GDP growth expected to  fall  6pc in FY08

The GDP growth of Bangladesh will drop in FY08 due to a slowdown in the economic activities in the first half of the current fiscal year, as said by the Asian Development Bank (ADB) on February 28. ADB country director Hua Du formally launched the report at a press conference, illustrating the country's latest economic health.

As per the ADB prediction, the GDP growth is expected to be below 6 percent this fiscal year compared with 6.5 percent in the previous fiscal year.

The economic holdup resulted from the erosion in business confidence, extensive flooding and cyclone Sidr, and decrease in garments exports, as said in a quarterly economic report of the ADB.

The report observed that due to the government's anti-corruption drive, many investors have become uncertain if the new system would work and be sustainable. It, however, said that the fear among the investors have started to ease.

The report also referred to the government initiative of setting up the better-business forum to facilitate systematic feedback from the private sector and other stakeholders on major issues and problems affecting private sector development.

Expenditures in the current fiscal year are likely to increase beyond the estimated expenditures in the original budget and fiscal deficit is likely to shoot to 4.7 percent of GDP in FY08 compared to 3.2 percent in the preceding year.

The ADB blamed the increase on post-flood and cyclone relief and higher import cost of food grains, fuel and fertilizer.

Hua Du told the journalists that continuous subsidy in energy sector has been cutting funds for infrastructure developments. She favored adjusting the prices of petroleum products in line with the international prices and at the same time asked the government to take steps so that poor people are not affected due to this.

The government can introduce a system similar to that of the elderly citizens' allowances where poor people will receive kerosene allowances from the banks showing their cards, the ADB country director, Hua Du, added.

GB/29th February,2008

Global financial markets are in inflammation alarm

The inflation alarm bells are ringing in financial markets as soaring energy and commodity prices and signs that companies are regaining pricing power spook investors already nervous about an economic downturn.

Price indices from major world economies this week will be examined closely as markets grow uneasy about heavy doses of monetary easing being introduced in tandem with mounting inflation pressures from soaring raw material and food prices.

Twin US stimuli, for example, of 2-1/4 percentage points of interest rate cuts since September and a planned $150 billion government package of tax breaks and spending sits uncomfortably in a world economy still so close to full capacity, some economists argue.

With investors on tenterhooks, speeches by Federal Reserve chairman Ben Bernanke, European Central Bank President Jean-Claude Trichet and other policymakers from the United States, Switzerland and the euro zone will be closely watched this week for any signs that central banks might harden their anti-inflation stance.

The inflation scare has forced traders to almost drop expectations for euro zone interest rate cuts in the first half of 2008. They are also scaling back how far the Fed can slash rates. Demand for inflation-proof government bonds is surging.

And the combination of economic and inflation concerns are preventing world stocks, measured by MSCI, from benefiting from the rate cuts and fiscal plans made so far.

Matthew Cairns, senior economist at Moody's research arm Economy.com. said,"We've seen aggressive moves from the Fed in an effort to avert a recession which may be already in place. They are trying to attenuate one problem, but that is opening the door for worrying inflation pressures later in the year." "The Fed will have to reverse (the easing) at some point but the process will be a lot slower than the cutting process. In the euro zone they have been constantly beating the inflation drum. They haven't taken their foot off their accelerator."

In a sign that inflation expectations are going up, 10-year US breakeven rates - the difference between yields on inflation-protected securities and conventional bonds - have risen to 2.34 percent from a January low of 2.04 percent.

Gold, a traditional inflation hedge, has risen 30 percent to record peaks since September. Euro zone rate future price in around a 40 percent chance of a quarter-percentage point rate cut in June, having almost fully priced in the odds of a half-point cut two weeks ago.

This week's data on US January producer prices and Personal Consumption Expenditure, the Fed's favorite gauge of inflation, as well as prices figures from the euro zone, Japan and Canada, could paint a bleak picture.

Also crucial for inflation are ongoing pay talks for around 2 million public sector workers in Germany. Wage negotiations for around 550,000 chemicals sector employees also start in some parts of the euro zone's biggest economy.

Last week, January US core consumer inflation posted its strongest monthly rise since June 2006 while French inflation hit its highest in at least 11 years and Swiss input price inflation hit an 18-year peak.

Output prices in the 15-nation euro zone are at their highest since March 2007 as corporate companies hike prices to pass on high raw material costs.

GB/26th February, 2008

Foreign Direct Investment : When and how it will come to Bangladesh!

The big size foreign investments are not coming to Bangladesh. The successive governments have repeatedly boasted of most liberal investment policy a country could ever offer and invited foreign investors to avail such opportunities in a massive way. But  the reality is such policy is seen only in papers without its practical application.

From the airport up to registration of an investment proposal, a foreign investor has to wait for months after months, even years. 'One-stop service' is there only in the book of the Board of Investment (BoI). But has it worked for a single day here in Bangladesh? In spite of such odds, many investors are waiting for a long time to get their proposals approved, until now even under the present caretaker government.

Recently the chief of the local foreign investors chamber told a luncheon meeting that the country should have a double digit economic growth that could be achieved through adequate inflows of foreign direct investment (FDI). He was visibly frustrated seeing no representation of his chamber in the newly formed Bangladesh Better Business Forum (BBBF). How the Forum should succeed when the lone body for foreign entrepreneurs is kept aloof from its purview, he said.

The existing investors operating in the country are in one sense the ambassadors to other potential investors. If they are satisfied with the investment-related situation in the country, they will act as catalysts for attracting others. There is a need to formulate an equity protection law in the country. Without an equity protection law, foreign investors do not feel encouraged to invest in government or private equity.

Foreign investors in the country have repeatedly urged the government to make quick decision on the fate of $5.5 billion investment proposals by big conglomerates like Tata of India and Asia Energy of the United Kingdom. Both the companies in January called upon the government for a quick decision on their investment proposals.

In addition, the country's investment promotion agency, BoI, has also been sitting on investment proposals worth another $5.0 billion from some of the top companies in the world. This is not fair in any way. If the government finds no merit in such proposals or does consider them not conforming to "national interests", it should say 'no'.

A quick decision on the big investment proposals would send a positive signal to the other foreign investors. The incumbent caretaker government has already taken some initiatives for attracting foreign investment in Bangladesh. The Regulatory Reforms Commission is now engaged in simplifying existing systems to bring about changes in the legal framework relating to foreign investment. The country is also preparing ground for a favorable business environment to be created following speedy execution of recommendations coming from the BBBF(Bangladesh Better Business Forum).

The investors generally explore three to four countries and switch to the destination, which is comparatively better for them. But the BoI count all proposals, even after signing an expression of interest with any investors, and this reflects a bullish trend of registration every year. For Bangladesh to catch up with rest of the world and to achieve its millennium development objectives by 2015, the inflow of FDI in larger volumes is critical due to the dearth of necessary domestic financial resources and technology. Considering all aspects of the pending larger proposals, prompt decisions have to be taken in right earnest. Otherwise, the investors will take the decision to relocate their industries elsewhere.

Bangladesh received about $792 million FDI in 2006. The country's central bank is now preparing the statistics of the FDI in 2007. But the problem is foreign investors are still facing hurdles to operating businesses in Bangladesh. The government needs to solve the hurdles to help investors perform their business activities free from any hassles.

GB/14th February, 2008

Wheat Future in USA

KANSAS CITY, MISSOURI, U.S. - Hard red spring wheat futures prices and cash wheatpremiums in Minneapolis skyrocketed in recent weeks on mounting concerns supply atleast of quality wheat of that class will be depleted before the 2008 crop begins toflow into marketing channels. The March future in Minneapolis surged above $15 a bushel in trading last week, and the May future soared above $14, levels never before seen in wheat. On Feb. 5, the Minneapolis Grain Exchange announced it would expand daily trading limits effective Feb. 12 to 40¢ from the current 30¢ to
accommodate the phenomenal volatility. The Kansas City Board of Trade and the Chicago Board of Trade were discussing following suit.

Record-high old-crop spring wheat futures prices thus far have failed to ration
demand so stocks can be stretched into the new marketing year. New crop wheat futures prices set record highs on Jan. 29 and seemed poised to break through those levels. But it was uncertain whether new crop prices were high enough to encourage producers to seed more spring wheat this year than in 2007.

The U.S. Department of Agriculture (USDA) on Jan. 12 forecast the carryover of hard red spring wheat on June 1, 2008, at 88 million bushels, down 29 million bushels from the 2007 carryover of 117 million bushels. It would be the tightest carryover of spring wheat since 87 million bushels in 1974. Most analysts in the trade were confident on the basis of continued heavy demand for spring wheat, the USDA will lower its carryover projection in the February report. One analyst even suggested a negative 2-million-bushel carryover for spring wheat.

Additionally, a wheat carryover date of June 1 doesn't reflect the reality of the
spring wheat market as the harvest in the northern Plains only gets under way in July and new crop spring wheat typically doesn't begin to flow into marketing channels until the last week of July or the first couple of weeks in August.

Compounding matters for wheat buyers have been cash wheat premiums well above historical averages. The Minneapolis basis on 14% spring wheat was $4.25 over the Minneapolis May, a record premium leaving the cash price for the benchmark for spring wheat at an eye popping $18.20 per bushel. The cash wheat premium for 15% spring wheat was $5 over. By themselves, these premiums were higher than typical cash wheat prices in recent years. For instance, the national average farm price for wheat in 2005-06 was $3.42 per bushel.

Meanwhile, futures contracts in Kansas City and Chicago last week posted limit-up gains in the wake of the extraordinary strength in Minneapolis wheat. Still, Kansas City and particularly Chicago contracts remained at gaping discounts to Minneapolis futures.

Skyrocketing cash prices for spring wheat have not yet put the brakes to foreign demand for U.S. spring wheat. The USDA projected 2007-08 exports of hard red spring wheat at 275 million bushels, up 25 million bushels from the previous year. But as of Jan. 31, exports and undelivered sales of hard red spring wheat for the current marketing year were 293 million bushels, 18 million bushels higher than the USDA forecast, with four months remaining in the marketing year.

One miller expressed hope some foreign spring wheat buyers would sell back spring wheat cargoes and substitute lower-priced hard winter wheat cargoes. But someexporters were doubtful.

For decades, a major outlet for U.S. spring has been Pacific Rim nations. Anyone expecting demand from those customers to diminish in response to higher prices likely will be disappointed, said Thomas J. Hammond, president, Columbia Grain International, Inc., Portland, Oregon, U.S.

"We can't ration demand," Hammond said. "Our customers have some pretty inflexible requirements. If there is any price rationing, it is going to take place in the U.S. first."

Hammond said he has been asked why private Philippine wheat buyers won't sell back their spring wheat purchases and use hard winter wheat instead.

"For one thing, the end users there like spring wheat," he said. "That's what they want. Even if end users were willing to switch wheat class in exchange for a lower price, it would be very difficult for Philippine flour millers to unwind what they've already programmed. They purchase combination cargoes with white wheat, hard winter and spring wheat in different holds. To unwind something like that is easier said than done."

Recognizing tightness in U.S. spring wheat supplies, foreign buyers such as the Philippine flour millers have accelerated their buying programs for the current marketing year, Hammond said. Still, none of the major importing nations of Asia - the Philippines, South Korea, Japan and Taiwan - has yet covered requirements for the summer, when U.S. spring wheat supplies were expected to be desperately tight.

While Asian wheat buyers have been inflexible with regard to buying spring wheat, there has been some easing in rigidity with regard to specifications, Hammond said. Certain buyers that traditionally tender for 14.5%-protein hard red spring wheat were considering lowering protein specifications to 14%. Other quality compromises may be required in the months ahead, he said.

Hammond said tightness in U.S. wheat supplies was becoming a greater concern abroad.

"I have three guys from a Japanese television crew standing next to my desk right now, and it's what they want to talk to me about," he said. "I don't know what
happens next. We're in uncharted territory."

Unprecedented prices also have not adequately rationed domestic demand for spring wheat even with widespread substitution of high-protein hard red winter wheat for spring wheat by mills across the country.

High-protein hard winter wheat was trading at rapidly widening discounts to spring wheat of the same protein. Bakers and millers were working together to change formulations of products to accommodate a higher percentage of hard winter wheat compared with spring wheat in blends, and some formulas calling for blends were being shifted to hard winter wheat only. One miller described the shift to hard winter wheat from spring wheat as a "mad rush."

At the same time, some baked products - hearth bread, hard rolls, bagels and other specialty items - require flour milled from high-protein, high-gluten spring wheat. Bakers of these products had little or no flexibility with regard to substituting hard winter wheat for spring wheat. Their pressing needs were reflected in the recent widening in the spread between cash premiums on 14% protein spring wheat and 15% protein spring wheat

Supply of high-protein hard red spring wheat was diminishing rapidly. U.S. hard red spring wheat production in 2007 totaled 449 million bushels, up 4% from 432 million bushels in 2007. Both the 2007 and 2006 crops had outstanding quality and were graded No. 1 dark northern spring. But only 43% of the 2007 crop had protein of 15% or more, whereas 48% of the 2006 crop had 15% protein or more. Stated in bushels, about 193 million bushels of the 2007 crop had protein of 15% or more, while 207 million bushels of the smaller 2006 crop had protein of 15% or more.

Most spring wheat already was in commercial hands. A Minneapolis grain merchant said a survey of northern Plains elevators indicated between 85% and 95% of the 2007 spring wheat crop in their territories already was sold by producers. The little wheat still owned by producers might not move until the new crop is planted and farmers have some confidence in 2008 production prospects, the merchant said. So there was no expectation farmer selling would bring noticeable pressure on the
futures or cash markets in the near term.

While mills have maintained near-term pipelines in good order, offers of spring wheat for April-July were scant. It has been exceedingly difficult for mills to cover their summer needs, the Minneapolis grain merchant said.

Erica Peterson, marketing specialist for the North Dakota Wheat Commission, said she doubted spring supplies would be depleted before new crop, but that applied to undifferentiated spring wheat. Spring wheat supply with particular qualities and characteristics could indeed run out.

Those looking to Canada for rescue were confounded by a Statistics Canada estimateof Dec. 31 Canadian wheat stocks that fell well below expectations. StatisticsCanada on Feb. 5 estimated Canada's stocks of wheat excluding durum at the end of 2007 at 12,278,000 tonnes, down 5,223,000 tonnes, or 30%, from 17,501,000 tonnes a year earlier. The recent five-year average Dec. 31 stocks of wheat other than durum was 15,053,000 tonnes. Commercially held wheat stocks were estimated at 3.1 million tonnes, down 14% from the end of 2006.

"There has been some wishful thinking that the Canadians will bail us out," Hammond said. "But the Canadians haven't been selling, and the Statistics Canada numbers explain why - stocks are low there, too."

The USDA on Jan. 12 projected U.S. imports of Canadian spring wheat in 2007-08 at about 37 million bushels, down from 50 million bushels in 2006-07.

As if spring wheat users didn't have enough to worry about, a new source of domestic demand has emerged: pasta manufacturers. Pasta makers not specifying their products are made of 100% durum semolina always were free to request a blend of durum and
spring wheat. But with durum selling at an astounding $24 a bushel, spring wheat even at record prices seemed alluring. The result has been an increase in blending spring wheat with durum for a number of pasta products, with individual products shifting to spring wheat only.

With old crop spring wheat supplies so tight and wheat prices so high, it would be normal for the market to anticipate an expansion in plantings for the new crop spring wheat harvest. But no such expansion seemed certain this year. All hinged on price movements of new crop spring wheat relative to those of several alternative crops, including corn and soybeans, durum and sunflower.

Producers in the Red River Valley of North Dakota and Minnesota have up to 10 crops from which to choose for planting. Farmers will determine what to plant with calculators in hand. In western areas, where durum and spring wheat are grown side by side, durum prices nearly double those of spring wheat could prove compelling. Peterson said durum plantings could expand 10% or even 20%, and this primarily would be at the expense of spring wheat.

The Minneapolis grain merchant said he was on the fence with regard to projecting spring wheat plantings. He pointed to private estimates calling for a smaller area planted to spring wheat this year. In addition to comparing input costs and prospective revenue per acre likely to be afforded by the competing crops, producers also had lingering concerns over variability in yield and quality seen in spring
wheat in many years.

"We need unchanged to more acres and better yields to even hope we'll be able to begin rebuilding stocks in 2008-09," he said. The USDA will issue its Prospective Plantings report on March 31. But the report will be based on a survey conducted during the first two weeks in March, and minds can change in the northern Plains before farmers take to fields, which should keep the market on edge until more solid harvested spring wheat acreage projections become available.

GB/8th February, 2008

WEF closed with a sounding of gloomy message for 2008

The head of the International Monetary Fund(IMF) hammered home the problems facing the world economy at the closing day of the  World Economic Forum(WEF) meeting  in Davos, Switzerland on January 26.

IMF director-general Dominique Strauss-Kahn said a "serious" response was required to counter the risk of a US recession and slowing global growth, including both monetary and fiscal measures.

The suggestion from the IMF that countries should increase their public spending, even countries with deficits, was seen as "an indication of the gravity of the situation we face" by former US treasury secretary Larry Summers. "In the first time in a quarter century, the managing director of the IMF has called for an increase in budget deficits, traditionally it's all been fiscal consolidation," Summers said during a debate with Strauss-Kahn. "I congratulate him for that and regard his recognition as an indication of the gravity of the situation that we face."

The downbeat atmosphere at WEF meeting , which began on January 23, was in stark contrast to recent years when the gathering had been held against a backdrop of bumper corporate profits, strong growth and tame inflation. Fears of a US recession and global slowdown, wild swings on global stock markets and tightening credit conditions across the world have led to a prevailing sense of pessimism about the year ahead.

The WEF meeting at Davos drew nearly 30 heads of state or government, more than 110 cabinet ministers and several hundred corporate chiefs who came to mix with fellow powerbrokers and listen to expert panels.

In a session on the outlook for the world economy, Strauss-Kahn told delegates: "Whatever the answer is on (the possibility) of a (US) recession, what is clear is there will be a serious slowdown and it needs a serious response." "We cannot rely only on monetary policy," he added. Switching to fiscal policy, he said: "Some countries are not in a situation to increase the deficit, but other countries are in the position where there is some room for fiscal loosening."

Japanese Prime Minister Yasuo Fukuda, who will chair the annual Group of Eight (G8) summit in July, 2008 gave a keynote speech in which he warned against a "excessively pessimistic" view of the problems ahead."But at the same time we do need to have a sense of urgency as we engage in coordinated action," he said.

The current economic problems facing the world originated in the US housing sector but have spread to infect the global financial system and financial markets. Losses by banks which invested in complicated securities backed by high-risk US mortgages have led to a credit crunch in which bank lending has been restricted.
Fear of further losses and a lack of transparency about the extent of the problems have led to highly volatile trading on world stock markets.
US Secretary of State Condoleezza Rice, who gave the keynote speech at the opening ceremony on January 23, felt obliged to talk up the "resilience" of the US economy.

On January 25 , the delegates put their own anxieties aside for a while in a bid to focus on the plight of the world's poor, with rock star activist Bono, billionaire philanthropist Bill Gates and UN chief Ban Ki-moon steering the conversation on the  issues of  infant mortality and poverty alleviation.

GB/27 January

Bangladesh RMG sector may get  benefit
from labor costs hike  in China

Bangladesh readymade garments (RMG) industry may get  benefit from increasing  labor costs in China and the  recent government moves that appreciated the yuan(Chinese currency) against the dollar as viewed from former foreign secretary Farooq Sobhan at a discussion on the South Asian trade body SAFTA at the BRAC centre on January 23.

Many observers feared that as the European Union (EU) withdrew certain restrictions on cheap Chinese apparel imports, the domestic readymade garments sector would be severely weakened from January 1, 2008.

Former Secretary Farooq Sobhan said Bangladesh will lose less than it was previously thought, as the costs of Chinese readymade garments have risen due to an increase in labor wages and appreciation of the Chinese currency. About 53 per cent of Bangladeshi garments exports goes to the EU, and the EU move to lift restrictions on Chinese imports left the sector's businessmen increasingly nervous.

"A 30 per cent increase in RMG workers' wages would take us out of the international market," said the  former BGMEA president Annisul Huq.

Annisul said if Bangladesh could achieve 20 per cent sustainable growth in the RMG sector, problems such as labor issues would be solved.

He added "Over the last ten years, the production growth staggered between 4.0 per cent and 5.0 per cent a year."

GB/25 January, 2008

Bangladesh economy in FY2007-08

A review of first six months by Centre for Policy Dialogue
           
First six months of FY2007-08 (henceforth FY08) have passed. During this period, the economy faced two successive floods in August and September, devastating cyclone Sidr in November and increased prices of essential commodities. These have raised concerns as to whether the macroeconomic targets set for FY08 could be achieved. The present review assesses the performance of major macroeconomic indicators. The review analyses the performance of the public finance and monetary sector, and the real sector.

Public Finance and Monetary Sector
Revenue Earnings and Expenditure: During July-November of FY08, revenue earnings by NBR had 22.4 percent growth while collection of income tax registered 44.0 percent growth. Introduction of the universal self-assessment system has played a positive role in this context. Revenue expenditure (July-August of FY08) had higher growth (30.7 per cent) than the targeted growth (15.6 percent). So, mobilizing additional revenue will be a key challenge.

Annual Development Program (ADP): During July-October of FY08, ADP expenditure (Tk 3,042 crore) was 11 percent of the annual target. In view of the consecutive floods and the cyclone, a review and restructuring of the ADP would be required, and funds need to be diverted towards rehabilitation efforts.

Budget Deficit: Planned budget deficit in FY08 is very high (5.6 percent of the GDP, against 3.7 percent of FY07). Government borrowing from domestic sources increased significantly by 33.3 percent, mostly from the banking sources. Government borrowing is expected to surpass the target because of high government expenditure for post-Sidr rehabilitation. Notably, commendable success was achieved in mobilizing foreign resources. Net foreign financing amounted to Tk 1,642.74 crore during July-October of FY08, against Tk 163.51 crore during the same period of FY07.

Monetary sector: At the end of October 2007, money supply (in terms of M3) posted 13.23 percent growth. Reserve money registered a marginal rise of 5.68 percent and excess liquidity of the scheduled banks was almost steady. Total outstanding domestic credit to the private sector posted a moderate growth (16.84 percent) on a point-to-point basis. Disbursement of term loans targeting industrial sector registered a positive growth during July-September 2007. Taka appreciated by 1.85 percent against US dollar in November 2007, though it rapidly depreciated against Euro and Indian Rupee.

Real Sector
Agriculture: Food grain production in FY08 is likely to be 1.2 to 2.0 million metric tons (4.4 percent to 7.4 percent) lower than actual production of FY07. It is mainly due to the damage by flood and Sidr and partly due to lack of fertilizer availability. Estimated loss of livestock sector, affected by Sidr is about Tk 132.26 crore. Coastal fisheries, particularly the shrimp farms, were severely affected.

In view of large scale agricultural rehabilitation in flood and Sidr affected areas, the government disbursed substantial amount of credit. During July-November of FY08, total credit disbursement stood at Tk 1,869.3 crore (6.6 percent higher than comparable months of FY07). The government needs to focus on mobilizing more funds for agricultural credit, particularly for the upcoming boro season.

Price Level and Inflation: Low levels of production in the domestic market, rising prices in the international markets and supply disruption were the major instigating forces behind high inflationary trend. Import of food grains has failed to meet the gap in view of the requirement and the production loss caused by flood and Sidr, even though it was notably higher in FY08 (726,000 mt) than that of last year (143,000 mt). Increased price at the international level, and export restriction imposed by some countries limited imports by Bangladesh.

Industry: Industrial sector was not able to overcome the decline in growth rates during the first half of FY08 because of negative production growth in jute, cotton, RMG and leather sectors. Government's decisions of shutting down 4 state-owned jute mills and retrenchment of 14,000 workers along with other measures in view of restructuring the jute sector have raised lot of concerns.

During the first quarter of 2008, import of capital goods and others have increased by 14 percent, but total amount of LCs for import of machineries declined in following months. Import of industrial raw materials and machinery for miscellaneous industries had registered positive growth during July-October 2007. This perhaps indicates that business activities picked up in terms of current production but entrepreneurs were reluctant to make new investment.

Foreign Investment: Total foreign investment posted a rise by 11.1 percent during July-October 2007, but FDI experienced a fall of -4.0 percent. Portfolio investment experienced a substantial rise. A sharp decline in investment registration indicates that foreign investors have been losing interest to consider Bangladesh as a possible destination. In order to establish confidence of foreign investors, the government should come up with decisions regarding the pending major investment proposals, and also look into the constraints both in terms of infrastructure and regulatory mechanisms that inhibit FDI. The proposed coal policy, if approved without delay, could develop this potentially important source of energy.

Capital Market: DSE's all price index recorded an increase by 749.22 points (41.1 percent) during July-December 2007. Market capitalization rose to 742.2 billion on 30 December 2007 (compared to 315.4 billion on 30 December 2006) taking the market capitalization to GDP ratio to 15.9 percent. Entrance of the GrameenPhone in the stock market would encourage other large-scale companies, especially foreign owned companies, to off-load their shares in the stock market.

External Sector: Aggregate export declined in July-August 2007 (-12.1 percent), mainly due to the fall of RMG exports. In view of the set export targets for woven (19.1 percent) and knit (20.0 percent) products for FY08, export of these two sectors will need to increase by 28.9 percent and 31.2 percent respectively, during the rest of the year. This will be a difficult task with the sanctions on China being phased out as of 01 January 2008.

A large part of increasing import in recent months is accounted for by the rise in international market prices, and less to rise in volume. Total imports during the July-October period of FY08 posted a growth rate of 20.0 percent. In monetary terms, high growths were observed for the import of rice (596.8 percent), wheat (88.4 percent) and fertilizer (106.7 percent).

During July-November of FY08, remittance sent by migrant workers was US$ 2,806.4 million (21.7 percent higher than comparable months of FY07). While the high flow of workers' remittances is expected to continue in the coming months, anticipated higher import payments combined with falling exports might create further pressure on the BoP position in the near future.

Given the challenges lying ahead, the next six months of FY08 will be critical for Bangladesh in terms of achieving sectoral targets as well as maintaining macroeconomic balances. The performance of the economy will also be important for implementing the election plus agenda of the government.

An in-depth review of the performance of Bangladesh economy during the first six months of FY2007-08 (henceforth FY08) by the Centre for Policy Dialogue (CPD) identified seven indicators of hope and eight indicators of disquiet. The review was published yesterday. In view of the developments during the first six months, eight major challenges have to be addressed by the Caretaker Government (CTG) during the next six months of FY08.

Attaining the projected growth: This year's growth target is 7percent. The loss of crop production due to consecutive floods and the cyclone Sidr will certainly call for scaling down the growth expectations in the agriculture sector. Loss of livestock, poultry and fisheries will also be a factor to reckon with. Manufacturing sector is passing through a challenging period. Declining investment has been a much-discussed issue in recent times, although term loan disbursement has maintained its last year's momentum. As it appears, it will be difficult for growth rates to match even those of the past year (6.5 percent), not to speak of the envisaged 7 percent under the PRSP (poverty reduction strategy paper). Therefore, special attempts should be made to focus on sectors that are closely associated with employment, income distribution and the spatial distribution of poverty.

A mid-term review and restructuring ADP focusing on rehabilitation measures: While the large growth in budget deficit during the recent months can be attributed principally to the flood rehabilitation program, financing requirements are likely to grow further in the coming months owing to the cyclone. Since not much can be done with revenue expenditure, the CTG needs to cutback the ADP (annual development program). While scaling down, more focused expenditure should be targeted, with particular emphasis on Agriculture, Rural Development, Infrastructure Development, Education, Health and Power.

Ensuring food security: Ensuring food security would be a major challenge in the upcoming months. Food security at the supply level has to be ensured through (a) increased production in Boro season, (b) increased import through public and private sectors, and (c) materialization of commitments by foreign countries and international organizations to provide food aid. In the meantime, the government machinery should be fully geared to implement the VGF and VGD activities for the under-privileged sections of the society. There is an allocation of Tk.1,649 crore in the National Budget of FY08 for VGD, VGF, Test Relief and Gratuitous Relief (GR) programs. Post-flood and post-Sidr rehabilitation activities need to be integrated into the regular anti-poverty programs of the government.

Curbing inflation: Curbing inflation will be another major challenge. CPD reports have earlier contested the option of contractionary monetary policy. In view of the excess liquidity in the banking system, the thrust should be on restoring business confidence and stimulating investment, alongside agro-production to ensure larger amount of supply in the market to curtail inflation. Recently, Bangladesh Bank in its monetary policy for the rest of the fiscal has announced expansionary monetary policy giving high priority on boosting private investment and supporting government plan to recover the loss from the natural calamities.

Fertilizer: Fertilizer availability is a major problem to the farmers. The government must make arrangements to import about 700,000 tonnes of urea to meet the demand over the next three months. Government must ensure supply of Phosphate (TSP) and Potash (MoP), which is currently a problem in some areas.

Agricultural rehabilitation in the Boro season: The floods in 2007 were highly localized and for those affected the damage was severe. In Boro season, the Department of Agriculture (DAE) should target all farm households in affected unions (or villages if possible) for the rehabilitation program. The DAE may distribute two bags of urea, one bag of phosphate and potash, and 10 kg of seeds of hybrid rice and hybrid maize, for each household. It would be enough to cover needs of fertilizers and seeds for cultivation of two bighas of land for the two major profitable crops in the flood-hit regions. Agriculture rehabilitation in the Sidr-affected areas would require assistance in the form of supply of critical inputs, such as quality seeds and tillage, irrigation services, timely availability of fertilizers and agricultural credit.

Raising power generation capacity and ensuring energy security: During the first half of FY08, maximum average daily power generation was around 3552 MW while peak demand stood at 5200 MW per day. Short and long-term efforts are needed to raise power generation. Bangladesh will need to generate 9,300 MW power by 2012 and 41,900 MW by 2025, if an 8 percent GDP growth is to be attained for achieving the MDGs.

Coping with subsidies, including petroleum price subsidy: With the increased level of oil prices in the international market, the government will need to spend an additional US$ 650-700 million for import of oil in FY08. This additional amount will need to be borne by the state, through subsidy, unless prices are readjusted upward.

The next six months will be a critical period for Bangladesh, given the challenges that lie ahead. The increasingly open and globally integrated economy of Bangladesh is coming under rising pressure in the form of higher domestic prices, stalled investment growth and pressure on the balance of trade and balance of payments.

GB/ 20 January, 2008

Global Market Focus South East Asia’s Stocks markets down falls bringing worries to US economy

Southeast Asian stocks closed mostly lower on January 18 despite a late recovery across Asia, as fears of a U.S. recession continued to weigh on lenders such as DBS Group (DBSM.SI: Quote, Profile, Research) and Bank Mandiri BMRI.JK.

Singapore stocks .FTSTI fell 1.1 percent, bringing the benchmark Straits Times Index down 5.4 percent this week, while shares in Jakarta .JKSE were down 1.4 percent.

The Malaysian market .KLSE slipped 1.5 percent, the Philippine index .PSI closed 2.5 percent lower and Thai shares .SETI were down 0.2 percent. Only Vietnam stocks .VNI treaded higher, by 1.6 percent.

A Singapore-based Trader described the situation like this-"People are still very, very cautious. They bought shares on January 17 expecting things to get better, only to get whacked in the face by Wall Street again."

U.S. stocks plunged on January 17 as a grim set of factory data and heavy losses posted by Merrill Lynch (MER.N: Quote, Profile, Research)aggravated an already bleak outlook for the world's top economy.

A tax-break package mooted by U.S. President George W. Bush, aimed as an economic rescue plan, revived major Asian markets around mid-session, but was not enough to swing Southeast Asia into the black.

 In Singapore, losses were led by a 2.9 percent dip in Singapore Exchange, as investors continue to shun the bourse operator on expectations that its earnings would suffer from lackluster trading in coming months. Top bank DBS dropped 2.4 percent while No.2 United Overseas Bank (UOBH.SI: Quote, Profile, Research) lost 0.9 percent. Singapore's banking stocks are among the region's most sensitive to U.S. financials.

 "We do think at some stage this year, there could be a very significant rally in financials (in the United States), but it does not look as though that time is with us now," said Richard Urwin, head of asset allocation at BlackRock Inc.

 In Jakarta, Bank Mandiri slid 2.4 percent, Bank Rakyat Indonesia BBRI.JK was down 2.1 percent, and Bank Negara Indonesia BBNI.JK fell 1.7 percent. CIMB analyst Mulya Chandra said the sell-down in Bank Mandiri was unwarranted given its continuing fundamental improvements. "Mandiri could continue to raise its return-on-equity as it
capitalizes on its scale advantage and develops its businesses," Chandra said in a note.

 Shares of the country's top bank was down 13 percent since New Year's Day. While regional stocks remain under pressure from worries of a global economic slowdown this year, JPMorgan Private Bank's Elan Cohen said there is value in some Southeast Asian markets.

 "If you look at Indonesia and Thailand, these markets are very cheap. Of course, they are not without political risks," said Cohen, a senior portfolio manager with the bank.

 In Thailand, falls in PTT Exploration and Production PTTE.BK and PTT Chemical PTTC.BK, down 2.6 percent and 1.8 percent respectively, were cushioned by a 1.2 percent gain in Kasikornbank KBAN.BK.

 The bank, Thailand's fourth-largest, reported a higher-than-expected 5.9 percent rise in quarterly earnings as rising lending and fee incomes outpaced higher expenses and
provisions.
 
 In Malaysia, investors sold plantation stocks, pushing Sime Darby (SIME.KL: Quote, Profile, Research) down 3.3 percent and IOI Corp (IOIB.KL: Quote, Profile, Research) 2.4 percent lower.

 In Manila, top conglomerate Ayala (AC.PS: Quote, Profile, Research) fell 4.8 percent
while Philippine Long Distance Telephone Co (TEL.PS: Quote, Profile, Research), the country's most valuable firm, dropped 3.3 percent. "I think this year would be characterized by volatile gains. There would be a lot of volatility, but I would expect
equity markets to end on an unambiguous positive note," said a market expert.

Mid-income People will face Massive shortfall of dwellings by 2010

The decline in the number of apartments now being handed over will cause a massive shortfall in the future, according to Toufiq M Seraj, a former president of REHAB(Real Estate and Housing Association of Bangladesh) and the former teacher of Bangladesh University and Engineering and Technology(BUET).

He predicted  that the present slump in home building will lead to a massive shortfall of middle-income dwellings by 2010.According to him, the annual demand for new middle income dwellings in Dhaka is around 60,000 units, but in recent years developers have only been able to supply around 7000 per annum.

This year developers will only be able to deliver 4000 units and the lack of new projects will store up problems for future years, said by former president of REHAB.


Behind the decline were the increasing prices of raw materials, the corruption drive and the absence of business-friendly policies in the real estate sector, he said.

He said at present, at least 1.2 million people are directly employed in real estate sector with at least another 1.5 million people are indirectly employed and at present the investment in the real estate sector is Tk 30 billion and the growth of the sector had been maintained 10 percent over recent years.

He said prices of apartments and flats in the country had almost doubled since 2005 and the prices of construction materials including rod, cement, sand, bricks and labor costs had gone up abnormally.

The government should focus more on the real estate sector and thereby generate employment while reducing the housing problem in the city, he said. He also said if developers do not come forward for more construction projects the government will lose registration fees, a major source of revenue.

He predicted that the developers and the government will feel the consequences of the slow progress in construction in 2010.

GB/ 15 January,2008

Transportation plan of US$ 5.2 billion for Dhaka

The communication ministry approved on January 14 the strategic Transport Plan (STP) of $5.2 billion mass transport including an underground railway system, to ease traffic congestion and improve the communications system in Dhaka.

The Communication ministry will send the plan to the council of advisers in a week for approval. The project will be completed in two phases-a two year feasibility study and the twenty years to complete.

Other components of the projects are development of traffic management, introduction of bus rapid transit (BRT), non motorized transport (NMT) lanes, pedestrian facilities and railways, and completion of eastern portion of the circulated waterways.

The government on November 4, 2007 decided to introduce metro service before starting the work of elevated expressway or light rail under the STP. The metro, involving $3.1 billion, will have underground railway service from Tongi and Gabtoli to Jatrabari and from Gulshan-2 to Gulshan-1 via Asad Gate, Shyamoli and Mohammadpur  as said by the Dhaka Transport Coordination board of the Communication Ministry on January 14.

GB/15 January, 2008

Loan waiver for 16 sick frozen industries, expected $550 million export in current year

The Ministry of Finance(MoF) has taken move for the revival of 16 sick frozen food processing and exporting units by resolving the problem of accumulated block loans worth Tk. 1.85 billion(185 crore).

In a recent meeting, the MoF decided to revive the units by resolving the problem of block loans up to June 2007. Of the total loan of a sick industry, concerned bank and government will carry on 80 percent of the loans in equal shares and the remaining 20 percent will be paid by the concerned company.

The government has selected the 16 industries out of 72 frozen industries. The experts estimated the export volume of frozen foods will reach $550 million in the current fiscal against $515 million earned in the previous fiscal.

GB/Jan 12, 2008

Increased focus on motorized vehicles is the burden for future economy For present and future Dhaka, which transportations to choose!

More than 15 percent GDP of Bangladesh will be used to keep country’s transport system going by 2030 if the country continues to prioritize motorized vehicle as said by Keynote speaker Mahbubul Bari, senior assistant manager of Transport for London, UK in a seminar arranged by Bangladesh Paribash Andolon (BAPA) in Dhaka city on January 12. According to him, non-motorized transports system such as walking, bicycles and rickshaws should be given priority in the Strategic Transport Plan (STP) in order to create and environment friendly and pro-people Dhaka metropolitan transport system.

The 75 percent movement is based on short distance trips in Dhaka city and for this movement there is no need to use motorized vehicles like buses and private cars. The pollution free modes of pedestrian facilities, biking and cycle rickshaws are being given priority even in many developed countries including the UK for short distance travel as said by transport expert.

The Strategic Transport Plan(STP) has already formulated targeting long distance travel mentioning excuse that it is difficult for Bangladesh to make a room for non-motorized vehicles since the country does not have enough space and  many roads are being made off limits to rickshaws.

The seminar attendant experts criticized that the STP has formulated to develop the transport system stresses the needs of only five percent of the people who are using cars occupying 50 percent of the road.  If the STP recommendations are implemented, the contributions for private cars would stand at 31 percent by 2024 from 18 percent and the participation of public transport would drop to 21 percent form 34 percent. Referring to a study, the expert said 2 percent of GDP is currently being used on importing energy required for transport sector, but if the fuel price increases to $120 per barrel by the year 2030, more than 25 percent of GDP will have to be relinquished in order to keep country’s transport mobile.

In conclusion, the experts of  the seminar asked the government to develop and integrated STP coordinating the use of  non-motorized and motorized transport systems.

13 January, 2008