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MCCI identifies five risks to economy

Star Business Report
The Metropolitan Chamber of Commerce and Industry (MCCI) has identified five major factors that threaten the targeted economic growth in fiscal 2011-12.
The threats are: pressure on the balance of payments, rising government expenditure out of bank borrowing, stagnant investment, political unrest and double-digit inflation.
“These problems will need to be addressed on an urgent basis if the country is to achieve the officially targeted 7 percent GDP growth in the present fiscal year,” MCCI said yesterday in its quarterly economic review that covered January-March.
MCCI said the government should take note of the donors' concerns about the country's present economic problems and adopt appropriate measures to solve those problems.
The Asian Development Bank forecast that GDP growth would slow to 6.2 percent in the current fiscal year. The International Monetary Fund has lowered the growth projection to 5.5 percent due to weaker external demand and sluggish investment.
MCCI, however, said Bangladesh's economy performed reasonably well in the third quarter of FYI 2 although most of the developed countries have been experiencing slow growth.
The agriculture sector depicted good growth in the quarter under
review, but the chamber said continuous government support with inputs and finance will be required to sustain the sector's growth in the current fiscal year and beyond.
The services sector that grew at modest 6.6 percent in last year would have grown faster in the current fiscal year if production in real sectors increased at a greater pace.
The chamber said low disbursements of industrial term loans, a drastic decline in private sector credit growth, fall in the import of capital machinery, and erratic supply of power and gas indicate that the manufacturing sub-sector's performance has been relatively weak in the quarter under review.
In FY11, the industry sector as a whole grew by 8.2 percent and, within it, the manufacturing sub-sectorgrewby 9.5 percent.
“There is no official data on the performance of the sector in the quarter under review, but industry sources say industrial production
has slowed down,” MCCI said.
Domestic credit recorded just 11.1 percent growth during July-January of FY12 against 14.6 percent for the same period a year ago. MCCI observed the lower credit growth was due to a sharp decline in the growth of private sector credit to 10 percent in July-January from 16.4 percent in the same period a year ago.
It said like most other sectors of the economy, the growth prospect of the construction sub-sector hinges greatly on the development of the country's power and gas sectors.
On the power supply, the report said the situation has worsened in the recent days as overall demand has gone up. The average daily demand for electricity at present is approximately 6,000MW, leaving a shortageof l.OOOMWto 1.500MW
The chamber, however, said the government has added 3,300MW of new electricity generation since taking office in January2009.
The MCCI observed declining exports, foreign aid and investments pose a threat to the economy.
Export earnings fell by 7.21 percent in March, 2012 compared to the same month a year ago. This is the first time that the monthly earnings have gone in the negative territory in the current fiscal year. On the other hand, settlement of import LCs in March, 2012 was 17 percent higher than that in February, 2012. Disbursement of foreign aid dropped by 6.7 percent in the first seven months of FY12 compared to the same period of FYI 1 due to the slow pace of implementation of the donor funded projects.
The low level of foreign direct investment (FDI) inflow into Bangladesh remains a concern. FDI inflow during July-January of FYI 2 was only $425 million, slightly higher than $405 million in the same period of FYI 1.
Balance of payments stood negative at $813 million during July-January of FY12 because of growing deficit in trade balance.
The slow pace in using foreign funds by ministries has forced the government to revise the allocation for the Annual Development Programme down by 10.87 percent to Tk 41,000 crore from original Tk46,000 crore.
The NBR revenue collection grew by 17.5 percent in the first eight months of the current fiscal year, thanks to a strong drive to collect revenues from public and private sectors. The board collected Tk 53,845 crore in July-February of FY12 against the full-year target ofTk 91,870 crore.
On a point-to-point basis, the general inflation rate dropped marginally to 10.10 percent in March, 2012 from 10.43 percent in the previous month, mainly because of a drop in food inflation. Food inflation came down to 8.28 percent in March, 2012froml0.90 percent in January.
The capital market rebounded in March 2012 after the sharp fall during the previous two months. Activity increased considerably amid regained investor confidence, observed the chamber.