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WB disputes govt claims on investment, savings

By Toufique Imrose Khalidi and Inam Ahmed
Donors have disputed government claims that investment and savings are on the rise, saying its own statistics presents a different picture.
In its Annual Economic Update. a document that will provide the basis for deliberations at the Aid Group Meeting scheduled for November 4-5, the World Bank has called it an "overestimation" and "inconsistent" with data generated by the government agencies.
The government claims that total investment rate was up, from 17 per cent of GDP to 17.4 per cent, in the last fiscal, but the Bank cites National Board of Revenue figures to say this is not the case.
This is difficult to reconcile with the data on capital and in-
termediate goods.
"For instance, according to NBR's shipment-based trade data, imports of iron and steel (in current Dollar terms) declined by nearly 23 per cent, and that of cement by 10 per cent, while Imports of capital goods Increased by less than one per cent, and value addition in construction grew by only 3.6 per cent in 1996-97.
"Even after taking into account the 4.6 per cent nominal exchange rate devaluation and the less than six per cent growth (through May) in domestic production of cement in 1996-97, the magnitude of the increase in the size of nominal investment appears inconsistent with these
"In short, the 1996-97 in-
vestment rate is likely to have been overstated." the Update said, and added "such an over-estimation would have also led to an over-estimation of the national savings rate."
Challenging the Bangladesh Bureau of Statistics (BBS) data which show that savings rose from 11.9 per cent of GDP in 1995-96 to 14.6 per cent in 1996-97, the Update said the Kowth rate "appears to have en overestimated".
The Bank criticism seems based on a difference of opinion in interpreting the data.
According to the Bank, the increase was explained by a strong rise in remittances, "which must have contributed to higher private savings".
The domestic savings rate was up because, as the Bank said, there was a strong growth in agricultural GDP, increases in nominal interest rates and lower rate of inflation in 1996-97.
The Bank, however, gave an optimistic picture about medium-term prospects of foreign direct investment. If reforms continued. Bangladesh could easily bring in between 400 million and 600 million US dollars in foreign direct investment (FDI) annually, it said.
Referring to recent deals in energy sector, the Update estimated the FDI flow could reach half-a-billion dollars in the current fiscal.
Prospects for portfolio investment were not discussed in the Update, which, however, reviewed the impact of the stock market boom last year and said there were bad days ahead for the capital market.
"The prospects for developing a healthy capital market in Bangladesh have been badly set back for the near and medium term. There could be a longterm benefit from the whole experience since the retail investors learnt first hand the nature and extent of the risks involved and have presumably understood the importance of taking calculatlve risks in playing the capital market.'
It said the foreign direct investment was safer for Bangladesh in terms of “prospects of abrupt outflows'. Ine same would not be the case with ^portfolio capital, the Up-
"FDI is usually associated with long-term commitments of funds with more predictable repatriation of profits", it