly affected the country's industrial sector. The decline in the export of readymade garments (RMG) and other major products has hurt the sector's growth during the period.

However, manufacturing activities are expected to pick up during the second half of fiscal 2009-2010, buoyed by rising investment and trade activities.

The slowdown in trade flows and weaker industrial performance affected the services sector during the first half of FY2010. As a result, service-sector growth is projected at 5.9% in FY2010, down from 6.3% in FY2009.

Responding to the recent reforms and streamlining of tax administration, tax revenue under the National Board of Revenue rose 16.2% during the first seven months of the current fiscal 2009-2010 over the corresponding period of 2008-2009.

During the first half of the current fiscal, 29 percent of the total annual development program (ADP) allocation was spent. The ADB thinks that the ADP utilization needs to be improved through streamlining project processing and implementation.

Turning to monetary and financial sector developments, the Asian Bank noted that the broad money grew 20.7% year-on-year in December 2009, up from 17.9% in December 2008, which is higher than the target growth of 15.5% in FY2010.

About the balance-of-payments scenario, it said exports declined 6.2 percent in the first half of the current fiscal 2009-2010. Import payments also declined 5.7%, during the same period.

“Trade deficit narrowed to $2.8 billion in July-December 2009 from $2.9 billion in the year-earlier. Decline in imports more than offset the decline in exports,” says the update report.