Performance of the Economy During the First Half of FY By Prof. Ayubur Rahman Bhuyan Organized by Islamic Economic Research Bureau

1. Seminar Highlights Performance of the Economy during the First Half of Fiscal (FY07) Economic Indicators, viz, GDP, Real Sector production, Public Finance, Financial Sector developments, External Sector Performance etc. Opinions expressed are the Presenter’s own and do not in any way represent the views of the IERB

2. Some Positive features of the Economy Macroeconomic fundamentals are strong Buoyant external demand gave a boost to export Steady growth of worker remittances Inflation is slightly high but under control Exchange Rate relatively stable Foreign Exchange Reserves appear comfortable

3. Some Negative Features Revenue shortfall despite progress in Tax Administration Reform Reforms (e.g. financial sector reform, energy pricing etc.) have slowed down. SOE losses growing Weak governance (Economic, Institutional, Political) persists Poor ADP Implementation Poverty is declining very slowly FDI is declining Political tension and infrastructural constraints vitiate the investment climate

The Real Sectors Target for FY07: Aus 2.02, Aman 12.21, Boro 15.52, Wheat 0.77, Total Aus, the first crop, produced 1.51 MMT, which is 14% lower than last year’s production of 1.75 MMT, and 25% short of this year’s target Harvest of Aman, the second crop, is new complete. It was affected by scantly rainfall, and short supply and high prices of fertilizer and insecticide Aman production this year was 10.6 MMT, less than last year’s production of 10.8 MMT 4. Agriculture: Food Production (in Metric tons)

5. Agriculture Contd. Boro crop will depend on timely availability of fertilizer and irrigation water (dependant on diesel and electricity supply) Shortfall of fertilizer is feared because of delayed import Boro production may be les than target Wheat crop: the reduced target may be achieved Outlook for minor crops (maize, pulses vegetables) is promising However, agriculture sector growth may be less than last year’s 4.5% Total production target of foodgrains for FY has been recently refixed at MMT 5.7% higher than the earlier target of MMT

6. Agriculture Contd. Food grain production (Million MT) Food CropActual FY05Actual FY06Target FY07Estimate FY07 Aus (15.4%)1.51 Aman (13.0%)10.60 Boro (13.8%)15.30 Wheat (-25.0%)0.77 Total (11.9%)28.18

7. Industry In July-November 2006, large and medium scale industries grew by 12% over the same period of last year Output of small industry in the first quarter of FY07 registered 11.4% growth No improvement in electricity production is likely in the near term Power disruption, restrictive credit policy, and infrastructural problems may impede industrial growth Overall prospect: Growth may be slightly lower than in FY06

8. Services Sector In the first half of FY07, the services sector responded well to the growth of manufacturing industry and higher volumes of export and import However, hotel and restaurant business was affected badly by the power crisis Political programmes of parties affected transport and communication, and the entertainment industry Overall prospect: If business climate improves, the sector may perform well

9. GDP Growth in FY06 was 6.7%, riding on higher growth in agriculture and industry This year, agriculture sector growth may be lower than the last year may be around 3.3% Condition for industrial growth are favourable (there are new capacities in RMG, Textile, Engineering and Chemicals sectors) The services sector may record strong growth

10. GDP Contd. But major impediments to higher industrial growth now are: –Infrastructural constraints (power, gas, road, ports) –Labour unrest (as seen in the garments sector) –Political uncertainty –Other risks: Instability in world prices, tough competition following MFA phase- out Overall GDP growth may be lower this year than last year’s 6.7%, but still remain around 6% Various growth projections: ADB 6.0%, IMF 6-6.5%, BB % To sustain higher GDP growth, the country needs to improve infrastructure, meet the growing energy demand All this will require substantial investment and faster progress with reforms

10. Growth of GDP and Sectors (%) [At Constant FY96 Prices ] SectorFY03FY04FY05FY06EFY07PSector Share in GDP FY06 1. Agriculture: a) Agriculture and forestry i. Crops & horticulture ii Animal farming iii. Forest and related services b) Fishing Industry : (a) Mining and Quarrying (b) Manufacturing (i) Large and Medium scale (iii)Small scale (c) Power, Gas and water supply (d) Construction Services (a)Wholesale and Ret. Trade (b)Hotel and Restaurants (c)Trans, Storage and Commn (d)Financial Intermediations (e)Real Estate, renting, others (f)Public Admn and Defence (g)Education (h)Health and Social Work (i)Community, Social and Personal services Total GDP