Unnayan Onneshan: Bangladesh faces major structural weakness

DHAKA, Oct. 26 (nsnewswire) — The Unnayan Onneshan, an independent multidisciplinary think-tank, in its latest monthly

economic update reveals that the country’s terms of trade have been deteriorating unabated,

reflecting a major structural weakness of the economy.

The terms of trade, the value of exports relative to that of imports, reached at 70.1 percent in FY

2011-12 from 70.8 percent in FY 2010-11 and the leading think-tank projects further weakening

in the upcoming years to reach at 69.2 percent, 68 percent, 66.7 percent and 65.5 percent in FY

2012-13, FY 2013-14, FY 2014-15 and FY 2015-16 respectively, if radical actions are not taken.

Explaining that the terms of trade are influenced by a number of factors, the research organization

says that the deterioration means that the gap between country’s dependency on export of low-

value products and import of high-value products are increasing, disfavouring the rise of export

prices comparative to import prices.

Referring to the dominance of seven low-value labour intensive export items of the country, the

research organisation also states that although exports of woven garments, jute goods increased

slightly in FY 2012-13 compared to the previous FY 2011-12, the exports of frozen food, knitwear,

raw jute, chemical products, engineering and electric goods, and tea witnessed a decline compared

to FY 2011-12.

Of the main five import items, excepting food grains, the remaining four – crude petroleum,

raw cotton, capital machinery and iron, steel and other base metals – are, on the other hand,

comparatively high-value industrial goods, adds the report.

Urging for a structural shift and transcending from the current practice of government taking

policies on an adhoc basis, the Unnayan Onneshan suggests to opt for coordinated monetary and

fiscal policies by way of fiscal incentives, subsidies and tax breaks to embark upon technological

catching up and manufacturing high value-added products to stave off further deterioration of

terms of trade.

The research organisation also points out that trade openness is increasing while terms of trade

is decreasing which casts doubt over the efficacies of trade liberalisation. In FY 2012-13, the trade

openness index reached at the highest level of 49.9 since FY 2001-02.

Observing that the economy has been experiencing a negative balance of trade over the years, the

Unnayan Onneshan reasons out a greater fall in import than that in export behind this decline in

trade deficit. Trade deficit declined to USD. Trade deficit declined to USD 7010 million in FY 2012-

13 from USD 9310 million in FY 2011-12. If the recent business scenario remains as usual, trade

deficit might decline to USD 2494.33 million in 2013-14 and to USD 2667.71 million in 2015-16.

The Unnayan Onneshan notes that the surplus of current account has risen due to increase in

remittances and fall in import payments. The country recorded a surplus of USD 2525 million in

FY 2012-13 against USD 447 million deficits in FY 2011-12 as import payment decreased to USD

34083.6 million in FY 2012-13 from USD 35516.3 million in FY 2011-12, witnessing a negative

growth of 4.03 percent.

The think-tank, however, observes that surplus achieved through reducing import of raw materials

and capital machinery for its industrial sector may not be considered a blessing and this surplus

has also appreciated the national currency, leading to loss in export competitiveness. The import

of raw materials and capital machinery declined to USD 6408 million in FY 2012-13 from USD

11268 million in FY 2011-12, making a negative growth of 43.13 percent. The Taka has appreciated

by 0.01 percent at the end of August, 2013 compared to July, 2013.

 

The portfolio investment and foreign direct investment (FDI) witnessed a negative rate of growth.

The portfolio investment stood at USD 110 million in FY 2012-13 from USD 198 million in FY 2011-

12, observing a negative rate of growth of 44 percent. The net FDI experienced a negative rate of

growth of 24.6 percent in FY 2012-13, from a positive rate of growth of 28.4 percent in FY 2011-12.

The net FDI decreased to USD 750 million in FY 2012-13 from USD 995 million in FY 2011-13.

The Unnayan Onneshan also notes that net foreign inflow increased to USD 1887 million in FY

2012-13, from USD 1169 million in FY 2011-12. Furthermore, in July of FY 2012-13, the total foreign

aid was USD 209.99 million and principal payment was USD 53.17 million for which net foreign aid

was positive as USD 156.82 million. The net flow of foreign aid stood at USD -41.84 million in July,

2013 compared to the same period of the previous fiscal year. Source: Press Release