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Escap sees 7pc GDP growth unlikely

Cites political uncertainty as key reason

Staff Correspondent
Bangladesh may miss its target of achieving 7 percent GDP growth in 2008 because of continuing political uncertainty and its budget deficit during the period is expected to rise to 5.6 percent of GDP, said a survey of Escap.
But it expected that the caretaker government's anti-corruption drive will improve the country's business environment in the coming years, attracting foreign direct investments and helping the country's economy to grow.
"The Bangladesh government's target is to raise GDP growth to 7 percent in 2008. But with continuing political uncertainty, this target may prove elusive and GDP growth may remain at about 6.5 percent," said Escap's Economic and Social Survey of Asia and the Pacific 2008
The United Nations Economic and Social Commission for Asia and the Pacific (Escap) conducted the survey, the report of which was
launched globally yesterday.
The survey report said budget deficit in 2008 is expected to rise to 5.6 percent of GDP mostly because the country's liabilities for accumulated fuel subsidies are to be included in the 2008 budget.
"In addition, the 2007 cyclone and floods will require the government to spend heavily on restoring health, sanitation and water and rehabilitating the damaged infrastructure. The budget deficit for 2009, however, is expected to revert to a norma) level of 3.8 percent," it said.
Stating that public debt remains a "serious problem" in the South Asian region, the report said public-debt in Bangladesh has stabilised below 50 percent of GDP in recent years.
"The real burden of public debt in the country is in its servicing. In Bangladesh, interest payments alone consumed about 18 percent of government revenue in 2006,
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more if repayments of principal are included," it said.
The survey said high domestic public debt pushes up interest rates and crowds out private investment, which is much needed to promote economic growth.
To address the debt issues, it called for vigorous pursuit of policies that promote growth, and strengthening of tax administration to overcome low revenues due to inefficient tax systems.
Given the issue of poverty, the demand for public spending remains high, the Escap said, adding, "The challenge for governments is to contain wasteful public spending and orient it towards priority sectors. Public expenditure should promote pro-poor growth: basic services, such as education, health, sanitation and housing should be a priority."
On inflation, the report refers to three key factors: supply-side constraints, political and market uncertainty and strong aggregate demand.
High international prices for commodities added to inflation pressure not only in Bangladesh, but in other countries of the region including India, Pakistan, Nepal, Sri Lanka, Bhutan, Afghanistan and Iran that hit mostly the poor, the survey said.
It, however, said Bangladesh has reduced its economic vulnerability over time by reducing the share of agriculture systematically and moving to manufacturing-based exports, which tend to be less vulnerable.
"The country has also found ways to quickly respond to frequent disasters such as cyclones and floods. Also, overseas remittances are playing an important role in cushioning economic shocks," it said.
Large remittances from workers abroad contributed to current account surpluses in Bangladesh in 2007, the survey said Workers' remittances rose to nearly $G billion and in 2007 Bangladesh exceeded slightly its 2006 current account surplus of about 1 percent of GDP