The World Bank (WB) views that Bangladesh may finally break out of the low growth cycle. but warns that the level of Investment may decline if the low level of import of investment related goods continues.

"Bangladesh appears to be breaking out of the 4-5 per cent annual real GDP growth to the 5-6 per cent range. Prudent fiscal and monetary management, return of political stability and relatively lower incidence of disruptions in Chittagong port operations have been important contributory factors.” tt observed in its recent periodic economic update.

But the Bank added that "The economy, however, continues to face significant challenges. The power supply is critical, the financial sector remains extremely fragile and mlsalloca-

tion and misappropriation of resources is a significant drain on the economy."

It noted that a number of macro-economic achievements like improving the budget deficit, keeping the external balances unaffected and a tightened monetary policy, has bridled the growth of broad money supply.

However, it said although the revised gross domestic investment. at about 22 per cent of GDP in 1996. is considerably higher than previous estimates, there are indications that investment levels are stagnant and could even decline if the recent trend in the reduction in imports of Investment related goods, witnessed in FY98. continues.

The Bank also said the increasing rate of inflation is also

a cause of concern which is driven largely by the rise in food prices.

It also questioned the sustainability of the strong export growth achieved in recent years, given a nearly eight per cent appreciation of the taka in real terms and significant appreciation of the taka relative to competitor countries such as Indonesia (556 per cent). Thailand (52 per cent,) India (9.9 per cent) and Pakistan (5.6 per cent).

About the turmoil in East Asia and its impact on the country, the WB said it has. so far, not affected Bangladesh's external balances and financial markets due to the country's extremely low exposure to short-term foreign debt, a nonconvertible capital account andstrong growth In its major export markets.

’The composition of domestic financing of budget deficit Improved in FY98, with a significant decline in central government borrowing from the Bangladesh Bank," the WB said. The government's domestic interest burden did. however, increase due to increased reliance on the relatively more expensive national savings certificates and the increase in Interest rates on treasury bills.'

Monetary policy was significantly tightened in FY98. Broad money grew by only 9.5 per cent between July 1997 and March 1998. reflecting less than 12 per cent growth In domestic credit, an increase in the bank rate from 7.5 per cent to 8 per cent and strict surveillance of the balance sheets of banks frequently using Bangladesh Bank's discount window.