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BUDGET 2012-2013

Private investment dips after 2 years

Tight credit, energy shortages, policy uncertainties stunt growth

Rejaul Karim Byron
After two years, private investment again slowed down against
volatilities in the global economic environment and a number of local factors -- poor infra-
GDP (gross domestic product) in the current fiscal year compared to that in the last fiscal year.
The downslide was mainly due to
structure, variability in inflation, tight credit, energy shortages and policy uncertainties.
According to the provisional estimate
of Bangladesh Bureau of Statistics (BBS), private investment against GDP fell by0.37 percentage point and stood at 19.14 percent in the current fiscal year.
During the last two decades, private investment marked a fall only in two years — in the current fiscal year and in fiscal 2009, according to available statistics.
The overall investment rose by 0.30 percentage point and reached 25.45 percent of GDP in the current fiscal year. The rate was 25.15 percent last year.
However, the overall investment rate missed the target set in the sixth five-year plan of the government. In fiscal 2012, the overall investment rate against GDP will be 26.8 percent.
Independent think tank the Centre for Policy Dialogue (CPD) and the World Bank identified some reasons behind the fall in private investment.
In the Executive Opinion Survey 2012, which was carried out by the CPD during February-April this year, top three problematic factors are found to be increas-ingly becoming more important factors for businesses.
Poor infrastructure is regarded as the most important problematic factor followed by high level of corruption, the think tank said in a report -- Review of Bangladesh Economy in fiscal 2011-2012.
Difficulty with regard to 'access to finance' is the third most problematic factor. These adversities are likely to cause high cost of production with consequent negative implication for competitiveness of business both in local and foreign markets, said the report.
Distinguished Fellow of the CPD Debapriya Bhattacharya said corruption and a lack of access to
finance were less important factors in the previous years. But these two factors have come to the fore this year.
The comments of Bhattacharya came while launching the report at the CPD office in Dhaka yesterday.
However, the WB in a report released on Sunday said: "Investors appear to have gone into a wait-and-see mode because of volatilities in the global economic environment and the stresses and strains emanating from domestic sources."
The domestic reasons include high variability in inflation, and tightening credit conditions in the financial sector as reflected in a significant reduction in growth in industrial term loan disbursement, resulting in negative net disbursements.
The WB also blamed the slowdown in private investment on energy shortages and policy uncertainties in the run-up to elections in early2014.
Though private investment fell compared to GDP, public investment rose by around 1 percentage point.
According to BBS estimate, in the current fiscal year public investment against GDP has been put at 6.30 percent, which was 5.64 percent last fiscal year.
The CPD said the monetary policy stance taken by the central bank to control inflation will result in a slowdown in investment.
It also said the current macroeconomic performance including the monetary policy stance would entail investment slowdown leading to a trade-off in economic growth.
The most direct measure of deceleration of investment is exposed by decreasing trend in industrial term loan disbursement, the think tank added.
According to Bangladesh
Bank statistics, in the first six months of the current fiscal year industrial term loan increased by only 1.94 percent, but the rise was about 34 percent in the same period last year.
According to LC (letter of credit) settlement statistics, capital machinery import growth in the first nine months of the current fiscal year fell by about half compared to the same period last year.
In the first nine months, LC settlement for capital machinery import rose by 22 percent, while the growth was 43 percent in the same period last year.
A negative scenario in LC opening shows that future investment would suffer some setbacks.
In the first nine months of the current fiscal year, import of capital machinery fell by 26 percent, which increased by 69 percent during the same period last year.
In the same way, import of raw materials decreased and the extent of LC opening has also marked a fall.
An official of a private bank said the central bank has taken various steps to bring down private sector credit growth.
As a result, the rate of interest has also gone up in the recent times. He said these have also contributed to a slowdown in private investment.
Also, the overall electricity and gas crisis also stunted investment growth.
The CPD report said, despite some positive development in gas and electricity supply, the overall situation is still not supportive of new investment, particularly in the industrial sector.
The report also said, “The realised investment performance in fiscal 2011-12 will be to a great extent influenced by the unsatisfactory state of affairs in the energy sector."