FDI inflow in Bangladesh is low compared to that in many countries that are at similar levels of development
In its recent “Economic Situation in Bangladesh review, July-September 2018 (Q1 of FY19)”, the Metropolitan Chamber of Commerce and Industry (MCCI), statedthat inflation was under control, exchange rate stable, and foreign exchange reserves rose to a comfortable level, in the first quarter of the current fiscal year.
The review further reportedthat although Bangladesh’s economy is progressing well, infrastructure bottlenecks and shortage of power and energy has resulted in its performance to remain below its true potential.
Quoting the government’s latest data, MCCI reportedthat all major macroeconomic indicators – per capita income, foreign currency reserves, import and export, and foreign direct investment (FDI) – depict a strong positive trend in terms of private and public sector revenue collection.
In September 2018, the general point-to-point inflation in the country fell by 0.05% to 5.43% from 5.48% in August 2018.
The inflation in September was at its lowest in 18 months following the continuous fall in food prices. According to Bangladesh Bureau of Statistics (BBS), the lowest inflation rate was recorded at 5.39% in March, 2017.
In September of 2017, the inflation rate was 6.12%.
Food inflation came down 0.55% to 5.42% in September 2018 from 5.97% in August. However, year-on-year food inflation fell by 2.45% from 7.87%.
On the other hand, non-food inflation increased by 0.72% to 5.45% in September 2018 from 4.73% in the previous month. Year-on-year non-food inflation, however, increased by 2.01% from 3.44%.
BBS data also reveals that prices of food items including sugar, edible oil, fish, vegetables, egg, andlentils dropped, while rent, cost of clothing, price of household goods, fuel, medical and transportation services, and education went up.
A comparison of point to point inflation data for urban and rural areas in September of FY19 shows that the inflation rate was higher in urban areas than in rural areas. Thus, the point-to-point general, food, and non-food inflation in rural areas in September were 4.99%, 4.86%, and 5.22%, respectively.
These rates in urban areas were 6.23%, 6.65%, and 5.74%, respectively.
Foreign direct investment
In the first two months of the present fiscal year (July-August of FY19), the net FDI increased by $15 million or 7.46%, from $201 million to $216 million in the corresponding two months of FY18.
FDI inflow in Bangladesh is low compared to that in many countries that are at similar levels of development.
Although Bangladesh’s low labor costs are generally believed to be attractive to foreign investors, they hesitate to make fresh investments in the country due to the country’s underdeveloped infrastructure, and impediments such as shortage of power and energy, lack of consistency in policy and regulatory framework, scarcity of industrial lands, corruption, and political uncertainty.
The report recommended that the government address these impediments to attract more FDI to the country.
Exchange rate and foreign exchange reserves
Between the end of June and end of September, 2018, the Taka depreciated by 0.06% in terms ofthe US dollar. On the inter-bank market, the US dollar was quoted at Tk83.7 at the end of June 2018 and Tk83.75 at the end of September 2018.
Bangladesh Bank's gross foreign exchange reserves stood at $31.958 billion (with ACU liability of $0.54 billion) as of end September 2018, as compared to $32.927 billion (with ACU liability of $1.15 billion) at the end of August.
The current foreign exchange reserve (less ACU liability) is equivalent to 6.35 months’ import payments.
National Board of Revenue’s (NBR) revenue collection target for FY19 is Tk296,201 crore, which is about 19.34% higher than that of the previous fiscal year’s original target – Tk248,190 crore – about 31.64% higher than the revised target of Tk225,000 crore, and additionally, about 43.50% higher than the collected amount of Tk206,407 crore in FY18.
In the first two months of FY19 (July-August), the NBR collected Tk28,317 crore, which was just 1.58% higher than collection of Tk27,876 crore in the previous period of FY18. However, this revenue collection fell Tk7,260 crore (20.41%)short of the target – Tk35,577 crore – for the first two months of FY19.
The small increase in NBR’s revenue collection – 1.58% – in July-August of FY19 was mainly due to the negative growth in the collection of value-added tax and customs duties.
In these two months, the collection of VAT and customs duties declined by 0.45% and 5.55%, respectively.
Income tax collection, on the other hand, grew by 13.84% in this period.