বাংলােদেশর un য়েনর s াধীন পযরৎােলাচনা State of the Bangladesh Economy in FY2016-17 First Reading Dhaka: 7 January 2017 www.cpd.org.bd
Contents Section I: Introduction Section II: Revisiting Macroeconomic Trends in FY2016 Section III: Macroeconomic Performance in FY2017: Early Signals Section IV: Is Bangladesh Rolling Towards A Debt Stress? An Exploration of Debt Sustainability of Bangladesh in the Context of Recent Developments in External Financial Flow Section V: ‘Food-friendly Programme for the Ultra-poor’: A Populist Initiative with Positive Impact but Multiple Shortfalls Section VI: Current State of Bangladesh-India Connectivity: A Case of Low Level Equilibrium Section VII: Remittances: Delving into Causes of Depressed Trend Section VIII: Concluding Remarks CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 2
CPD IRBD 20 17 Tea m Professor Mustafizur Rahm an , Executive Director and Dr Debapriya Bhattacharya , Distinguished Fellow, CPD were in overall charge of preparing this report as the Team Leaders Lead contributions were provided by Dr Fahm ida Khatun, Research Director, Dr Khondaker Golam Moazzem , Additional Research Director and Mr Tow fiqul Islam Khan , Research Fellow, CPD Valuable research support was received from Mr Md. Zafar Sadique, Senior Research Associate; Ms Saifa Raz, Research Associate; Ms Shahida Pervin, Research Associate ; Mr Mostafa Am ir Sabbih, Research Associate; Mr Estiaque Bari, Research Associate; Mr Muntaseer Kam al, Research Associate; Mr Zeeshan Ashraf, Research Associate; Ms Naw shiba Arnob, Research Associate; Ms Silvia Zam an, Research Associate; and Mr Zareer Jow ad Kazi , Programme Associate Mr Tow fiqul Islam Khan was the Coordinator of the CPD IRBD 2017 Team The CPD IRBD 2017 Team would like to register its sincere gratitude to Professor Rehm an Sobhan , Chairman, CPD for his advice and guidance in preparing this report CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 3
Exp ert Group Consulta tion The CPD team is grateful to all the participants at the consultation held on 29 Novem ber 2016 for sharing their view s, insights and com m ents on the study Lead Economist Dr Zahid Hussain The World Bank Vice-Chairman, NewAge Group of Industries and Mr Asif Ibrahim Former President, DCCI Former Advisor to the Caretaker Government Dr A B Mirza Azizul Islam Ministries of Finance and Planning Independent Economist and Former Special Advisor Dr Rizw anul Islam on Growth, Employment and Poverty Reduction ILO-Geneva Executive Director Dr Ahsan Habib Mansur Policy Research Institute of Bangladesh (PRI) Executive Director Dr Mustafa K Mujeri Institute for Inclusive Finance and Development (InM) Professor Dr S R Osm ani University of Ulster, UK Chief Economist Dr Biru Paksha Paul Bangladesh Bank Former Director General Dr Quazi Shahabuddin Bangladesh Institute of Development Studies (BIDS) CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 4
Revisiting Macroeconomic Trends in FY2016 CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 5
Revisiting Macroeconom ic Trends in FY20 16 Agriculture growth declined 2.8% Manufacturing sector growth 11.7% GDP Growth Attained GDP growth 7.1 % Target 7.0 % Private investment-GDP ratio increased to 23%, best in 21 years Investment-GDP ratio 29.7% Target was 30.1% Public investment-GDP ratio declined to 6.7%, also missed target CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 6
Revisiting Macroeconom ic Trends in FY20 16 Revenue-GDP ratio 9.9% Target 12.1% Revenue earnings shortfall Tk. 37,057 cr CPD projection was Tk. 38,000 cr NBR revenue growth 18% Target 42.3% CPD projection was 17.8% CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 7
Revisiting Macroeconom ic Trends in FY20 16 Target 17.1% Achieved 13.0% Total Expenditure-GDP Ratio Annual Development Programme ‘Last quarter syndrome’ aggravated for ADP expenditure Highest in last 11 years First three quarters 56% Last month 29% Last quarters 44% Non-Development Expenditure Growth Actual 15.1% Target 44.3% CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 8
Revisiting Macroeconom ic Trends in FY20 16 CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 9
Revisiting Macroeconom ic Trends in FY20 16 NPL 10.1% Private sector credit growth 16.8% Weak Recapitalisation Performance of banks Tk. 1,800 cr of Banking and Financial ATM scams Sector Rising excess liquidity Bangladesh Bank heist USD 81 mln CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 10
Revisiting Macroeconom ic Trends in FY20 16 CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 11
Revisiting Macroeconom ic Trends in FY20 16 CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 12
Revisiting Macroeconom ic Trends in FY20 16 CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 13
Macroeconomic Performance in FY2017: Early Signals CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 14
Macroeconom ic Perform ance in FY20 17: Early Signals As apprehended during CPD’s Analysis of the National Budget for FY20 17 all m ajor param eters of fiscal fram ew ork program m ed in the budget for FY2017 w ould eventually require to register higher grow th rates CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 15
Macroeconom ic Perform ance in FY20 17: Early Signals If the status quo persists, then the possible revenue shortfall in FY17 could be about Tk. 40,000 crore With a more optimistic scenario, if revenue collection succeed to register the highest growth (26.3% in FY08) of the last 16 years, overall revenue shortfall in FY17 will be Tk. 26,000 crore Reform agenda for revenue m obilisation needs to be accelerated VAT and SD AIT collection Benami Transfer New Direct Tax Amended act 2012 through e-TDS Property Bill Pricing Cell Act Customs Act Ensure paid VAT are deposited to Install Documentation and accounting the exchequer ECR system for all purchases and sales CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 16
Macroeconom ic Perform ance in FY20 17: Early Signals Discrepancies of statistics regarding fiscal param eters are increasing Difference MRFP vs MRFP vs NBR MRFP vs BB Possible Year IMED (NBR (Budget explanations: (ADP Revenue Deficit) Different Expenditure) Collection) methodologies FY12 3,464 490 -5,508 Different FY13 5,820 562 -3,969 tools and FY14 9,092 1,586 -11,645 techniques FY15 12,765 8,528 -8,888 Different accounting 9,298 16,478 5,223 practices FY16 (6.4%) (24.6%) (9.8%) Q1 of FY17 1,172 2,762 10,416 Figures in the parenthesis are departure from MRFP in % Causes an adverse impact on the budgetary monitoring, and the quality of fiscal and budgetary planning is thus compromised Need a reconciliation and consolidation between these estimates for the sake of ensuring efficacy of public finance management CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 17
Macroeconom ic Perform ance in FY20 17: Early Signals Public ADP expenditure Non-developm ent expenditure 27.6% of allocation expenditure growth growth in Jul-Dec of FY17 Foreign interest: 14.6% Q1: 12.8% (23.5% in FY16) Subsidy and transfer: 33.2% Annual target: 51.3% ADP expenditure was driven by Power Sector (47.7%) Performance of the ‘fast track’ projects was Reform agenda not very promising was not properly PMB project could spent only 10.4% in first followed up four months CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 18
Macroeconom ic Perform ance in FY20 17: Early Signals Wider difference between interest Buoyant sale of rates of bank high interest deposit and NSD bearing NSD certificates influenced the Needs to savers address this before the national budget for FY20 18 CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 19
Macroeconom ic Perform ance in FY20 17: Early Signals Declining general inflation Mainly through food inflation – particularly rice Also through lower global commodity price, restrained growth of broad money supply, stable exchange rate of the BDT Rising non-food inflation Mainly through gross rent, fuel and lighting Urban inflation higher on aforesaid items CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 20
Macroeconom ic Perform ance in FY20 17: Early Signals What is the outlook for the com ing days of FY20 17? Prices of all utility Energy and non- item s have gone Price of gas used in energy com m odity up or expected to households could prices are increase in be raised by 50 % forecasted to FY20 17 from the beginning increase by 24 % and of 20 17 2 % respectively in 20 17 Rather than increasing Inflation m ay creep the price of gas, up a little in the governm ent should opt later part of FY20 17 for m eter-based gas use due to the expected policy at the household rise of global level com m odity prices CPD (2017): State of the Bangladesh Econom y in FY2017 (First Reading) 21
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