MCCI economic reveiw: Inflation, low investment, slow export major risks in economy

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‘A main reason behind the increase was the government-announced 2% incentive on remittance receipts’

Inflationary pressure, slower growth in the export and import, lack of investors’ confidence and a lower rate of investment were  the major risk factors for the country’s economy in the first quarter, said the Metropolitan Chamber of Commerce & Industry (MCCI) on Thursday.

The MCCI observations came in its economic review, released on Thursday, for July-September period of the current fiscal year. 

MCCI said infrastructure deficits and gas and power supply problems were now undermining the performance of all productive sectors of the economy.

“Government should adopt adequate steps to overcome these problems, and achieve and maintain political stability, which are essential for creating an investment-friendly climate,” reads the MCCI review.

According to the review, the agriculture sector grew at a lower rate of 3.51% in FY19 compared to 4.19% in FY18. The lower growth of the sector was also accompanied by its falling share in GDP, which declined to 13.60% in FY19 from 14.23% in FY18.

The share of the industry sector in GDP increased to 35.14% in the first quarter of FY19 from 33.66% in the previous fiscal year. The sector grew at 13.02% in FY19 compared to 12.06% in FY18 in the period.

In the power sector, the generation capacity rose to 19,428 megawatt (MW) in September 2019, which was 18,825 MW two months back (in July).

The MCCI pointed out sectors like tourism, engineering, consultancy and infrastructure needed technological advancement to boost their contribution to GDP.

The country’s merchandise export earnings in Q1 of FY20 decreased by 2.95% to $9.65 billion from $9.94 billion in the same period of the previous fiscal year. Export earnings also fell short of the strategic target ($10.85 billion) by 11.06%, showed the MCCI review.

During the quarter under review, exports of readymade garments (RMG) alone earned $8.06 billion, or 83.52% of total exports. The realized export earnings were, however, 1.59% short of the export earnings in the same period of the previous fiscal.

The inflow of remittances in the first three months of FY2019-20, increased by 17.58% to $4.55 billion from that of $3.87 billion in the corresponding period of the previous fiscal year.

“A main reason behind the increase was the government-announced 2% incentive on remittance receipts,” said MCCI.

In September 2019, the general point to point inflation in the country rose by 0.05 percentage points to 5.54% from 5.49% in August 2019. A year ago, in September 2018, the inflation rate was lower at 5.43%.

“A comparison of point to point inflation data for rural and urban areas in September of FY20 shows that the general and non-food price inflation was higher in urban areas than in rural areas. Food price inflation, however, was lower in urban areas than in rural areas,” observed MCCI.

The disbursement of total industrial term loans during April-June of FY19 stood at Tk.22,234 crore, which was 45.8% higher than the amount disbursed during the immediate previous quarter (January-March) of FY19. 

The recovery of industrial term loans also increased by 26.6% to Tk.23,629 crore during the April-June quarter of FY19.

The disbursement of agricultural credit and non-farm rural credit by all scheduled banks in the first quarter (July-September) of FY20 stood at Tk.3,555 crore, which was 1.75% higher than the same period of previous year. 

On the other hand, the recovery decreased year-on-year by 2.98% in July-September of current fiscal.