Tag Archives: trade

Budget industry friendly, growth supportive: EAB

http://thenewnationbd.com/newsdetails.aspx?newsid=42034

Budget industry friendly, growth supportive: EAB
It put forward 5-point proposals for Govt consideration
B&F Report

Exporters Association of Bangladesh (EAB) has termed the proposed budget for 2012-13 fiscal as growth-oriented and industry friendly and has welcomed the government for prioritising key sectors like power and energy, agriculture, communication and physical infrastructure.

Giving its post-budget reaction at a press conference in Sonargaon Hotel in the capital on Sunday, the leaders of the EAB, the apex trade body of export sector, also hailed the government initiative to protect the local industry as well as support the export-oriented sectors.

“All these would have a positive impact on the country’s industrialisation as a whole,” they said.
EAB belives the proposed budget is ‘a pro-people and growth-oriented’ one which will also help to accelerate growth of the export sector.

“A higher export growth will help to attain the key budgetary goal of achieving GDP growth to 7.2 per cent and inflation within 7.5 per cent for the next fiscal,” it added.

Reading out a written statement, the EAB President Abdus Salam Murshedy said steps like reducing tax on capital machinery imports for export sector and for Effluent Treatment Plant (ETP), withdrawal of VAT from the rented factory premises and continuation of incentive package for exploring new markets will certainly boost up export earnings.

Besides, emphasising on human resources development, block allocation for employment generation, incentive package for capital market, setting up a hi-tech park in Gazipur and API park in Munshiganj and incentive for ship building industry are also some bold steps proposed in the budget for the upcoming fiscal, he said.

Murshedy, however, expressed dismay over the budgetary provision of hiking tax at source on export proceed and put forward 5-point recommendations to the government “for its kind consideration”.

He also urged the government to consider some proposals for the interest of the export sector. The proposals are withdrawal of 1.2 per cent tax at soucre on exports uninterrupted power and gas supply to the export-oriented industries, cut in bank interest rate to single digit, unified exchange rate for exporters and a enhance rate of cash incentive (tax free).

“Hike in tax at source fro, 0.6 per cent to 1.2 per cent will adversely impact the export sector by reducing competitive edge of local goods in the international market. It will also hurt profitability of the entrepreneurs,” Murshedy added.

He pointed out that export sector is passing through a critical time influenced largely by various external and internal threats. On the other hand, he said a significant hike in power and fuel prices hit hard the industry by rising cost of production.

“In such a situation, the industry cannot afford a leap of tax at source because it will be an extra burden for it,” he noted.

How to bring in more FDI

http://www.thedailystar.net/newDesign/news-details.php?nid=237086

How to bring in more FDI

Fahmida Khatun

Foreign direct investment (FDI) has made enormous leaps since the 1990s in terms of its growth in the global economic landscape. Due to paucity of resources in developing and least developed countries, FDI has become an important component of their development strategies and in many cases it proved to be a win-win situation to both host and home countries. Host countries want to gain from FDI in multiple ways such as through having capital, technology and knowledge. Home countries also benefit through investing as they can penetrate into markets, gain access to raw materials and diversify business activities. They can also overcome trade barriers and reduce transport costs.

Bangladesh is considered to be one of the potential economies despite being besieged by multi-faceted adversities such as frequent natural disasters, high density of population, political turmoil and a low production capacity. The resilience and inherent strength of the economy, mainly due to its robust sectors such as agriculture, readymade garments and remittances, have been the basis of such optimism. However, in order to make its graduation to the next level of growth and fully exploit the growth potential, the country’s investment scenario has to be improved. The lack of adequate investment is one of the important reasons for the growth below the potential of the economy. The domestic investment rate has been stagnant at around 24 percent to 25 percent of the country’s gross domestic product (GDP) for the last ten years which is far below the level required for a country aiming to be become a middle-income country by 2021 with a growth rate of 10 percent. The sixth five-year plan (2011-15) of Bangladesh targets a GDP growth of 8 percent by the end of the plan period. This requires that the total investment has to grow by 8.1 percent per year and the share of investment in GDP has to be 32.5 percent by fiscal 2015. Low domestic investment has been a matter of concern as it holds back foreign investment as well.

Even though Bangladesh has been trying to bring in FDI since its independence and put in place FDI friendly policies in the early 1980s (Foreign Investment Promotion and Protection Act 1980 was such an attempt) much before some of its neighbours, it has been unable to accelerate FDI at the expected level. In the 1990s, there was an attraction for the East Asian and European investors to invest in the readymade garments industry of Bangladesh, thanks to the Generalised System of Preferences (GSP) and the availability of labour at a competitive price. Currently, the concentration of FDI is mainly on transport, storage and communication, manufacturing and power, gas and petroleum. Other sectors such as agriculture, trade and commerce and, services receive nominal FDI. In 2010, manufacturing sector was the highest recipient at 27.82 percent of total FDI, while the construction sector received the lowest with a share of 0.01 percent. The growth of FDI in Bangladesh has, however, been very inconsistent. A major inflow of FDI was observed in the mid 2000s and rose to $913.32 million in 2010.

While discussing the impediments to bringing FDI into the country, a host of issues have been raised ranging from infrastructural constraints to bureaucratic complexities to image building. However, the crux of the problem does, in fact, lie in three broad areas. First is the limited access to physical infrastructure, particularly supply of gas and electricity. This has emerged as a binding constraint on investment promotion in Bangladesh. For example, the supply of gas between December 2008 and December 2011 has increased only marginally from 1,606 million cubic feet to 1,960 million cubic feet, indicating an average growth of 7.4 percent. On the other hand, the demand for gas rose by 12.3 percent during this period, leading to a wide gap between demand and supply. At present, the demand for power in Bangladesh is around 6,500 megawatt, while the supply is 4,699 megawatt. In the recent times, the FDI rise has been observed mainly in the export processing zones (EPZ) as there is little or no gas and electricity supply constraint like the domestic tariff area. In order to overcome infrastructural bottlenecks, aid for productive capacity needs to be enhanced significantly. However, effective use of these funds has to be ensured. Public-private infrastructure development policy can also be a powerful tool to tackle the supply side constraints.

The second bottleneck is the culture of confrontational politics, which poses a serious threat for the safety of property and resources of prospective investors. Acrimony and bitterness among political parties often lead to destruction and affect lives and properties of people which in turn deter not only foreign investment but also local private investment. Many investors are even willing to spend on infrastructure to facilitate their investment in other sectors, only if there are political stability and predictability of return on their investment.

The third constraint is the lack of good governance and prevalence of corruption, which have put a scar on the reputation of the country at the global level. Because of advantages such as competitive prices for labour and other services, investors may find Bangladesh a lucrative investment destination. However, predicaments such as delay and a lack of transparency in decision making process, a dearth of effective implementation of regulations and policies, and discriminatory incentive packages act as stumbling blocks in bringing in FDI to the country.

FDI is not a panacea for slow growth, and it has several negative implications too. These include capital flight and repatriation of profit, dependency on technologies and limited transfer of technology and transfer pricing. With effective regulatory and oversight mechanism such issues can be addressed. FDI can supplement the local effort to produce goods and services and create jobs. If local businesses flourish, foreign investors will have confidence to bring their resources. Promotion of local businesses through access to adequate finance and creation of an enabling environment should also be a key target. Economic diplomacy is vital at this day and age to attract foreign resources. This has to be accompanied by good marketing skill which in other words is called ‘branding’. Such image building task has to be done primarily by the government but complemented by the private sector and all citizens of the country.

The writer is an economist and head of research at the Centre for Policy Dialogue.

13th Textech Bangladesh Intl Expo begins July 3

http://www1.bssnews.net/newsDetails.php?cat=2&id=254592&date=2012-06-05

13th Textech Bangladesh Intl Expo begins July 3

DHAKA, June 5 (BSS) – A four-day 13th Textech Bangladesh- 2012 International Expo, largest of its kind in textile and apparel industry, will begin in the city on July 3.

The annual exhibition on textile and apparel technology, machinery and allied services would be held at Bangabandhu International Conference Centre (BICC).

CEMS-Global, USA-Conference and Exhibition Management Services Ltd in association with CEMS Bangladesh is organizing the expo.

Textech series of exhibitions, has become a brand, held every year in Bangladesh, Indonesia and Sri lanka.

Commerce Minister GM Quader will be the chief guest at the inaugural session of this year’s show, organizers said today.

Over 450 exhibitors from various countries including the US, UK, China, India, Pakistan and Japan are expected to take part in the exposition.

Members of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) take part in the show.

The Textech aims to introduce local stakeholders of Readymade Garments (RMG) and knitwear sectors with the latest development and the global trend of the industries so they can survive in the global competition.

Two more exhibitions — 12th Dye+Chem Bangladesh- 2012 International Expo’ and 6th Dhaka International Yarn and Fabric Show-2012′ — would also be held besides the 13th Textech.

Organizers say the expo would not only create a scope for Bangladeshi apparel and knitwear exporters to display their unique aspects of the products but also shed light on its progress to the global garment and textile community.

The 13th Textech will bring many decision makers and qualified buyers under one roof resulting in business transactions worth millions.

Bangladesh, being the second largest destination for RMG outsourcing after China, exported apparel merchandise worth $17.91b last year.

WB terms 6.3pc GDP growth as healthy

http://www.thefinancialexpress-bd.com/more.php?news_id=131803&date=2012-06-04

WB terms 6.3pc GDP growth as healthy
‘Yet macroeconomic vulnerabilities remain’

WB terms 6.3pc GDP growth as healthy
FE Report

The World Bank (WB) has termed growth of Bangladesh’s gross domestic product (GDP) at an estimated rate of 6.3 per cent in fiscal 2011-12 as healthy as it is higher than the developing nations’ average of 5.5 per cent.

“But it is lower than the South Asia average of 6.5 per cent,” Dr Zahid Hussain, WB senior economist told the reporters Sunday at a media briefing on Bangladesh Economic Update, held at a local hotel.

However, the GDP growth rate of Bangladesh in the outgoing fiscal will be considered impressive, given the scenario of vulnerabilities in the global economic environment, according to the WB.

Mr Zahid Hussain said: “There is healthy economic growth but macroeconomic vulnerabilities remain.”

Heavy bank borrowing, declining trend in investment and volatile inflation are major threats to Bangladesh’s macro-economic stability, the WB observed.

It said there are looming uncertainties in Bangladesh’s leading export markets in Europe and the USA that are likely to affect the country’s exports significantly.

The WB said there is little room for further credit expansion in fiscal 2012.

“Achieving 17 per cent broad money growth target will require credit growth to be more than 11.5 per cent in public sector and 2.1 per cent in private sector in the last quarter of the fiscal, 2011-12 from its end-March levels,” Mr Zahid said.

The WB country director Ellen Goldstein, Director, Poverty Reduction and Economic Management, South Asia, Dr Ernesto May, lead economist Dr. Sanjay Kathuria and Communication Officer Mehrin A. Mahbub were also present at the media briefing.

Steps, the WB noted in its economic update on Bangladesh, will require to be taken to mitigate private sector crowding-out risks.

It said that industry, particularly construction and small-scale manufacturing, had driven the growth in fiscal 2012 while transport and financial intermediation led the growth in services.

“Agriculture and large scale manufacturing sectors have slowed down compared to the situation in the than last fiscal,” Mr Zahid observed.

According to the WB update, private investment rate declined to 19.1 per cent in fiscal 2012 against 19.5 per cent in the previous year.

Lead country economist of the WB, Dr. Sanjay Kathuria, said the overall investment in Bangladesh is very low while adding that it has to go up by 6.0-8.0 percentage points of GDP to help accelerate the country’s growth rate.

It said non-food inflation in Bangladesh in the outgoing fiscal was at the highest level in last two decades.

“This is primarily driven by expansionary monetary policies over the last two years,” Mr Zahid added.

The WB, however, commended the efforts by the central bank for adopting a contractionary monetary policy to help combat the inflationary pressures.

Mr Zahid said monetary policy-actions take time to bring down the rate of inflation, expressing the view that inflationary pressures will be tamed if the recent tightening policy is not reversed.

He said the good news is that food inflation has come down to 8.1 per cent in April against 13.8 per cent in September last.

Mr Zahid said the Bangladesh Bank (BB) has rightly refrained itself from intervening in the foreign exchange market and this has allowed the market forces to play their proper role.

While making the opening statement at the media briefing, country director of WB Ms. Goldstein said the WB will continue to support Bangladesh’s development efforts.

She said one challenge before Bangladesh is to effectively speed up implementation to deliver results on the ground.

She said the country’s recent economic growth is quite healthy. The spillover effects of the Eurozone and oil prices are the threats to the country’s sustained growth in the coming days, she noted.

She said Bangladesh has to prepare an effective strategy to combat the looming challenges and respond accordingly to achieve its goals.

Responding to queries, WB economists said recent ratings of Bangladesh by the S&P is quite all right. “We support it.”

Replying to a specific question about the WB’s stance on any fiscal move by the government of Bangladesh to facilitate declaration of “undisclosed money”, Zahid Hussain said: “We’re yet to know what measures will be taken about the undisclosed money under the budget.”

“But we think that the government will not take any move which will encourage the sources and areas that generate black or undisclosed money.”

The WB economists said issuing licenses for setting up new nine private commercial banks (PCBs) will create a competition to mobilise deposits.

Mr Kathuria, lead economist of the WB said: “This will add to competition for deposits and pose a challenge to the supervisory capacity of the central bank.”

He observed that regulatory reforms in the capital market to ensure a stable trading environment were underway, adding that the pace of such reforms would need to be accelerated.

He said faster progress in exploration activities in Bangladesh is needed to meet the shortage of gas supplies. Steps should also be taken to ensure access to land for investment, he added.

Mr Kathuria said public private partnership (PPP) office is being staffed by professional managers but its progress so far has still remained at a slow pace.

He said reforms in trade liberalisation relating to tariffs, para-tariffs and customs procedures should be carried forward effectively to help promote trade.

There are vulnerabilities and uncertainties mainly due to global environment, he noted while underlining the need for putting stabilisation policies in place to address vulnerabilities and reduce uncertainties for business.

He said subsidy and government borrowings should be scaled down not to crowd out the private sector.

Mr Zahid said Bangladesh has three major risks ahead. These include slowed-down export operations due to Eurozone crisis, possible decrease of remittance earnings particularly from the Gulf region, and likely hikes in petroleum prices in the international market, he added.

A significant level of higher imports of petroleum products to feed the liquid fuel-based power plants and slow export growth have resulted in the decline of Bangladesh’s current account surplus to US$ 456 million in March, 2012 from $710 million in July, 2011.

He said: “Deficit in its overall balance of payments (BoP) decreased to $419 million from $527 million in 2011.”

However, this improvement in the overall BoP deficit may be temporary, he observed.

He said improvements in infrastructural facilities and availability of energy will be necessary to attract investment.

He said the government should take longer-term measures to address effectively the problems in the energy sector.

He said the country’s fiscal deficit has widened, despite increases in revenue earnings. Recurrent expenditures are likely to overshoot the original budget target, he observed.

Agencies add: The GDP growth rate of Bangladesh, the WB in its update said, moderated from 6.7 per cent in fiscal 2010-2011 to 6.3 per cent in fiscal 2011-2012 due to unfavorable external economic situation and internal supply constraints.

Dr. Sanjay Kathuria said improving the investment climate and undertaking trade-related reforms would be needed to increase domestic and foreign investment which is essential for Bangladesh’s accelerated growth. The investment: GDP ratio in Bangladesh will have to increase to 30-32 per cent from existing 24 per cent to help accelerate the growth rate, he observed.

About measures for whitening “black money”, Dr. Zahid Hossain said, “We don’t know what scheme is coming exactly to whiten black money. There shouldn’t be any scheme what will ultimately encourage black money generation.”

He said ideological aspects and reality will have to be considered in providing any scheme to whiten black money. “The ultimate impact of the black money will also have to be considered.”

In her opening remark, Goldstein said, while Bangladesh’s most recent economic growth remains quite healthy by developing country standards, there are several headwinds that could derail growth in the near future. “Spillover effects of recession in the eurozone and oil price increases are the two headwinds that pose the most serious downside risks to Bangladesh’s growth from external sources,” he said.

She said all that Bangladesh can do is to prepare to face such risks by creating policy space, so that it can respond appropriately and in time when risks arise.

However, these are not the only risks, she noted while stating that Bangladesh’s ability to provide adequate infrastructure, energy and a business-friendly regulatory environment has also suffered in recent years. “If these issues are addressed, we feel Bangladesh will be able to overcome the impact of a weak global economy without much difficulty.”

She said the Bank Group will remain engaged to support Bangladesh’s development. “The Sixth Five Year Plan of the country is soon to enter its third year of implementation. The challenge now is to effectively speed up implementation to deliver results on the ground.”

About the continuing macroeconomic pressures, the WB update noted that overall inflation “is in double digits and non-food prices rose 14 per cent in March 2012, compared to 4.3 per cent a year earlier. This has been driven by expansionary monetary and fiscal policies.”

On the other hand, food price increases declined from 13.8 per cent in September 2011 to 8.1 per cent in April 2012 which is good news for the poor.

The fiscal deficit has increased, despite significant increases in revenue. Recurrent expenditures are likely to overshoot the original 2012 budget target, driven by larger-than-budgeted growth in subsidies and transfers.

The central government budget deficit increased by more than 2.5 times from July to January in fiscal 2011-12 compared to the situation during the corresponding period the previous fiscal, it observed.

With exports starting to decline in March 2012, pressure on the Bangladesh’s balance of payments could intensify, the update cautioned.

“Uncertainty in Bangladesh’s leading trade markets poses risks to accelerated growth. High unemployment, low business and consumer confidence, and volatility in financial sectors remain major threats to Bangladesh’s two major export markets, Europe and the United States”, it said.

In addition, the combination of current levels of inflation, fiscal deficit, and foreign exchange reserves mean that Bangladesh has very little policy space to respond to the crisis, unlike its situation during the last global economic and financial crises, it observed.

“Energy shortage poses as much of a risk to growth as do global uncertainties. The overall shortages of energy continue to deter fresh investments and expansion projects. Authorities need to proceed with longer-term solutions to the energy problem to ensure that the net additions to capacity already made can be sustained”, he pointed out.

The update highlighted the need for coordinated macroeconomic strategies. “A coordinated policy response will be essential to restore macroeconomic stability and accelerate growth. Stabilization policies will need to focus on creating fiscal space, and containing government borrowing”, it said.

“The longer-term growth outlook depends on acceleration of structural reforms to raise savings and investments rates, improve trade prospects, and ensure balance of payment sustainability. This would entail modernizing the tax regime and strengthening public financial management, and require increased tax revenues to address the large infrastructure deficit”, the update pointed out.

Growth acceleration also needs urgent reforms to address the looming skills deficit and enable a continuation of manufacturing and export growth, it added.

It observed stagnation in investment still exists due to gas and power problem and the government is paying more subsidy in the fuel sector as its import has risen.

H&M to raise apparel sourcing from BD

http://thenewnationbd.com/newsdetails.aspx?newsid=41140

H&M to raise apparel sourcing from BD
B&F Report

A Sweden-based clothing retailer Hennes & Mauritz (H&M) has announced to increase its sourcing from Bangladesh, said Dow Jones Newswires quoting H&M Head Helena Helmersson. It also intends to launch a trial programme for the current and next year, the news agency stated.

H&M head said they have already informed the Bangladesh Government, its other stakeholders and clothing producers regarding their growth plans. However the ongoing labour unrest in the country is restraining suppliers from planning production, as strikes and protests often hamper production and cause delays, she added.

She said that a stable market would prove to be greatly beneficial for the company as well as its suppliers and workers.

The firm intends to utilize its power to build pressure on its suppliers in Bangladesh to improve work conditions, and push for constitution of democratic labour committees that can negotiate with factory workers on wages and working conditions.

Operating a network of more than 2,500 retail outlets in 44 markets across the world, with a staff of 94,000 people, H&M is a leading buyer of garments from Bangladesh. It currently sources around 25 percent of its products from Bangladesh and it intends to raise this volume in future.

Bangladesh has now emerged as a reliable readymade garment-sourcing destination for leading global retailers, due to its competitive prices.

A recent study undertaken by McKinsey, a leading research company in US, states that Bangladesh’s apparel exports are expected to grow almost two-fold by 2015 and three-fold over the next 10 years. This is because leading buyers from China are shifting to Bangladesh as capacity constraints and rising labour costs in China are eroding their profit margins.

oDesk to help transfer freelancers’ payments

http://www.thedailystar.net/newDesign/news-details.php?nid=235798

oDesk to help transfer freelancers’ payments
Senior official of the US-based company speaks on online payment system

Matt Cooper

Mamun Abdullah

Bangladeshi freelancers will be able to receive payments in their local accounts from their US clients directly through the accounts of oDesk, a global marketplace that helps businesses hire, manage and pay remote freelancers or teams.

oDesk is now working to develop a money transfer system for its Bangladeshi freelancers, said a top official of the company.

As the Bangladeshi freelancers are facing problems in getting payments from their clients in the US, oDesk is introducing the system, said Matt Cooper, vice president of marketplace operation division of the company, in an interview with The Daily Star.

He said, “An efficient payment system is the key to doing online work successfully.”

Cooper came to Dhaka last week to participate in an “appreciation day” for the freelancers of the company in Bangladesh.

oDesk is working on how easily the payment could be reached to the Bangladeshi contractors from their US client institutions, he said.

“No inter-media would be required and the fees are attractive for transferring the payments,” Cooper said, adding that the service will be available soon in Bangladesh.

Cooper earlier came to Dhaka at the end of last year to attend a “digital fair” — e-Asia — and came to know about the payment-related problems of the Bangladeshi freelancers, he said.

Bangladeshi freelancers have already urged the government to take initiative to open Paypal’s operations in the country. Paypal is a global online payment organisation based in the US.

After his first visit to Bangladesh, Cooper also met the chief executive officer of Paypal and requested them to start their operations in Bangladesh.

A group of officials of Paypal would come to Dhaka within this year to look for scope to work here, Cooper said. But before that, oDesk will work to facilitate money transfer from its own bank account, he said

In March, a member of Bangladesh Association of Software and Information Services (BASIS) went to California, the headquarters of Paypal, to request them to start their operations in Bangladesh.

oDesk offers employment opportunities globally and independent freelancer contractors can work with their clients through oDesk all over the world, said Cooper.

Maximum works are technical. About the works he said, 60 percent revenues of oDesk come from software development, while the rest are from search engine optimisation, data entry, market research and translations with a wide range of non-technical jobs.

Cooper said 30 percent of Bangladeshi contractors work for search engine optimisation, while 12 percent for data entry, 8 percent for software development and 6 percent for web research. Beyond that, a large segment of works is non-technical, he said.

“Growth of Bangladesh as a back-office is excellent,” Cooper said.

In 2009, Bangladeshis freelancers did 2 percent of the total work of oDesk, which now rose to 12 percent, said Cooper.

“It’s tremendous growth. Every year the growth rate almost doubled.”

A lot of young and highly educated Bangladeshi freelancers are working for oDesk.

Describing the success story of a Bangladeshi freelancer, Cooper said an employee of a private company in Bangladesh had been facing hardship in bearing her family expenses. Then she contacted oDesk and is now earning five times higher than she earns from the current job.

There are hundreds of such stories, he said, adding that some of the freelancers in Bangladesh even earn $100 per hour.

“You can earn $10, $15 or $20 an hour through online jobs.”

There are about 50,000 regular freelancers with oDesk, while the number of its registered freelancers is about 1.9 million globally, he said.

There are 150,000 registered contractors from Bangladesh. Among them 8,000 are working actively.

Bangladeshi freelancers earn $15 to $20 per hour on an average for technical works, while $5 to $10 for administrative or non-technical works.

But some of the top freelancers in the US earn even $150 per hour, said Cooper.

Most of the Bangladeshi freelancers’ average age is between 25 and 35 years with university education, and most of them do the work of data entry, while the rest do the technical jobs.

oDesk wants to see more Bangladeshi freelancers in technical works such as software development.

Bangladesh is competing with India, Pakistan and some eastern European countries. “It definitely indicates the higher quality of the Bangladeshi freelancers,” he said.

There are two types of freelancers with oDesk: individuals and small groups. But most of the freelancers working with oDesk are individuals, Cooper said.

According to the website of oDesk, more than 250,000 businesses use oDesk including Wikipedia, Hewlett-Packard, NBC, Travelocity and Aol. It also works with some of the fortune 500 companies.

Low-cost and high-speed internet should be made available across the country to help more people enter online jobs, Cooper said.

He also stressed the need for a friendly regulatory environment for easy transfer of money and low-cost computers so more people are involved in this type of work.

S&P reaffirms Bangladesh’s rating with stable outlook

http://www1.bssnews.net/newsDetails.php?cat=2&id=253250&date=2012-05-31

S&P reaffirms Bangladesh’s rating with stable outlook

DHAKA, May 31 (BSS) – Standard & Poor’s Ratings Services today affirmed its ‘BB-‘long-term and ‘B’ short-term foreign and local currency sovereign credit ratings on Bangladesh with stable outlook.

The transfer and convertibility (T&C) assessment remains ‘BB-‘.

The country got the same rating and outlook from this US-based rating agency for the third consecutive year. The first yearly rating was done in 2010.

With the latest one, Bangladesh is rated the second highest in South Asia behind India (BBB) and ahead of Sri Lanka (B+) and Pakistan (B-). Other countries in the BB category include Turkey, Philippines, Indonesia and Vietnam.

“The stable outlook reflects strong growth prospects and ongoing donor support, which ensures low-cost and long-maturity external debt and minimizes refinancing risk,” the S&P said in a statement on the rating.

The stable outlook reflects strong growth prospects and ongoing donor support, which ensures low-cost and long-maturity external debt and minimizes refinancing risk. These factors are balanced against lingering inflation risk and balance-of-payments pressure as imports expand.

The rating agency also draws attention to limited fiscal flexibility due to low revenue generation capacity and expenditure rigidities stemming from significant physical and human capital development needs, and a large subsidy regime.

Low economic development and an adversarial domestic political setting are also seen as major barriers to achieve further improvement.

“We project the country’s total revenue at 13 percent of GDP (including grants) in fiscal 2012, which ranks as one of the lowest among sovereigns we rate,” said Standard & Poor’s credit analyst Agost Benard and added that the limited fiscal flexibility contributed to years of public underinvestment, stunting the country’s growth potential.”

The agency said Bangladesh’s low wealth level at a per capita GDP of US$637 (2011) is a key rating constraint, but it believes that such low incomes afford minimal policy and political flexibility when responding to exogenous shocks, or if severe policy adjustments are needed to avoid default.

It said Bangladesh’s weak institutions and governance hamper investment and development, while its volatile political setting detracts from legislative efficiency and harbors the potential for instability. These factors are additional rating constraints.

The rating agency, however, said that these constraining factors are balanced against strong growth and external support.

“In our view, the strength of key economic segments – garment, remittances and agriculture – will sustain growth in line with recent trends, rising to about 6.7 percent by 2015, as global demand recovers, Benard added.

The S&P observes that Bangladesh benefits from substantial bilateral and multilateral donor engagement as donors provide direct budgetary support, which, together with education and health services to the general population, eases the burden on the government.

“We could raise the ratings if the government succeeds in expanding the revenue base and improving collection efficiency, leading to a material improvement in its fiscal performance. We could also upgrade Bangladesh if alleviating energy, infrastructure, and administrative bottlenecks unlocks rising investment, leading to a sizable and sustainable increase in real GDP growth,” it said.

Conversely, it said we could downgrade the sovereign if fiscal slippages result in rising public debt and external donor support declines materially.

We could also lower the ratings in the event of a reversal of corrective policy actions taken so far to address fiscal and balance-of-payments pressures, or other substantial deviation from the policies required under the IMF Extended Credit Facility program.

Earlier on April 30 and May 3, S&P delegate visited Bangladesh and met with Bangladesh Bank (BB), the National Board of Revenue (NBR), economic and energy advisers to the prime minister, representatives of donors and chambers and think-tanks to prepare the rating.