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Bangladesh economy in 2017 and the way forwar

Bangladesh economy in 2017 and the way forwar

DHAKA: Bangladesh 2017 has been a mixed year of achievements and challenges. Though some macro indicators reflect the positive trends, the overall strength of the economy is weakening due to a number of developments toward the second half of the year. One of the major achievements of the economy has been a 7.28 percent economic growth in FY 2016-17 breaking the six percent cycle that continued for a decade or so. Like previous years, major boost of growth has come from the industrial sector followed by the services sector. Though average inflation has been around 5.5 percent, food inflation is showing an increasing rate in recent months, mainly because of agricultural loss due to two rounds of flood.

Investment is a major impetus to Bangladesh’s growth. Target was set to increase investment to 32.7 percent of GDP in FY 2016-17, keeping in mind the need for a growing economy. In FY 2016-17, investment as a share of GDP went up to 30.5 percent, a marginal increase from 29 percent in FY 2015-16. However, the private sector’s investment has been almost stagnant since FY 2015-16 hovering around 23 percent. The major boost has come from the public sector that saw an increase to 7.4 percent in FY 2016-17 from 6.7 percent in FY 2015-16.

Domestic savings-GDP ratio increased by only 0.3 percent in FY 2016-17 while national savings-GDP ratio declined by 1.2 percentage point to 20.6 percent in FY 2016-17 from 30.8 percent in FY 2015-16 in the backdrop of the large current account deficit. This has narrowed the gap between national savings and total investment as a share of GDP for the first time in recent years, which otherwise displayed a gap implying that resources are not fully utilised.

The external sector has been a source of strength for the Bangladesh economy for several years. This has changed in recent periods. Export growth in FY 2016-17 was only 1.7 percent as opposed to the target of 8 percent. A glimmer of hope is in the horizon with both RMG and total exports picking up during July-December of FY 2017-18. However, imports growing at a higher rate than exports led to a negative current account balance that continued during July-October of FY 2017-18. In FY 2016-17 remittance earning growth experienced a negative growth of (-)15.9 percent despite increase of manpower export. One important reason for low remittances despite high growth of manpower exports is the flow of remittances through informal channels. Strong Bangladeshi Taka against the US Dollar also played a role for low export and remittances growth to some extent.