Citi upbeat on govt’s growth target

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Citi upbeat on govt’s growth target
Star Business Desk

Bangladesh has done reasonably well in maintaining its growth momentum and achieving the target growth of 6.7 percent in real GDP in fiscal 2011, banking giant Citi said in its annual market update. Following is the first report in a series.

The growth rate, which declined below 6 percent in three consecutive years since FY 2006, was reversed in the past couple of years with good performance in manufacturing and construction sectors, two successive years of bumper harvests in the crop sector as well as a sustained higher level of contribution from the service sector. This strong performance is expected to be repeated and 7 percent real GDP growth target can be achieved in FY 2012 if the continued healthy growth in exports sustains, the power supply situation improves, domestic demand and remittance inflow pick up.

Inflation persistently higher
The year-on-year inflation rate has remained in double digits since March 2011 while the annual average rate of inflation rose above 10.50 percent in November 2011. The point-to-point inflation rate reached almost 12 percent in September which was the highest rate in last 12 years. The food price component of both the point-to-point and average inflation rates are in double digits since December 2010. Although the increase in overall CPI (consumer price index) was driven by food prices, non-food prices also continued to rise since May 2011. Increase in food prices (y-o-y) peaked at 14.36 percent in April before declining to 12.47 percent in November. This rise in inflation rates can be attributed to the increase in global food and commodity prices and demand from expansion in private sector credit. The rise in agricultural wages has contributed to higher production costs, the upward adjustment in fuel prices and the depreciation of the taka also led to the inflationary pressure.

Current account balance under pressure
Exports recorded a growth of 41.7 percent in FY 2011, significantly up from only 4.1 percent in the previous year. Export earnings in FY2011 significantly exceeded (23.9 percent higher) the annual export target ($18.5 billion) set by the government. Recovery in demand for low-end garment products, exploration of new markets and a sharp rise in exports of frozen food and jute products contributed to the higher growth of exports. Export earnings stood at $22.37 billion till November 2011, marking a rise of 30.1 percent over the same period a year back. The government has set a $26.5 billion target for FY 2012 export, 15.6 percent higher than the export earnings in FY 2011. Shifting of orders from other garment exporting countries following rise in wages, and EU’s relaxed rules of origin are expected to help attain the target.

In FY 2011, import payments grew rapidly by 41.8 percent due to higher prices of food grains, fertiliser, fuel, raw cotton and yarn in the international market. In addition, the volume of oil import rose rapidly because of higher demand from the newly set up oil-based power projects. Import payments stood at $30.16 billion till October 2011, marking a rise of 36.28 percent over the same period a year back. The country’s current account balance swung to a deficit of $372 million in the July-October period for the first time since April, retreating from a surplus of $1.1 billion a year earlier due to soaring import costs.

To be continued

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