Review of economic events and outcome of the same for Bangladesh economy during 2019 can be made systematically, beginning from the global through macro to micro economics contexts. The following appraisal adheres to that template, using figures from different sources.
Globally, no major setback was suffered by Bangladesh economy during 2019 on a sustained basis, inflicting irreparable damage. This may be attributed to the limited degree of globalisation effected by Bangladesh economy till now. But some headwind stemmed from slowed-down export and import growth due to shrinking global economic growth. The reverberation of destabilisation caused by President Trump's unilateral trade policy contributed to the turbulence in global economy, affecting Bangladesh exports to some extent. Loss of market to competitors with greater comparative advantage, particularly in garment manufacturing, could also have played its part in whatever decline in exports took place during the year under discussion. According to Bangladesh Bureau of Statistics (BBS), exports from Bangladesh declined by 7.6 per cent in the first five months of the current fiscal while imports dropped by 3.20 per cent during the same period. The World Trade Organisation (WTO) projected that global trade volume would have shrunk by 2.60 per cent in 2019. The International Monetary Fund (IMF) in its update on global economy estimated that global growth during 2019 would have receded to an extent that would be the weakest pace since the 2008 financial meltdown. Trade tensions arising from Trump Administration's tariff impositions on China and Europe contributed to shrinking of global trade, according to experts. The fallout of this turmoil could have impacted on Bangladesh exports, including garments. The global context appears to be becoming more relevant to Bangladesh economy's performance at present compared to the past.
On the macro-economic front the growth of the economy has maintained its upward trend clocking 8.13 per cent according to projection made by BBS which has been corroborated by Asian Development Bank (ADB). Deductions from this growth rate by World Bank and IMF are not large enough to call for drastic deduction of the growth rate projected by BBS.
Bangladesh has seen export-led growth in recent years driven by the private sector and so the continued rise of GDP (gross domestic product) year-on-year in the backdrop of fall in export during 2019 calls for an explanation. The increase in GDP by 8.13 per cent may have happened because in recent years growth is being driven by public sector which has undertaken a number of mega projects with huge investments. This is corroborated by an increase in the rate of public investment at 8.03 per cent during 2018-2019 compared to 7.97 per cent during the previous fiscal. Because of massive public borrowing from banks and liquidity crisis due to huge volume of non-performing loans (NPLs) private sector investment, on the other hand, has increased only by 0.38 per cent, from 23.26 per cent in 2017-18 to 23.54 percent during 2018-19. Consistent with this has been the private sector credit growth which reached 1.55 per cent during four months to October, 2019 from 2.73 per cent in 2017-18.
Strong remittance in flow during the period under review has cushioned the fall of export earnings. Inflow of remittance jumped around 23 per cent in the first four months of the current fiscal. Remittance earnings stood at $20 billion at the end of 2019 being boosted by depreciation of Taka and cash incentives given at the rate of 2.0 per cent of remitted amount. Though some migrant workers had to return from Saudi Arabia this did not make much of a dent in the remittance inflow as over 600 thousand (6.0 lakh) new migrant workers went abroad far outweighing the number of returning migrant workers.
Because of the preponderance of public sector investments and their long gestation period expenditures contributed to inflationary pressure during 2019, as it did in previous years. This was aggravated by the leap in the remittance by 23 per cent most of which were spent by the recipients on consumption goods. The annual average inflation rate was 4.49 per cent in September, 2019 which inched up to 5.56 per cent in November. Point-to-point inflation rose to 6.05 per cent after November compared to 5.3 per cent in November last year. According to BBS, the annual average inflation rate was 5.49 per cent in September, 2019 which rose to 5.56 per cent in November. Headline inflation is likely to face upside risks in the near term due to crop losses during the recent cyclone `Bulbul', according to a report by Bangladesh Bank. For the first time in recent years inflation as an event in macro economics has become a problem to be reckoned with seriously by policy makers.
Though all the multilateral institutions applauded the sound macro-economic management of the government, public debt increased alarmingly towards the end of 2019, crossing the 5.00 per cent bench mark in fiscal deficit. Fiscal deficit of 5.2 per cent, excluding grant, is the highest in eleven years (Financial Express, 30 December). In a recent report the IMF showed that public debt reached 33.5 per cent of GDP in December, 2019, rising from 33.2 per cent at the end of June the same year. Of the total debt, domestic borrowing accounted for 21.4 per cent, mostly from the banking and non-banking sources.
Public borrowing from banks may have shrunk money available for credit to the private sector. This, along with incidence of NPLs and double-digit interest, may explain the slow rate of increase in private sector investment at the rate of 23.54 per cent during 2019. This is corroborated by the decline in private sector credit growth from 16.9 per cent in 2017-18 to 11.3 per cent in 2018-19.
Public borrowing from banks and non-bank sources has been unavoidable during 2019 because of lower mobilisation of taxes, fees, rates than the target fixed for the same. Revenue shortfall has kept the tax-GDP ratio unchanged at 10 per cent as against the target of 17 per cent. An idea of the sluggish nature of revenue collection is given by the fact that it grew by 4.3 per cent during the first four months of the current fiscal compared to 6.7 per cent during the same four months in the previous fiscal.
In the micro-economics area growing volume of non-performing loans (NPLs) of commercial banks was the most serious development during 2019. While the amount of NPLs has gone on increasing, frequent re-scheduling of defaulted loans and write-offs of the same have aggravated the situation. Of all the monetary policies, the decision by Bangladesh Bank to allow re-scheduling of defaulted loans and their write-offs has been the most controversial among analysts. Mishandling of the NPL incidence has detracted from the otherwise sound macro-economic management in respect of the banking sector.
At the micro-economic level the performance of manufacturing sector has been lauded by multi-lateral institutions in their recent projections. This sector, along with remittance earnings and exports to some extent, has contributed to the growth of the economy during 2019, posting over 8.0 per cent in GDP. The decline in the growth rate of agricultural sector during 2019 cannot be entirely explained by cyclone Bulbul. The decline from 14.23 per cent of GDP contribution to 13.65 per cent by agriculture was also because of mismanagement of the procurement programme for Aman crop. Enforcement of national policies at field level was lax and even negligent. The decline in the contribution of agriculture to GDP is a matter of concern because this sector continues to employ the majority of the labour force.
Finally, micro-economic front was shaken up in 2019 by the sudden rise in the price of onion which subjected the market for essentials to severe gyrations. It took quite a while to bring normalcy to the market. When no other events or developments in the global, macro and micro aspects of the economy caught the government off-guard, the tiny onion did the mischief with its sky-rocketing price.
The state of the Bangladesh economy during 2019 judged by the performance with reference to global, macro and micro levels presents a mixed picture. The positive aspects of performance have been buffeted by equally strong factors in the macro and micro economic spheres. This deserves special mention because these are within the remit of intervention by the government. Even the global context of exports is amenable to change by government policies, however incremental it may be.
The review of the performance of Bangladesh economy at the end of 2019 gives the impression of the economy being on a knife's edge, poised between sustained growth and muddling through uncertainly. It will be interesting to see which direction the economy takes during 2020.
