Structural transformation of the economy

By Finance Minister A. M. A. Muhith

As economy develops, a country’s agriculture, industry and services sectors are also transformed. The economy consolidates during this process of development if the contributions of industry as well as services sectors to GDP are the rise. In the case of Bangladesh, encouraging signs of structural transformation are gradually becoming visible albeit the strong presence of agricultural sector in food production and employment generation is still there. In FY2005-06, the contributions of agriculture, industry and services muhithsectors to GDP were 19.0, 25.0 and 55.6 per cent whereas according to provisional estimate of FY2017-18, these contributions will be 14.10, 33.71 and 52.18 per cent respectively. It is to be noted that we should now lay emphasis on development of industry especially the manufacturing sector for sustainable economic development. The current growth in industrial sector is essentially based on factors of production and what we need to do is to enhance productivity to sustain this growth.

The trend of the global economy

The world economy came back to a stable position up to the end of 2017 in the process of recovery. The global GDP growth rate stands at 3.8 per cent which is the highest since 2011. According to IMF’s projection, this trend in GDP growth will continue in the medium term and the global growth rate is expected to be 3.9 per cent in 2018 and 2019. There are indications that the growth momentum will prevail in almost all the countries including the developed- emerging-developing ones and in Middle East and North Africa. The output growth of our main export destinations, the United States and the Euro area, stood at 2.3 per cent in 2017, which was 1.5 and 1.8 per cent respectively in the previous year. Although the long-term growth prospects in these countries are expected to slow down, it is projected that it will continue to increase in the medium-term. The positive trend of growth will also continue in our neighbour India as well as our friendly nations China and Japan in the coming days. Although the global trade had been sluggish in the past two years, the good news is that, it grew 4.9 per cent in 2017 and is expected to grow 5.1 per cent in 2018.

Our sense of comfort is tainted by some worries. Supply did not increase in tandem with the increase in demand. As a result, global commodity prices have increased in the first three months of 2018. According to the World Bank forecast, crude oil prices may reach US$65 per barrel in 2018 which was US$53 per barrel in 2017 on average. After three years of stability, the prices of agricultural and metal products have been projected to increase by 2 per cent and 9 per cent respectively in 2018. Besides, there is an upward trend in the rate   of inflation in the neighbouring countries including India and China.

Internal economic situation

We set the target for this year’s GDP growth at 7.4 per cent. Meanwhile, Bangladesh Bureau of Statistics has estimated the growth rate at 7.65 per cent. The ‘Quantum Index of Medium and Large-Scale Manufacturing Industries’ increased 14.0 per cent in January 2017 compared to January 2016. Although the agricultural production suffered a major setback due to flood in the beginning of the fiscal year, the production of Amon and Boro remained satisfactory thanks toour subsidy support and supply of agricultural inputs. Overall, in the current fiscal year, the target of food grains production has been set at 4.07 crore metric tonnes. On the other hand, a solid domestic demand induced by increased personal consumption and government expenditure has made positive impact on growth. Furthermore, the upward trend in global growth and trade will stimulate our exports, foreign remittance flow and foreign investment. Despite the fact that there is a downward trend in food inflation due to increased agricultural production supported by efficient supply management, non-food inflation is ticking up under the influence of rising global commodity prices. The food and non-food inflation in April 2018 were 7.3 per cent and 3.5 per cent respectively.

In the first nine months of the current fiscal year, the collection of total revenue stood at Tk. 1,62,109 crore which is 62.48 per cent of the revised target. During the same period, the growth of NBR revenue collection stood at 15.4 per cent which is more than the average growth (14.6 per cent) of last six years (from FY2011-12 to 2016-17). I am optimistic that the year-end buoyancy in revenue collection will help achieve the target. Further, tax revenue collection will also gain momentum because of strong domestic demand in days to come. I observe that there is an increased tax-compliance among the taxpayers particularly the youths who pay their income tax spontaneously. Apart from this, I am also hopeful that an increased collection of value added tax will be possible through automation under the existing VAT law.

The government spending in the first nine months is 45.0 per cent of the revised target of the current fiscal year. Let me mention here that the ADP implementation has gathered increased momentum this year. In the first 10 months, 52.4 per cent of ADP allocation has been spent. The utilisation of project aid, for the first time, has increased significantly. In the first 10 months of FY2017-18, the utilisation rate is 61.1 per cent compared to 47.7 per cent in same period of the previous fiscal year. Currently the implementation of mega projects is under way in full swing. Therefore, it is assumed that there will be dynamism in   the implementation of government expenditures, especially the ADP. However, the overall budget deficit will stay within 5 per cent of GDP.

In recent times, imbalance of liquidity in money market together with problems with the management of a few banks created worries. However, the situation is now under control for the timely steps we have taken. Overall, at the end of April, 2018, the growth of broad money and domestic credit growth stood at 9.1 and 14.4 per cent respectively which are very much within the targets set out in the monetary policy statement of the Bangladesh Bank. During this period, private sector credit growth was 17.7 per cent which was slightly higher than the target (16.8 per cent). The increase in credit growth in the private sector indicates higher investment by the private sector.

In the external sector, export and foreign remittance have achieved a growth of 6.4 and 17.5 respectively in the first 10 months of the current fiscal year compared to the same period in the previous one. Similarly, imports up to April 2018 of the current fiscal registered a growth of 24.5 per cent over the corresponding period of the previous year. The exchange rate of Taka against US dollar has depreciated which is favourable for exports and remittance. The import cover of seven months equivalent to US$32.20 billion (30 May, 2018) foreign exchange reserve is satisfactory. It is expected that the positive trends in global growth and trade and improvement in the working environment of the country’s RMG sector will help continue growth in the export sector. The rising trend in import will continue for some time to meet the requirements of mega projects. In the current fiscal, the rate of overseas employment has increased quite significantly. As a result, the foreign remittance flow is expected to increase proportionately.

(From Budget Speech 2018-19)