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ADB sounds alarm over falling investment

Star Business Report
Investment sluggishness remains a big concern for Bangladesh, said an Asian Development Bank (ADB) report released yesterday.
The Manila-based development partner said Bangladesh has to address its infrastructure and business environment constraints, including acute energy crisis if it is to attract greater investment, particularly foreign direct investment (FDI).
"A matter of considerable concern is the stagnation in the investment to GDP ratio within a range of 24.2 percent to 24.7 percent over the past five years,” said the ADB quarterly economic update for June 2009.
It said although private investment rose marginally to 19.6 percent in fiscal year 2008-09 riding on the improved business confidence following the return to an elected government, the fallout of the global economic slowdown is evident in lower disbursement of industrial term loans.
Import of capital machinery has also slowed down significantly. Letter of credit for such imports fell by nearly 30 percent in FY2008-09 from that in the previous year.
Bangladesh attained 5.9 percent GDP growth in FY 2008-09, down from 6.2 percent a year ago.
"Slowing private consumption and investment activities are expected to exert further downward pressure on GDP growth in FY 2009-10,” says the quarterly economic update.
Private consumption, which rose by 6 percent in the past fiscal year, accounts for about 75 percent of the country's GDP The consumption growth was slightly higher in FY2007-08.
Industry sector that contributes about 30 percent of the GDP declined to 5.9 percent in the immediate past fiscal year from 6.8 percent the previous year. The ADB attributes this growth decline to slowdown in exports in the second half of the fiscal year following the global recession.
“Weak investor sentiment also
affected manufacturing growth; as did slow implementation of power and energy projects, despite the new government's high priority on power generation and gas development, and weak construction activity,” the report pointed out.
Growth in power and gas subsectors dropped by over 2 percent-. age points to 4.5 percent.
The services sector growth also slowed slightly to 6.3 percent in FY2008-09, due to the slowdown in remittance inflows, lower trade activities and moderation in industry growth. Slower export growth and a fall in import volumes affected trade and transport services.
The agriculture sector grew by 4.6 percent, up from 3.2 percent a year ago, owing to high growth in food grain production (8.1 percent) aided by favourable weather and strong government support, including delivery of inputs.
Revenue collection also remains a challenge for this year, the ADB said. Revenue from the
National Board of Revenue sources increased by 10.7 percent, far below the budget target of 18.6 percent and the 27.4 percent growth the previous financial year.
On inflation, the ADB is agreed with Bangladesh Bank's target of 6.5 percent for the current fiscal year.
The overall balance of payments surplus ballooned to $2.1 billion in FY 2008-09 from just $331 million in FY2007-08 due to substantial decline in import, it says.
The lending agency hailed the government for placing a budget with a prudent balance between the need to stimulate the economy against the backdrop of the financial crisis worldwide.
"In view of the widening infrastructure gap, the new budget also unveiled bold initiatives to create a framework for PPP to enhance private investment and streamline project approval processes to accelerate ADP utilisation,’’ says theADB.