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Dhaka Tribune

MCCI: Economic growth sputters amidst global headwinds

The brunt of the conflicting situation in the world especially in the Middle East may have some effect on the country's economy

Update : 28 May 2024, 08:17 PM

The Metropolitan Chamber of Commerce and Industry (MCCI) paints a mixed picture of Bangladesh's economic situation in its Q3 (January-March) FY24 review. While some indicators show signs of improvement, others reveal vulnerabilities.

The performances of the key economic indicators are mixed. Exports decreased in April due to a lengthy Eid holiday, but are then likely to increase. Imports and remittances may increase in the next three months, according to MCCI.

In its quarterly report it also said that the forex reserve is likely to increase in April and then fall off in May due to the Asian Clearing Union (ACU)’s payment for the March-April period.

Inflation, however, will go down in April, and then is expected to go up slowly in May and June.

On the country's macroeconomic outlook, it stated that the brunt of the conflicting situation in the world especially in the Middle East may have some effect on the country's economy.

To overcome the situation, the government took quick and decisive measures to address the economic fallout, but they also need to take more actions to stable foreign exchange reserve, manage inflation, enhance revenue earnings, ensure proper electricity and gas supply for economic activities, reduce the cost of doing business, make efforts to find new markets for exports, promote economic diversification by revisiting the incentive structure, and protect small businesses and low-income people.

Nevertheless, the economy has been showing some signs of improvement in the quarter under review.

Exports and imports are two important drivers of the economy, and amid the present situation, both the areas have done comparatively better.

However, there was slowdown in external demand, weak remittance inflow, shortfall in revenue collection and slow public expenditure, rise in inflation, depreciation of the Taka, a decline in forex reserves, unemployment situation and low investment in recent months.

Sector overviews

Contraction in domestic and external consumption amid high inflation, import restrictions amid US dollar crisis, and gas and electricity crunch over the last few months have hindered the growth in the manufacturing sector.

It also said that as a result of this, the sub-sector registered a negative growth of 0.45% in Q2 of FY24, compared to 11.60% of the previous quarter (Q1 of FY24).

On the other hand, the share of the manufacturing sub-sector in GDP also decreased to 24.66% in Q2 of FY24 from 25.90% in the previous quarter (Q1 of FY24), the MCCI observed.

Data on the country's construction sector was unavailable for the quarter under review (Q3 of FY24). However, according to the Bangladesh Bureau of Statistics (BBS)'s latest provisional data, the sector grew by 12.63% in Q2 of FY24 compared to 6.82% in Q1 of FY24.

The real estate business still stays sluggish mainly for higher costs of property and lower purchasing power of people, as Bangladesh has yet to see tangible economic pickup.

Sector insiders are now blaming the rising bank lending rates for a slowdown in their business, as higher rates are weighing down sales despite people's unmet demand for houses.

Due to the present conflicting world scenario, the services sector registered a lower growth of 3.06% in Q2 of FY24, compared to 3.73% in the previous quarter (Q1 of FY24). Besides, the share of the sector in GDP decreased by 2.43 percentage points to 49.19% in Q2 of FY24 from 51.62% in Q1 of FY24.

Gross inflow of foreign direct investment (FDI) in July-March of FY24 decreased by 4.92% to $3.21 billion, against $3.38 billion in the same period last fiscal.

Of this, the net FDI liabilities increased slightly year-on-year by 1.32% to $1.22 billion from $1.21 billion.

The trade deficit, year-on-year, narrowed to $4.75 billion from $14.63 billion as imports dropped by 15.42% during July-March of FY24.

Year-on-year, export receipts rose by 3.99% while imports declined by 15.42%.

Due to the present conflicting world scenario, the services sector registered a lower growth of 3.06% in Q2 of FY24, compared to 3.73% in the previous quarter (Q1 of FY24).

Besides, the share of the services sector in GDP decreased by 2.43 percentage points to 49.19% in Q2 of FY24 from 51.62% in Q1 of FY24.

According to the EPB latest data, export earnings of the services sector decreased by 17.51% to $3.82 billion in July-January of FY24, compared to $4.63 billion in the corresponding seven months of the previous fiscal year.

Earnings of the services sector in July-January of FY24 also decreased by31.17% against the strategic target ($5.55 billion.)

According to newspaper reports, the MCCI pointed out that the NBR is planning not to extend tax exemptions for 27 information technology-enabled services (ITES) in the upcoming budget, which means companies offering these services could be taxed on their income starting next fiscal (FY25).

Currently, the revenue authority has been granting tax exemptions on IT-enabled services, with the period extended every three to five years. However, the NBR does not intend to extend the exemption beyond its expiration on 30 June 2024.

"We, the MCCI, feel that the tax exemption facilities for ITES should continue. The withdrawal would negatively impact the sector's growth, reducing investment and potentially causing exports to dwindle. We propose that any withdrawal of these facilities should be implemented gradually, with a long-term plan to minimize the adverse effects on the sector."

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