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Economy poised to slow: MCCI

The chamber says political unrest will take a toll on all indicators

Star Business Report
Economy is likely to witness a slowdown in October-December quarter on account of uncertain political environment in the run-up to elections and high costs of bank loans, the Metropolitan Chamber of Commerce and Industry (MCCI) said in a report yesterday.
The chamber also predicts that inflation, too, may go up because of disruptions in supply chain.
"A slower change in all indicators is anticipated in the next quarter (October-December) because of the uncertain political environment," said the report, which was based on Bangladesh's economic review for July-September quarter.
However, the leading chamber observed that despite an uneasy political situation, the economy remained resilient in the first three months (July-September) of the current fiscal year.
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It said the rate of inflation has come down and exports experienced a good recovery. Trade deficit has shrunk and the foreign currency reserves have hit a new high of $17,321 billion. The agriculture sector has also remained largely immune to political unrest.
But the manufacturing and services sectors have been hit hard and are performing below their potential due to the unrest.
"These sectors had long been suffering due to bottlenecks in physical infrastructure and the persistent crisis in power and energy. The political unrest and the associated programmes of shutdowns and blockade by opposition political parties have compounded their problem," theMCCI said.
The economy is facing problems in several other areas, which require urgent solution for better performance in the ongoing quarter, according to the chamber.
The report said exporters and importers are now facing a tough situation as most banks demand large margins for opening letters of credit (LC). Besides, private sector credit growth remained subdued at 11.3 percent at the end of August, much lower than over 19 percent for the same period a year ago.
In addition to political unrest and a weakening
business confidence, the chamber blamed high bank borrowing costs for a slowdown in credit growth.
"High costs of bank loans discourage private sector investors to seek credit. In fact, investors are increasingly moving out to obtain low-cost bank loans from abroad."
So far this year, local enterprises took nearly $1 billion (Tk 8,000 crore) from foreign sources, according to the central bank.
"Growing reliance on foreign loans to start and operate business will have adverse implications for the country's balance of payments in the future. Unless the costs of bank credit are brought down to reasonable levels, private investment will not rise, and the expected GDP growth will be difficult to achieve," the MGGI said.
The chamber forecasts that export income will remain at more than $2.5 billion a month in the October-December quarter, but import will go down significantly to $2.08 billion in December from projected $2.8 billion in Octoberand November.
Point-to-point inflation is likely to increase to 7.8 percent, 8 percent and 8.5 percent in October, November and December respectively, it said.