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MONTHLY BUSINESS REVIEWVOLUME: 09 ISSUE: 02FEBRUARY 2018
Generalized Scheme of Preferences plus Generalized Scheme of Preferences plus
Contents
MONTHLY BUSINESS REVIEWVOLUME: 09 ISSUE: 02FEBRUARY 2018
MTBiz
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Design & Printing:Preview
Article of the month 02National News
The Central Bank 07 Business & Economy 09MTB News & Events 12Industry Appointments 17Dashboard 18
International News
Economic Forecast 21 Wells Fargo Monthly Outlook 23 Financial Glossary 24 Generalized Scheme of Preferences plus Generalized Scheme of Preferences plus
02 MTBiz
ARTICLE OF THE MONTH
GSP PLUSScheme for Sustainable Development and Good Governance
GSP Plus, a special incentive arrangement for Sustainable Development and Good Governance, grants full removal of
tariffs on over 66% of EU tariff lines. It provides additional preferences to countries which ratify and implement a number of international conventions on core human and labor rights, the environment and good governance. The current GSP PLUS scheme is in place until the end of 2023.
A country’s GSP Plus status is dependent upon its ratification and implementation of 27 international conventions on human and labor rights, environmental protection, and good governance. The scheme helps vulnerable countries “assume the special burdens and responsibilities resulting from the ratification of these conventions”.
ELIGIBILITY FOR GSP PLUSTo be eligible for GSP Plus, the country must lodge an application and fulfill the Standard GSP conditions and the following two additional criteria:
i. Vulnerability criteria
In order to qualify for GSP Plus, a beneficiary country has to fulfil the vulnerability criteria. This consists of the import share criterion and the diversification criterion. The import share is the three-year average share of GSP-covered imports of the specific beneficiary country, relative to the GSP-covered imports of all GSP countries. This average has to be lower than 6.5% in order to qualify for GSP Plus. A country fulfils the diversification criterion if the seven largest sections of the GSP-covered imports represent 75% of total GSP imports by that country over a three-year period.
ii. Sustainable development criteria
The country must have ratified the 27 GSP Plus relevant international conventions on human- and labor rights, environmental protection and good governance. The applicant must not have formulated reservations which are prohibited by these conventions. The most recent conclusions of the monitoring bodies under those conventions must not identify any serious failure to effectively implement them. If the applicant meets all criteria, it is added to the list of GSP Plus countries through a delegated act.
Standard GSP
Standard GSP reduces EU import duties for about 66% of all product tariff lines.
Conditions
Any developing country will benefit from Standard GSP unless:
- It has another type of special trade access to the EU granting the same tariff preferences as the scheme, or better, for substantially all trade
- it has achieved a high- or upper-middle income economy status during three consecutive years according to the World Bank classification
Countries do not need to apply to benefit from Standard GSP; the EU adds them to or removes them from the relevant list through a delegated regulation.
The EU can withdraw Standard GSP in exceptional circumstances, notably serious and systematic violation of fundamental human rights and labor rights conventions.
EuropeanCommission
HOW THE COUNTRY’S BASELINE IS ASSESSED
To start its GSP Plus assessment of a country, the EU looks to reports prepared by the UN monitoring bodies and special rapporteurs for the relevant conventions. Recommendations laid out in these reports are the key source for a country’s initial Scorecard.
UN MonitoringBodies’reports Scorecards Dialogue EU report
03 MTBiz
ARTICLE OF THE MONTH
COMMITMENTS TO BE ABIDED BY GSP PLUS BENEFICIARY COUNTRIESOnce a country is granted GSP Plus, the EU monitors that the beneficiary country abides by its commitments, namely to:
• maintain ratification of the international conventions covered by GSP Plus
• ensure their effective implementation
• comply with reporting requirements
• accept regular monitoring in accordance with the conventions
• cooperate with the Commission and provide all necessary information
GSP PLUS MONITORINGThe EU conducts a continuous dialogue on GSP Plus compliance with the authorities of the beneficiary countries. That dialogue is based on a list of issues ('scorecard') drawn up for each GSP PLUS beneficiary based on information received from the beneficiary countries and international monitoring bodies and from other sources, including civil society, social partners, businesses, the European Parliament and the Council. The EU organizes regular GSP Plus monitoring visits to each beneficiary countries to meet all stakeholders. The beneficiaries are expected to demonstrate that they make serious efforts towards tackling the issues set out in the scorecards. The GSP Plus dialogue feeds into the public GSP report, which the Commission must present to the European Parliament and to the Council every two years. The report contains a detailed assessment of each beneficiary's situation under the 27 conventions.
BROAD AREAS FOR CONVENTIONS UNDER THE GSP PLUS SCHEME
Table: A list of countries benefiting from GSP PLUS
Africa
Cape Verde
Armenia
Kyrgyzstan
Mongolia
Pakistan
Philippines
Sri Lanka
Bolivia
Paraguay
Europe/Asia Asia South America
Source: European Commission
A Scorecard is a list of issues that the European Commission prepares for each GSP+ country. It is a large but clearly structured document that highlights 1) progress and 2) relevant shortcomings that should be addressed by the country in order to effectively implement the 27 conventions. It facilitates annual exchange of information on the GSP Plus commitments between the European Commission and the country.
Core human and labor rights
i. Prevention and Punishment of the Crime of Genocide (1948)
ii. Elimination of All Forms of Racial Discrimination (1965)
iii. Civil and Political Rights (1966)
iv. Economic Social and Cultural Rights (1966)
v. Elimination of All Forms of Discrimination against Women (1979)
vi. Against Torture and other Cruel, Inhuman or Degrading
Treatment or Punishment (1984)
vii. Rights of the Child (1989)
viii. Forced or Compulsory Labor, No 29 (1930)
ix. Freedom of Association and Protection of the Right to
Organize, No 87 (1948)
x. Application of the Principles of the Right to Organize and
to Bargain Collectively, No 98 (1949)
xi. Equal Remuneration of Men and Women Workers for
Work of Equal Value, No 100 (1951)
xii. Abolition of Forced Labor, No 105 (1957)
xiii. Discrimination in Respect of Employment and Occupation,
No 111 (1958)
xiv. Minimum Age for Admission to Employment, No 138 (1973)
xv. Prohibition and Immediate Action for the Elimination of
the Worst Forms of Child Labor, No 182 (1999)
Environment and to governance principles
xvi. International Trade in Endangered Species of Wild Fauna
and Flora (1973)
xvii. Montreal Protocol on Substances that Deplete the Ozone
Layer (1987)
xviii. Control of Transboundary Movements of Hazardous
Wastes and Their Disposal (1989)
xix. Biological Diversity (1992)
xx. Climate Change (1992)
xxi. Cartagena Protocol on Biosafety (2000)
xxii. Persistent Organic Pollutants (2001)
xxiii. Climate Change (1998)
xxiv. Narcotic Drugs (1961)
xxv. Psychotropic Substances (1971
xxvi. Against Illicit Traffic in Narcotic Drugs and Psychotropic
Substances (1988)
xxvii. Against Corruption (2004)
04 MTBiz
ARTICLE OF THE MONTH
SPECIAL ARRANGEMENT FOR THE LEAST-DEVELOPED COUNTRIES
An eligible country shall benefit from the tariff preferences provided under the special arrangement for the least-developed countries referred to in point (c) of Article 1(2), if that country is identified by the UN as a least-developed country.
GLIMPSE OF THE CIRCUMSTANCES WHERE GSP PLUS PREFERENCES CAN BE WITHDRAWN
1) The special incentive arrangement for sustainable development and good governance shall be withdrawn temporarily, in respect of all or of certain products originating in a GSP Plus beneficiary country, where in practice that country does not respect its binding undertakings as referred in the regulation, or the GSP Plus beneficiary country has formulated a reservation which is prohibited by any of the relevant conventions or which is incompatible with the object and purpose of that convention.
2) Within three months after expiry of the period specified in the notice, the Commission shall decide:
a) to terminate the temporary withdrawal procedure; or
b) to temporarily withdraw the tariff preferences provided under the special incentive arrangement for sustainable development and good governance.
3) Where the Commission decides on temporary withdrawal, such delegated act shall take effect six months after its adoption.
4) Where the reasons justifying temporary withdrawal no longer apply before the delegated act referred to in paragraph 9 of Article 15 takes effect, the Commission shall be empowered to repeal the adopted act to temporarily withdraw tariff preferences in accordance with the urgency procedure referred to in Article 37.
5) The Commission shall be empowered to adopt delegated acts, in accordance with Article 36, to establish rules related to the procedure for temporary withdrawal of the special incentive arrangement for sustainable development and good governance in particular with respect to deadlines, rights of parties, confidentiality and review.
GLIMPSE OF TEMPORARY WITHDRAWAL PROVISIONS COMMON TO ALL ARRANGEMENTSThe preferential arrangements referred to in Article 1(2) may be withdrawn temporarily, in respect of all or of certain products originating in a beneficiary country, for any of the following reasons:
a) serious and systematic violation of principles laid down in the conventions listed in Part A of Annex VIII;
b) export of goods made by prison labor;
c) serious shortcomings in customs controls on the export or transit of drugs (illicit substances or precursors), or failure to comply with international conventions on anti-terrorism and money laundering;
d) serious and systematic unfair trading practices including those affecting the supply of raw materials, which have an adverse effect on the Union industry and which have not been addressed by the beneficiary country. For those unfair trading practices, which are prohibited or actionable under the WTO Agreements, the application of this Article shall be based on a previous determination to that effect by the competent WTO body;
e) serious and systematic infringement of the objectives adopted by Regional Fishery Organizations or any international arrangements to which the Union is a party concerning the conservation and management of fishery resources.
GSP PLUS, BANGLADESH AND BEYOND Bangladesh has been enjoying zero-duty benefit to the EU under its Everything but Arms scheme since 1971. But once it becomes a middle-income country, Bangladesh will no longer be eligible for the trade facility. Commerce Minister Tofail Ahmed said the government aims on achieving the middle-income status by 2021, implies that there will be no GSP facility in the post-2021 EU market. He articulated that Bangladesh will be able to meet the eligibility criteria for GSP Plus facility in the EU markets after achieving the middle-income status by 2021.
Bernd Lange, a delegate representing European Parliament’s International Trade Affairs (INTA), said the conditions are related to establishing democracy and good governance, ensuring workers’ rights and compliance at factories. The European Union advised Bangladesh to improve labor standards, security, democracy, environment standards and freedom of expression to qualify for the GSP Plus status.
05 MTBiz
ARTICLE OF THE MONTH
Gaining, Losing and Regaining GSP Plus - A case of Sri Lanka
Sri Lanka has been a beneficiary of the EU’s standard GSP since the scheme’s inception, and it began to
benefit from GSP Plus on 15 July 2005. However, on 15 August 2010, the EU suspended Sri Lanka’s GSP Plus
status.
The decision to withdraw GSP Plus from Sri Lanka is based on the findings of an exhaustive Commission
investigation launched in October 2008 and completed in October 2009. This investigation relied heavily on
reports and statements by UN Special Rapporteurs and Representatives, other UN bodies and reputable
human rights NGOs and identified significant shortcomings in respect of Sri Lanka's implementation of
three UN human rights conventions – the International Covenant on Civil and Political Rights (ICCPR), the
Convention against Torture (CAT) and the Convention on the Rights of the Child (CRC) – effective
implementation of which forms part of the substantive qualifying criteria for GSP Plus.
Initially this withdrawal was only for period of six months. As this period was not sufficient, it was further
extended to enable to identify and address the issues faced. EU has opened a dialogue with the
Government of Sri Lanka hopeful of necessary measures taken to resolve matters involving human rights
issue, the situation of which was being monitored and re-evaluated by the EU. Unfortunately, there was no
significant interest displayed by Sri Lanka since 2010. The new Government has immediately continued
dialogue in positive manner with high hopes of getting GSP Plus restored. However from 2009, Sri Lankan
exports have been offered to revert to standard GSP preferences as provided for in the current GSP
Regulation.
Sri Lanka regained its GSP Plus benefits with effect from May 19, 2017 after an official publication of the
re-entry to the scheme in its Official Journal, said the EU Ambassador. The restoration of GSP PLUS means
the full removal of 66 percent of tariff lines for over 6,000 products. Seven years since losing the preferential
trade scheme, Sri Lanka has regained it following two votes; first at the EU Parliament and then at the EU
Council of Ministers. This is an important victory for the country at a time when overall exports have been
performing poorly.
06 MTBiz
07 MTBiz
THE CENTRAL BANK
NATIONAL NEWSAgent banking spreads like wildfire in remote areas
Agent banking logged in stellar growth figures in 2017, just two years after full-fledged roll-out of the service, as people in remote
areas embrace this innovative form of financial service. For instance, deposit collection through agent banking soared more than 5 times to BDT 2,000 crore and remittance disbursement more than 6 times to BDT 1,982 crore last year. The total number of accounts more than doubled to 12.14 lakh in 2017 from a year earlier, according to data from the Bangladesh Bank. At the end of 2017, the total number of agents stood at 2,577, up from 1,646 a year earlier. And from last year, banks have started to disburse loans at most BDT 50,000 per person through this channel. A total of BDT 109 crore of loans were disbursed through agent banking last year. A total of 14 banks are now running agent banking services: Dutch-Bangla, Bank Asia, Al-Arafah Islami, Social Islami, Modhumoti, Mutual Trust, NRB Commercial, Standard, Agrani, Midland, City, Islami Bank Bangladesh, First Security Islami and Premier.
BB to calculate house price index
The central bank has started work on calculating the country’s House Price Index (HPI) on a regular basis. In March 2016, the research department of the central bank has taken the initiative to construct ‘Residential Property Price Index (RPPI)’ for Bangladesh with the technical assistance of the International Monetary Fund (IMF). Thereafter, Bangladesh Bank (BB) will calculate HPI on regular basis by applying Laspeyeres and Hedonic method by using information/data from authentic sources, the central bank said in its latest annual report. It was of the view that HPI is an important indicator for the policymakers in framing fiscal and monetary policies. The central bank mentioned that the house price indices can be used as a macroeconomic indicator of economic growth, an input to estimate the value of housing as a component of wealth, a financial stability or soundness indicator to measure risk exposure, a deflator of the national accounts and an input for the consumer prices, among a number of important ones.
BB appoints 24 PFIs for Japan FDI project
Bangladesh Bank (BB) has selected 24 banks and financial institutions as participating financial institutions (PFIs) for providing 7,033 million Japanese Yen
(equivalent to BDT 5,445 million) in loans under a foreign direct investment (FDI) promotion project. A signing ceremony with 19 banks and five FIs was held at the central bank headquarters in the city, in presence of BB Governor Fazle Kabir. JICA Chief Representative Takatoshi Nishikata, BB Deputy Governor Abu Hena Mohammad Razi and Association of Bankers Bangladesh (ABB) Chairman Syed Mahbubur Rahman addressed the function. The FEID is implementing the FDI promotion project, funded by the Japan International Cooperation Agency (JICA), to facilitate Japanese FDIs in special economic zone, industrial park/estate etc. Under the JICA-funded project signed on December 13 in 2015, a soft loan provision of 7,033 million Japanese Yen was kept for Japanese investors, Japan-Bangladesh joint ventures or Bangladesh firms having significant business relation with Japan. The concessional loan bears 7.0 per cent interest.
Downloaded forms can be used for NSC purchase
Bangladesh Bank has allowed the buyers of national savings certificates for using the downloaded purchasing form of the tools provided on the respective web sites. The central bank made the decision to reduce hassles of the customers in getting the forms from respective offices considering increased number of customers. Bangladesh Bank’s Debt Management Department issued a circular lifting the bar on using only the official forms for buying the savings tools. Under the approval, the buyers can use the downloaded form given on the official web sites of Bangladesh Bank and Department of National Savings. The central bank also directed all the scheduled banks to sync their websites with the websites of BB and national savings department or to upload all kinds of savings forms on their websites so that the customers can easily get the forms. BB also asked all the scheduled banks to inform their branch offices about the decision. Savings instruments became lucrative due to high rate of interest offered by the government when the banks have been lowering interest on deposits.
2016 2017 GrowthAgent 1,646 2,577 57%
Outlet 2,601 4,157 60%
Account 544,536 1,214,367 123%
Deposit Tk 381cr Tk 1,399cr 268%
Credit 0 Tk 109cr
Remittance Tk 310cr Tk 1,982cr 540%
INDICATIORS OF AGENT BANKINGSHOW RAPID GROWTH
08 MTBiz
THE CENTRAL BANK
Banks asked to lower their loan-deposit ratio
The central bank recently instructed banks to lower their
loan-deposit ratio to within 83.5 percent by June 30 in a move to reining in the banks' aggressive lending practices.
The Shariah-compliant banks will have to lower their ratio to 89
percent from 90 percent. The runaway private sector credit growth has compelled the Bangladesh Bank to take this stand. The private sector credit growth stood at 18.13 percent in December last year, which is way past the target of 16.2 percent set by the BB for the first half of the fiscal year. While unveiling the monetary policy for the second half of fiscal 2017-18, BB governor Fazle Kabir said that the central bank will slash the loan-deposit ratio with the view to ensuring the quality of credit. The banks will have to follow the asset-liabilities and foreign exchange risk management. Strict measure will be taken against banks that indulge in excessive lending beyond the limit, he said. The private sector credit growth target for the second half of the fiscal year is 16.8 percent.
BB drafts law bringing NBFI depositors, like bank, under insurance scheme
Bangladesh Bank has framed a draft of ‘Deposit Protection Act 2017’ bringing non-bank financial institutions, like the banks, under the
deposit insurance scheme to protect the interest of depositors. The proposed act will replace the existing ‘Bank Deposit Insurance Act 2000’ under which only bank depositors get insurance coverage of their deposit in case of a scheduled bank goes into liquidation. Like banks, NBFIs will also face a ban on collection of deposits for a time being for failure of depositing premium on deposits of a client, according to the draft. According to the law, banks and NBFIs will have to bring the deposits of their clients under insurance coverage with the Deposit Protection Trust Fund of the central bank. The BB, however, will determine the portion of deposits for the insurance coverage and the rate of premium through official gazette in time to time. Like the existing act, a depositor will get up to BDT 1 lakh from the fund under the proposed law if a bank or NBFIs go into liquidation.
Govt earns BDT 5,268cr from 4G auction, tech neutrality
The government has earned a large amount of BDT 5,268.51 crore from a 4G spectrum auction and conversion fees for technology neutrality.
Bangladesh Telecommunication Regulatory Commission (BTRC) sold 15.6 megahertz of spectrum to Grameenphone Ltd and Banglalink Digital at a 4G auction recently. Market leader Grameenphone has bought 5 MHz of 1800 band at a price of BDT 1,284 crore. Banglalink has bought a total of 10.6 MHz spectrum 5MHz of 2100 band and 5.6 MHz of 1800 band at a price of BDT 2,558 crore. Besides, a sum of BDT 850 crore has come as spectrum conversion fees for technology neutrality while the remaining amount from VAT. The first-ever 3G spectrum auction was held in the country in September 8, 2013. Robi, the second largest mobile operator, will be offering 4G services thought their existing spectrum (36.4 MHz). The acquisition fee of 4G license is BDT 10 crore. In case of the conversion in one go, the charge will be USD 4 million for each 900 MHz and 1,800 MHz, while it will be USD 7.5 million for converting partly.
Bangladesh among top 5 growth achievers of 45 LDCs in 2017: UNCTAD
The United Nations Conference on Trade and Development (UNCTAD) has said only five countries, including Bangladesh of the 45 least
developed countries (LDCs), achieved economic growth at 7 percent or higher in 2017. The four other countries are Djibouti (+7pc), Ethiopia (+8.5pc), Myanmar (+7.2pc), and Nepal (+7.5pc) while Bangladesh achieved +7.1pc growth in 2017. The analysis contends that too many LDCs remain dependent on primary commodity exports. All other LDCs recorded current account deficits of varying sizes, ranging from less than one percentage point of GDP - Bangladesh and Nepal - to more than 25 percent in the cases of Bhutan, Guinea, Liberia, Mozambique, and Tuvalu. Resources sent by individuals to LDCs as a group (remittances) totalled USD 36.9 billion in 2017, down by 2.6 percent compared to the peak of USD 37.9 billion in 2016. In absolute terms, the largest recipients of remittances among LDCs included Bangladesh (USD 13.6 billion in 2016), Nepal (USD 6.6 billion), Yemen (USD 3.4 billion), Haiti (USD 2.4 billion), Senegal (USD 2 billion) and Uganda (USD 1 billion), according to UNCTAD.
Bangladesh improves in economic freedom index
B a n g l a d e s h ’ s economic freedom score is 55.1, making its economy the 128th freest in the Economic Freedom Index-2018 released by the
Heritage Foundation. Bangladesh is ranked 29th among 43 countries in the Asia-Pacific region, and its rank is ahead of India (30th), Pakistan (31st), Nepal (32nd) and Vietnam (35th). Its overall score of Bangladesh has increased by 0.1 point, with improvements in the scores for judicial effectiveness and government integrity outpacing declines in property rights, trade freedom, and labour freedom, said the US-based conservative Heritage Foundation. The report said Bangladesh’s economy has grown by approximately six percent annually for two decades despite prolonged political instability, poor infrastructure, endemic corruption, insufficient power supplies, and slow implementation of economic reforms. The index uses four broad categories for measurement: rule of law, government size, regulatory efficiency and open markets.
ADB okays USD 503m credit for Reliance Bangladesh projects
The Asian Development Bank (ADB) has approved USD 503 million credit and risk guarantees in favour of Indian power giant Reliance for setting
up an LNG terminal and power plant in Bangladesh. The Liquefied Natural Gas (LNG) terminal will be set up at Moheshkahi in Cox’s Bazar while the 718MW combined cycle power plant will be at Meghnaghat in Narayanganj. The projects, officials said, will significantly increase power generation as well as improve energy infrastructure in Bangladesh. The multilateral lending agency has already urged the government for its approval for disbursement of loans and guarantees in this regard. The ADB very recently requested the Economic Relations Division (ERD) for no-objection note in regard to disbursement of the proposed loan and guarantees. In a letter to ERD Secretary, ADB Country Director Manmohan Parkash said that ADB, under its non-sovereign operations, is considering the loans and guarantee under two entities -- Reliance Bangladesh Liquefied Natural Gas and Power Project and sought government’s no-objection by January 30, 2018.
NATIONAL NEWS
09 MTBiz
BUSINESS & ECONOMY
Man-made fibres getting popular among RMG makers
The import of man-made fibres such as polyester staple, viscose, and tencel is on the rise as a substitute for cotton as their demand is increasing amid changes in global fashion trend. Bangladesh imported 78,208 tonnes of polyester staple fibre in 2016, up 11.39 percent from 70,209 tonnes
in 2015 and 35.72 percent from 51,729 tonnes in 2014, according to data from Bangladesh Textile Mills Association (BTMA). From January to June of 2017, the volume was 16,063 tonnes, the data showed. In 2014, Bangladesh imported 18,115 tonnes of viscose staple fibre. Imports of tencel, a fibre made of trees and leaves, stood at 5,034 tonnes in 2016 and 6,199 tonnes the previous year. The number of factories producing artificial fibres also went up. Alone the polyester fibre production units rose to 52 from 10 to 12 seven years ago. There are 45 viscose staple fibre mills and 10 tencel factories. The ratio of the cotton-made yarn and the artificial one rose to nearly 80:20, whereas it was 90:10 even five years ago. In 2016-17, Bangladesh imported about 10 million tonnes of cotton to feed its vast garment sector.
ADP spending up 37pc in Jul-Jan
The government's development spending rose 36.88 percent year-on-year to BDT 54,718 crore in the first seven months of the current fiscal year on the back of an increased use of foreign aid. Project aid utilisation went up by 120 percent to BDT 23,336 crore during the period, according to the Implementation Monitoring and Evaluation Division. In comparison, the use of the government's own funds rose 10.72 percent. From July to January, the ministries and divisions spent 33.35 percent of the total outlay, slightly up from 32.41 percent in the same period a year ago. Project aid utilisation stood at 38.63 percent of the allocation while it was 26.52 percent in the same period last fiscal year. The spending, however, rose in terms of amount during the period, to BDT 28,677 crore against BDT 25,899 crore a year earlier. State-owned enterprises utilised only BDT 2,706 crore, or 33.19 percent, against their allocation of BDT 8,154 crore. They had spent 27.40 percent of their allocation during the same period last fiscal. Of the 15 large ministries and divisions that account for 80.83 percent of the allocation, seven spent a higher amount than the average.
Self-sufficient in fish, meat
Riding on the recent revolution in fish and livestock farming, Bangladesh for the first time achieved self-sufficiency in animal protein, according to a government report. Against a demand of 40.50 lakh
tonnes of fish, Bangladesh recorded surplus fish production with an annual output of 41.34 lakh tonnes in 2016-17, according to the latest report of the Department of Fisheries. In 2016-17, a total of 71.50 lakh tonnes of meat were produced against a demand of 71.35 lakh tonnes, according to Department of Livestock Services. Fish accounts for almost 60 percent of Bangladesh's intake of animal protein and over the last three decades, fish production increased over five times, according to the report. In 1983-84, the total fish production was only 7.54 tonnes and it grew at an average 6.60 percent over the last 10 years.
ICT exporters get 10pc cash incentive
The government has granted 10 percent cash incentive to the ICT industry against their exports – a move that could be a game-changer for the country's export scenario. Bangladesh Bank issued a circular to this effect on
Thursday, and the incentive will be retrospectively effective from July 2017. The measure meets a long-time demand of the entire information communication technology sector of Bangladesh. Industry people said this would help attain the target of export earnings of USD 5 billion from the ICT sector by 2021. The minister said the incentive would boost Bangladesh's IT industry's competitiveness further. Previously, the government had given cash benefit to exporters in the garments and food sector and they have utilised the support and got the industries to flourish. Today, Bangladesh is the second largest garment exporter in the world and the labour-intensive sector accounts for more than 80 percent of the country's export earnings. According to the circular, ITES products such as digital content development and management, both 2D and 3D animations, geographic information services, IT support and software maintenance services, website services, graphics design, search engine optimisation, and web listing will get 10 percent cash back on export earnings.
FISH PRODUCTIONIN 2016-2017
NATIVE28% FARM
56%MARINE16%
GROW
TH 11.01% 1.75% 5.89%
KEY POINTS
The sector now enjoys tax holiday
Most ICT Products to get 10pc cash incentive
Exporters to get it retrospectively from July 2017
Companies in EPZ and hi-tech parks not eligible
Govt aims to earn $5b by 2021 from ICT exports,
create 2 lakh jobs
Export earnings were $800m last year
AT A GLANCE
Global ratio of cotton and man-made fibre use is
In 2016, Bangladesh imported tonners of polyester staple fibre, a rise by pc
In 2016-17, Bangladesh imported million bales of cotton
28:72
78,20811.39
6.7
10 MTBiz
BUSINESS & ECONOMY
NATIONAL NEWSLTU-VAT collection marks 19pc growth in 6 months
Collection of revenue under Large Taxpayer Unit (LTU) of Value Added Tax (VAT) has witnessed a staggering 19 per cent growth in first six months
of fiscal 2017-18. LTU collection reached BDT 198.74 billion, up BDT 31.36 billion from the same period of the previous fiscal year (2016-17), during the July-December period of FY18. The hefty collection in the government exchequer said to have removed fear for a fall in revenue mobilisation due to non-implementation of the new VAT law. The large taxpayer unit usually collects 56 per cent of the total revenue target. He thinks achieving higher growth in revenue collection has been possible as authorities concerned have taken time-befitting strategy and intensified supervision, VAT auditing and recovery of arrears. LTU currently looks after VAT, supplementary duty and excise duty of 170 larger taxpaying establishments. FY17 witnessed mobilisation of revenue worth BDT 369.83 billion under LTU. In FY18, the government has a target to mobilise BDT 912.54 billion as VAT.
Two e-commerce sites get USD 5m investment
Zero Gravity Ventures Limited an e-commerce incubator from one of the country’s leading conglomerates, Ananta Group has secured Series A funding
from Frontier Bangladesh, a Bangladesh-focused private equity fund. Zero Gravity Ventures currently operates two e-commerce sites sindabad.com and kiksha.com. sindabad.com is the country’s first B2B online shop where offices, factories or any business organizations can purchase their regular consumptions online in a transparent, seamless way. Orders are delivered at their offices or factory premises by sindabad.com on time. kiksha.com is a B2C online shop for fashion, lifestyle products, mobiles, gadgets, electronic appliances and home décor items. Both ventures have been launched in 2016. With both companies combined, Zero Gravity has an employee strength of nearly 150 and it is fast expanding with warehouses in Dhaka and Chittagong. Frontier Bangladesh, a Bangladesh-focused private equity fund, has invested in Zero Gravity.
Biscuits bring bucks
With net export earnings of USD 80.41 million in the first six months (July-December) of the 2017-18 financial year, biscuit manufacturers
have started playing a significant role in the national economy. The sector’s importance is manifest from the fact that its export earnings were just USD 43.09 million in the 2016-17 financial year. According to information provided by the president of the Bangladesh Auto Biscuits and Bread Manufacturers’ Association, Shafiqur Rahman Bhuiyan, the local market is growing at a faster rate a 12–15 per cent growth rate per year. He added that this sector contributed 1.66 per cent of Bangladesh’s total gross domestic product (GDP) in 2009–10, with total annual production of more than 65,000 metric tonnes (MT) in the country at present. Today 4,500 to 5,000 biscuit and bread manufacturers and/or organisations linked to them in this industry. Among them, some 100 factories operate automatically. These include 10 to 15 mega factories, 35 large factories and 50 medium-sized factories. Around 15 to 17 lakh people are currently working in this sector. The size of the local market is worth roughly Tk. 4,000 crore.
Agro machinery mkt reaches USD 1.2b in 2017: BAU study
Bangladesh imports roughly 68 per cent of agro-machinery amounting to BDT 65.28 billion annually out of its demand, a study by the Bangladesh Agricultural University (BAU) recently revealed. Tractors, power tillers, reapers, shallow machines are among 200 farm machinery imported from India, China and Taiwan, said the study. The report was based on data of financial year 2016-17 (FY'17). The agro machinery market reached USD 1.2 billion or BDT 96 billion in 2017, of which local manufacturers had 32 per cent share. Imports from India, Taiwan, China, Korea, Japan, and Germany meet 68 per cent of the demand for which the country counted BDT 65.28 billion in expenses. Growth of farm machinery sales is 20 per cent year-on-year, according to the report. The report also said local manufacturers are dominating the spare parts market with more than 60 per cent of share. The report showed farmers in the country now use 35,000 tractors, 0.7 million units of power tiller, 0.35 million units of drum thrasher and 1.7 million units of irrigation pumps.
11 MTBiz
BUSINESS & ECONOMY
Mutual Trust Bank Ltd. (MTB) held its Annual Business Conference 2018 (MABC 2018) on Saturday, January 27, 2018 at Bangabandhu International Conference Center (BICC), Dhaka 1207. MTB Chairman, M. A. Rouf, JP, MTB Directors, Rashed A. Chowdhury and Khwaja Nargis Hossain, Managing Director & CEO, Anis A. Khan, Additional Managing Director & Chief Operating Officer (COO), Md. Hashem Chowdhury, Deputy Managing Directors, Md. Zakir Hussain, Syed Rafiqul Haq and Goutam Prosad Das attended the day-long session with all branch managers and heads of divisions and departments including Chief Executive Officers of two subsidiary companies - MTB Securities Ltd. and MTB Capital Ltd.
“MTB Resurgent”, the theme for 2018 was unveiled at the conference. The MTB Chairman appreciated the hard work put in by all the MTBians for bringing about significant progress in 2017 in terms of the network, infrastructure, products and services. Anis A. Khan, MTB Managing Director & CEO thanked the MTBians for taking the leap in becoming one of the best governed and highly equipped banks in the country. He stressed on reinforcing the commitments and realizing the bank’s expanded capabilities in achieving the corporate vision – MTB3V.
12 MTBiz
MTB NEWS & EVENTS
MTB HOLDS ANNUAL BUSINESS CONFERENCE 2018
13 MTBiz
MTB NEWS & EVENTS
MTB SIGNS PFI AGREEMENT WITH BANGLADESH BANK
MTB has recently signed an agreement with Bangladesh Bank (BB) under JICA-assisted ‘Foreign Direct Investment Promotion Project (FDIPP)’ at a ceremony held at Bangladesh Bank head office, Motijheel, Dhaka 1000, on Wednesday, Febuary 14, 2018. This Participatory Financial Institution (PFI) agreement is aimed at accelerating the country's economy through increasing FDI from Japan.
Anis A. Khan, Managing Director & CEO, MTB and Md. Rezaul Islam, General Manager, Foreign Exchange Investment Department, Bangladesh Bank signed the agreement on behalf of their respective organizations.
Fazle Kabir, the Governor, Bangladesh Bank was present on the occasion as the Chief Guest. Takatoshi Nishikata, Chief Representative, JICA Mission Bangladesh and Abu Hena Mohd. Razee Hassan, Deputy Governor, Bangladesh Bank, along with other senior officials from all the concerned organizations were also present at the event.
Under the PFI agreements, as of date,19 banks and 05 NBFIs will borrow in foreign currency only at 3 percent interest rate and will distribute loans to private companies at 7 percent interest rate for a tenure of maximum 10 years.
14 MTBiz
MTB NEWS & EVENTS
MTB organized a “Branch Anti Money Laundering Compliance Officers’ (BAMLCO) Conference 2018” on Saturday, February 10, 2018 at BRAC-CDM, Savar, Dhaka 1340. The bank’s performance of 2017 in terms of compliance with Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) was evaluated and strategy for AML & CFT for 2018 was formulated during the conference.
Muhammad Mijanur Rahman Joddar, Executive Director, Bangladesh Bank and Deputy Head of Bangladesh Financial Intelligence Unit (BFIU) graced the conference as the Chief Guests. A K M Ramizul Islam and Syed Kamrul Islam, Joint Directors of BFIU, Md. Hashem Chowdhury, Additional Managing Director & Chief Operating Officer, Syed Rafiqul Haq and Goutam Prosad Das, Deputy Managing Directors and Swapan Kumar Biswas, Chief Anti Money Laundering Compliance Officer (CAMLCO), MTB also attended the day-long conference.
MTB ORGANIZES BAMLCO CONFERENCE 2018
MTB INKS DEAL WITH LIC BANGLADESH
MTB has signed an agreement with LIC Bangladesh Ltd. (LIC) at a simple ceremony held at bank’s Corporate Head Office, MTB Centre, Gulshan 1, Dhaka 1212 on December 18, 2017. Under this agreement, policy holders of LIC would be able to deposit premiums at any of 112 MTB branches.
Arup Dasgupta, Managing Director & Chief Executive Officer, LIC and Syed Rafiqul Haq, Deputy Managing Director & Chief Business Officer, MTB signed the agreement on behalf of their respective organizations. Abhijit Roy, Chief Marketing Officer,
Ajoy Kumar Byahut, Chief Financial Officer, LIC and Tarek Reaz Khan, Head of SME & Retail Banking, MTB along with other senior officials from both the organizations were also present at the ceremony.
15 MTBiz
MTB NEWS & EVENTS
MTB INAUGURATES ITS MAWNA BRANCH
INAUGURATION OF MTB SMART BANKING KIOSK AT GANGRA BAZAR, COMILLA
MTB has opened its 112th branch at Mawna on Tuesday, February 13, 2018 at Marfat Ali Fakir Tower, Mawna Bazar Road, Sreepur, Gazipur 1740. MTB Chairman M. A. Rouf, JP inaugurated the branch as the Chief Guest, at a ceremony held at the branch premises.
Anis A. Khan, Managing Director & CEO, Syed Rafiqul Hossain, SEVP & Head of Dhaka division branches, Md. Sanwar Hossain, SEVP & Chief Engineer, Azam Khan, Group Chief Communications Officer, Mohammad Ikramul Ghani Khan, Group Chief Security Officer, MTB and Md. Shakhawat Hossain Shamim,
General Secretary, Mawna Bazar Businessman Association, Md. Shafiqul Azam, President, Jatiyo Manobadhikar Council, Sreepur, along with managers of nearby MTB branches, other MTB senior officials,dignitaries, existing and prospective customers and people from different strata were present at the ceremony.
Later on, as part of corporate social responsibility (CSR), MTB distributed bicycles amongst 20 students from different schools of the locality under its own project named “Swapna Sarathi”. The Bank also awarded meritorious students of the area with scholarships in the form of MTB Gift Cheques.
MTB inaugurated its 10th Smart Banking Kiosk having one modern Automated Teller Machine (ATM) and Cash Deposit Machine (CDM) at Gangra Bazar, Chauddagram, Comilla 3550 on Friday, February 02, 2018. MTB Additional Managing Director & Chief Operating Officer (COO), Md. Hashem Chowdhury inaugurated the Kiosk.
Azam Khan, Group Chief Communications Officer along with managers of nearby MTB branches, members of local business associations, dignitaries, existing and prospective customers and people from different strata were present at the inauguration ceremony.
MTB SIGNS AGREEMENT WITH ARTISAN OUTFITTERS LTD
MTB has recently signed an agreement with ARTISAN Outfitters Ltd. (ARTISAN) at a simple ceremony held at bank’s Corporate Head Office, MTB Centre, Gulshan 1, Dhaka 1212 on Tuesday, January 23, 2018. Under this agreement, MTB Privilege Customers, Cardholders and Employees will enjoy 10% discount on all products of ARTISAN.
Ali Ahammad Rasel, Managing Director, ARTISAN & Mohammad Anwar Hossain, Head of Cards, MTB signed the agreement on behalf of their respective organizations. Shameem Alam, Chief Operating
Officer, ARTISAN, Tarek Reaz Khan, Head of Retail & SME Division, Azam Khan, Group Chief Communications Officer, MTB along with other senior officials from both the organizations were also present at the ceremony.
MTB SIGNS AGREEMENT WITH REGENT AIRWAYS
MTB SIGNS AGREEMENT WITH INTERLINKAGES (HONG KONG) LTD
MTB AND DELTEX LIMITED SIGN PAYROLL BANKING AGREEMENT
MTB has recently signed an agreement with Regent Airways (Regent) at a simple ceremony held at the bank’s Corporate Head Office, MTB Centre, Gulshan 1, Dhaka 1212 on Wednesday, January 24, 2018. Under this agreement, MTB credit cardholders will enjoy up to 6 months FlexiPay installment facility (EMI @ zero%) from Regent Airways on purchase of air tickets and different tour packages.
Hanif Zakaria, Chief Operation Officer, Regent and Syed Rafiqul Haq, Deputy Managing Director & Chief Business Officer (CBO), MTB signed the agreement
on behalf of their respective organizations. Kazi Ahmed Ullah, AGM, Marketing, Regent, Mohammad Anwar Hossain, Head of Cards, Azam Khan, Group Chief Communications Officer, MTB along with other senior officials from both the organizations were also present at the signing ceremony.
MTB has signed an agreement with Interlinkages (Hong Kong) Ltd. at a simple ceremony held at the bank’s Corporate Head Office, MTB Centre, Gulshan 1, Dhaka 1212 on January 18, 2018. Under this agreement, MTB will be a subscriber member of Interlinkages (Hong Kong) Ltd., which will enable MTB to enhance its capability in reaching out foreign financial member institutions on the platform (Interlinkages) instantly and to execute trade finance related transactions.
Md. Shafiqul Islam, Chief Executive Officer, Interlinkages (Hong Kong), Bangladesh and Md. Bakhteyer Hossain, Head of MTB International Trade Services Division (MITS) signed the agreement on behalf of their respective organizations. Anindita Ghose, Chief Executive Officer, Interlinkages (Hong Kong) and Anis A. Khan, Managing Director & CEO, MTB along with other senior officials from both the organizations were also present at the ceremony.
MTB has recently signed an agreement with Deltex Limited (Deltex) at a simple ceremony held at bank’s Corporate Head Office, MTB Centre, Gulshan 1, Dhaka 1212 on December 18, 2017 for providing exclusive payroll banking services to the employees of Deltex.
Md. Shakawat Hossen, Country Director, Deltex and Syed Rafiqul Haq, Deputy Managing Director & Chief Business Officer, MTB signed the agreement on behalf of their respective organizations. Sultan Mahmud Sohal, Country Manager-Sustainability, Deltex and
Tarek Reaz Khan, Head of SME & Retail Banking, Md. Bakhteyer Hossain, Head of International Trade Services Division, MTB along with other senior officials from both the organizations were also present at the ceremony.
16 MTBiz
MTB NEWS & EVENTS
17 MTBiz
INDUSTRY APPOINTMENTS
NATIONAL NEWSTrust Bank gets new AMD
Humaira Azam has recently been appointed as Additional Managing Director of Trust Bank Limited. Prior to the appointment, she held the position of Deputy Managing Director & Chief Risk Officer of Bank Asia Limited. Humaira started her career with ANZ
Grindlays Bank as a management trainee in 1990. She is the first woman to head a private commercial financial institution in Bangladesh while she was Managing Director of IPDC Finance. She also served HSBC and Standard Chartered Bank in various capacities.Trust Bank gets new DMD
Junaid Masroor joined Trust Bank Limited as Deputy Managing Director. Prior to his new assignment, he held the position of Senior Executive Vice President (SEVP) and Head of International Banking of Bank Asia Limited. He started his career with erstwhile
BCCI (Overseas) Limited as management trainee officer in 1989. Masroor worked as head of transaction banking in Eastern Bank Ltd. He also served in the Bank of Nova Scotia, ANZ Grindlays Bank and Standard Chartered Bank in different capacities for several years.SJIBL gets new DMD
Mustaque Ahmed was promoted to Deputy Managing Director (DMD) of Shahjalal Islami Bank Limited (SJIBL) recently. Prior to his promotion Mustaque Ahmed was Senior Executive Vice President (SEVP) & Head of Internal Control & Compliance
Division of the Bank. Ahmed started his banking career as Probationary Officer in United Commercial Bank Limited (UCB) in 1985.New DMD for Bank Asia
Md Sazzad Hossain has recently been promoted to the post of Deputy Managing Director of Bank Asia Limited. Prior to the new role, he was the Senior Executive Vice President (SEVP) & Head of Internal Control & Compliance Division of the bank.
Hossain joined the bank as Vice President in 2003. He started his banking career with Pubali Bank Limited as a probationary officer in 1987. Hossain also served Eastern Bank Limited and NCC Bank Limited.
SK Sur Chowdhury made BB advisor
SK Sur Chowdhury has been appointed Banking Reform Advisor of Bangladesh Bank after completion of his tenure as Deputy Governor of the Bank. Sur Chowdhury joined Bangladesh Bank in May 1981 as Assistant
Director and served the bank with the zeal of his expertise since then. His long journey of more than 36 years of banking service has been enriched with in-depth knowledge on financial sector supervision and regulation.
BKB gets new MD
Ali Hossain Prodhania has been appointed Managing Director of Bangladesh Krishi Bank (BKB). Prior to his promotion he held the position of Deputy Managing Director of Agrani Bank Limited. Earlier, he served the bank in
various important positions including General Manager, Head of International Trade, Treasury, CAMLCO and Public Relations.
Islami Bank Ltd gets new MD
The board of directors of Islami Bank Bangladesh Limited (IBBL) has nominated Md Mahbub ul Alam as it new Managing Director. Earlier, Md Mahbub ul Alam performed as Additional Managing Director and head of
investment (Credit) Committee of the bank. Md Mahbub ul Alam joined Islami Bank as a probationary officer in 1984.
Pubali Bank reappoints MD
Md Abdul Halim Chowdhury has recently been reappointed as the Managing director and Chief Executive Officer (CEO) of Pubali Bank Limited for a three-year term. He has been serving the bank as Managing Director and
CEO since December 2014. Chowdhury was also Additional Managing Director of the bank. He joined in the bank as a principal officer in 1988.
18 MTBiz
DASHBOARD
Source: Bangladesh Bank, Dec 2017; BTRC, Jan 2018
Digital Payments 147.00 million 75.40 million 75.05 million
Number of SubscribersMobile phone
Mobile Internet
Internet
Plasticcards (number) 12.70 million
Credit Debit Prepaid
0.9 million 11.7 million 0.1 million
E-commerceTransactionBDT 755.9 million
E-commerceTransactionBDT 282.5 million
7% 92% 1%
Scheduled Banks Branch Network
Apr-Jun 2017RANGPUR
661
RAJSHAHI1021
MYMENSINGH409
SYLHET745
DHAKA3238
KHULNA928
BARISAL493
CHITTAGONG2228
Industry RatesDeposit - Advance - Spread
Source: Bangladesh Bank
Advance Deposit Spread
Dec 2017Nov 2017Oct 2017
15%
10%
5%
0%
9.3
4.9 4.91
4.4 4.44
9.39 9.35
4.894.5
Total number of branches: 9724
Debit cards
Creditcards
No. of ATM 9,522
No. of POS 37,379
POS 4,781.40
ATM 100,468.10
ATM 1,058.20
POS 7,532.30
1.74 million
1.21 million
58.79 millionMobile Banking
Internet Banking
Agent Banking
Subs
cribe
rs
Transactions(BDT in million)
19 MTBiz
DASHBOARD
Domestic (coarse) Domestic (fine) Global
1.11%
Monthly IncreaseJan - Feb 2018
3.17%
Monthly IncreaseJan - Feb 2018
8.87%
Monthly IncreaseJan - Feb 2018
Monthly Price Change (%)
Weekly Rice BDT/KG
RiceUSD 442.00 / metric tonJanuary 2018
Palm OilUSD 679.25 metric tonJanuary 2018
SugarUSD 586.21 / metric tonJanuary 2018
Soybean OilUSD 865.25 / metric tonJanuary 2018
Source: TCB (Average of max and min price), The World Bank
Source: The World Bank
Source: Bangladesh Bank
(in million)
Rate (Avg.) 45.00 45.00 45.00
Feb 24Feb 22 Feb 23
45.00
Feb 25
45.00
Feb 26
45.00
Feb 27
45.00
Feb 28Year 2017
Global
Domestic
Import L/C
OpenedUSD 495.99 USD 517.28(during July 2017-
Nov 2017)
(during July 2017-Nov 2017
(as on Nov 30, 2017)
OutstandingUSD 551.26(as on Nov 30, 2017)
OutstandingOpenedUSD 703.59
(during July 2016-Nov 2017)
(as on Nov 310, 2017)
Opened OutstandingUSD 172.5 USD 101.48
Bangladesh
SugarRice
Pulse
Rice (fine)BDT 63.30 per kgFebruary 2018
Palm OilBDT 71.00 per kgFebruary 2018
SugarBDT 54.39 per kgFebruary 2018
Rice (coarse)BDT 45.04 per kgFebruary 2018
Soybean OilBDT 86.50 per kgFebruary 2018
Source: TCB (Average of max and min price)
Call Money Market14
12
10
8
6
4
2
02012 2013 2014 2015 2016 Jun
17Aug17
Sep17
Oct17
Nov17
Dec17
Jul 17
20 MTBiz
DASHBOARD
Natural Gas Reserve & Production at a glance, October 2017
Bcf
Gas Initially in Place (GIIP) 35,796.19
Recoverable (2P) 28,523.40
Gas Production in November 2017 80.56
National Oil Company (NOC’s) production 39.98%
International Oil Company (IOC’s) production 61.02%
(Billion cubic feet)
Cumulative Production as of November 2017 15,331.45
Remaining Reserve upto November 2017 13,191.95
Source: Ministry of Energy and Mineral Resources
Generation Capacity
Public Sector 56%Private Sector
Per CapitaGeneration
433 KWh
Distribution Line
4,20,000 km
Distribution Loss
9.98%(June 2017)
Access to Electricity
90%
Transmission Line
10,622Circuit Kilometer
Generation Capacity
16,046 MW
POWER SECTOR OF BANGLADESHAT A GLANCE (Feb 2018)
44%
Lique�ed petroleum gas (LPG) 2015 2014
Import (in million BDT ) 2016-17 2015-16 Growth
LPG Production (BPC) 18000
14,053 6,755 108%
18000 Metric Ton
Petroleum gases & other gaseous hydrocarbons
LPG
Bcf
Source: United Nations; Bangladesh Bank
21 MTBiz
ECONOMIC FORECAST
INTERNATIONAL NEWSBrighter Prospects, Optimistic Markets, Challenges Ahead: IMF
• Global economic activity continues to firm up. Global output is estimated to have grown by 3.7 percent in 2017, which is 0.1 percentage point faster than projected in the fall and ½ percentage point higher than in 2016. The pickup in growth has been broad based, with notable upside surprises in Europe and Asia. Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9 percent. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes.
• The U.S. tax policy changes are expected to stimulate activity, with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts. The effect on U.S. growth is estimated to be positive through 2020, cumulating to 1.2 percent through that year, with a range of uncertainty around this central scenario. Due to the temporary nature of some of its provisions, the tax policy package is projected to lower growth for a few years from 2022 onwards. The effects of the package on output in the United States and its trading partners contribute about half of the cumulative revision to global growth over 2018–19.
• The current cyclical upswing provides an ideal opportunity for reforms. Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive. In an environment of financial market optimism, ensuring financial resilience is imperative. Weak inflation suggests that slack remains in many advanced economies and monetary policy should continue to remain accommodative. However, the improved growth momentum means that fiscal policy should increasingly be designed with an eye on medium-term goals—ensuring fiscal sustainability and bolstering potential output. Multilateral cooperation remains vital for securing the global recovery.
Global Growth Forecast to Rise Further in 2018 and 2019
Global growth for 2017 is now estimated at 3.7 percent, 0.1 percentage point higher than projected in the fall. Upside growth surprises were particularly pronounced in Europe and Asia but broad based, with outturns for both the advanced and the emerging market and developing economy groups exceeding the fall forecasts by 0.1 percentage point. The stronger momentum experienced in 2017 is expected to carry into 2018 and 2019, with global growth revised up to 3.9 percent for both years (0.2 percentage point higher relative to the fall forecasts).
For the two-year forecast horizon, the upward revisions to the global outlook result mainly from advanced economies, where growth is now expected to exceed 2 percent in 2018 and 2019. The expected global macroeconomic effects account for around one-half of the cumulative upward revision to the global growth forecast for 2018 and 2019, with a range of uncertainty around this baseline projection.
The growth forecast for 2018 and 2019 has also been revised up for other advanced economies, reflecting in particular stronger growth in advanced Asian economies, which are especially sensitive to the outlook for global trade and investment. The growth forecast for Japan has been revised up for 2018 and 2019, reflecting upward revisions to external demand, the supplementary budget for 2018, and carryover from stronger-than-expected recent activity.
The aggregate growth forecast for the emerging markets and developing economies for 2018 and 2019 is unchanged, with marked differences in the outlook across regions. Emerging and developing Asia will grow at around 6.5 percent over 2018–19, broadly the same pace as in 2017. Growth is expected to moderate gradually in China (though with a slight upward revision to the forecast for 2018 and 2019 relative to the fall forecasts, reflecting stronger external demand), pick up in India, and remain broadly stable in the ASEAN-5 region.
In emerging and developing Europe, where growth in 2017 is now estimated to have exceeded 5 percent, activity in 2018 and 2019 is projected to remain stronger than previously anticipated, lifted by a higher growth forecast for Poland and especially Turkey. In Latin America, the recovery is expected to strengthen, with growth of 1.9 percent in 2018 (as projected in the fall) and 2.6 percent in 2019 (a 0.2 percentage point upward revision). Growth in the Middle East, North Africa, Afghanistan, and Pakistan region is also expected to pick up in 2018 and 2019, but remains subdued at around 3½ percent.
BRIGHTER PROSPECTSGlobal economic activity continues to firm up.
2017 2018 2019
GlobalEconomy
Emerging Markets &Developing Economies
2017 2018 2019
4.7 4.9 5.0
2017 2018 2019
AdvancedEconomies
2.22.32.3
3.9 3.93.7
22 MTBiz
ECONOMIC FORECAST
The growth pickup in Sub-Saharan Africa (from 2.7 percent in 2017 to 3.3 percent in 2018 and 3.5 percent in 2019) is broadly as anticipated in the fall, with a modest upgrade to the growth forecast for Nigeria but more subdued growth prospects in South Africa, where growth is now expected to remain below 1 percent in 2018–19, as increased political uncertainty weighs on confidence and investment.
Growth this year and next is projected to remain above 2 percent in the Commonwealth of Independent States, supported by a slight upward revision to growth prospects for Russia in 2018.
Policies
Two common policy objectives tie advanced, emerging, and developing economies together. First, the need to raise potential output growth—through structural reforms to lift productivity and, especially in advanced economies with aging populations, enhance labor force participation rates—while making sure that the gains from growth are shared widely. Second, the imperative to increase resilience, including through proactive financial regulation and, where needed, balance sheet repair and strengthening fiscal buffers. Action is particularly important in a low-interest-rate, low-volatility environment with potential for disruptive portfolio adjustments and capital flow reversals. The current cyclical upswing provides a unique opportunity for structural and governance reforms.
Against a backdrop of common priorities, the optimal policy mix differs across countries depending on cyclical considerations and available policy space:
• In advanced economies where output is close to potential, still-muted wage and price pressures call for a cautious and data-dependent monetary policy
normalization path. However, where unemployment is low and projected to decline further, such as in the United States, a faster pace of policy normalization may be required if inflation were to pick up more than currently anticipated. In advanced economies where output gaps persist and inflation remains below the central bank target, continued monetary accommodation is desirable. Fiscal policy in both cases should focus on medium-term objectives —including public investment to boost potential output and initiatives to raise labor force participation rates where gaps exist—while ensuring that public debt dynamics are sustainable and excessive external imbalances are reduced.
• In emerging market economies, improved monetary policy frameworks have helped lower core inflation, which provides scope for using monetary policy to support demand should activity weaken. Fiscal policy is generally more constrained by the need to gradually rebuild buffers, especially in commodity-dependent emerging market and developing economies.
• The policy challenges for low-income countries are particularly complex, as they involve multiple, sometimes conflicting goals. Policy initiatives should continue to focus on broadening the tax base, mobilizing revenue, improving debt management, reducing poorly targeted subsidies, and channeling spending into areas that lift potential growth and improve the livelihoods of all (infrastructure, health, and education). Efforts to strengthen macroprudential frameworks and greater exchange rate flexibility would improve resource allocation, reduce vulnerabilities, and boost resilience.
Cooperative multilateral effort remains vital to safeguard recent momentum in global activity, strengthen medium-term prospects, and ensure the benefits from technological progress and global economic integration are shared more widely. Priority areas include continuing the financial regulatory reform agenda; avoiding competitive races to the bottom in taxes, labor, and environmental standards; modernizing the rules-based multilateral trade framework; strengthening the global financial safety net; preserving correspondent banking relationships; curbing cross-border money laundering, organized crime, and terrorism; and mitigating and adapting to climate change.
PRIORITIES FOR POLICYMAKERSCommon policy objectives: (1) raise potential growth,
(2) Proactively increase resilience, (3) ensure more inclusive growth
Low-IncomeCountries
Diversity economiesand build
resilience-enhancingbuffers
Emerging MarketsWhen needed, usemonetary policy to
support demand; avoiddeferring reforms and
budgetaryadjustmentsAdvanced Economies
Monitor inflation andcarefully adjust
monetary policy;Structural reformsto boost potential
growth
Promote globalcooperation
and free & fairtrade
23 MTBiz
WELLS FARGO MONTHLY OUTLOOK
INTERNATIONAL NEWS WELLS SECURITIESFARGO
Moving Point A to Point B: Economic ImplicationsWhen fly fishing in the streams in Wyoming, one quickly learns that moving from point A to point B is often further and bumpier than the line of vision. In the economy, the dynamics of moving from 2.3 percent growth in 2017 towards 3 percent in 2018 enhances the “cautious tale” Wells Fargo highlighted in Annual Outlook for 2018. What Wells Fargo has witnessed so far is that small increases in market expectations for growth (see real final sales below), inflation and interest rates have altered the “optimistic outlook” and led to large adjustments in the financial markets. Wells Fargo remains cautious also on the seasonality problem that has plagued first quarter GDP estimates.Sector Performance: SolidRecently enacted tax changes have created upside opportunities for consumer spending, business investment and residential investment all stronger in 2018 relative to 2017—while the increase in growth is now accompanied by a rise in inflation estimates for the PCE deflator. Better growth and higher inflation expectations, along with a recent jump in labor compensation, have moved market expectations to three fed funds rate increases, and may present risks for the economy in the near term—Wells Fargo was already at three hikes. Long-term rates have moved as the additional problem of Treasury debt supply and demand confronts the market going forward. Despite the rise in interest rates, our outlook remains for a weaker trade-weighted dollar in 2018. Any Fed tightening appears to be less supportive than earlier in the cycle. In terms of corporate profits, a rising interest rate environment and a tight labor market cause to project trend like growth into 2019.
Global Economy Came into 2018 with Momentum
A synchronous economic upswing appears to be underway in the global economy at present. The rate of growth in global industrial production strengthened to a six-year high last year, and Wells Fargo estimate that global GDP grew more or less in line with its long-run average in 2017. Wells Fargo looks for the global economy to expand at roughly similar rates in 2018 and 2019.
With growth picking up and the threat of deflation receding in most economies, central banks are removing policy accommodation. The Fed has hiked rates by 125 bps over the past two years, and Wells Fargo look for 75 bps of further tightening by the FOMC in 2018. The ECB has been dialing back its bond buying, and Wells Fargo look for it to end its quantitative easing program late this year before beginning a slow process of rate hikes next year. The Bank of Canada and the Bank of England hiked rates last year, and Wells Fargo expect that both central banks will tighten further this year. Wells Fargo looks for the downward trend in the dollar to continue as ongoing Fed tightening starts to become less supportive of the dollar and as foreign central banks start to catch up to the Fed with their own removal of policy accommodation.
There clearly are a number of geopolitical events that, if they were to come to pass, could raise risk aversion among investors and businesses, thereby weakening growth prospects. Growth could also weaken if central banks become too aggressive in their removal of policy accommodation. But if these risks do not come to pass, then the global economy should continue to expand this year at a solid pace.
U.S. Overview International Overview
Source: International Monetary fund, U.S Department of commverce and Wells Fargo Securities
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Real Global GDP GrowthYear-Over-Year Percent Change, PPP Weights
7.5%
6.0%
4.5%
3.0%
1.5%
0.0%
-1.5%
7.5%
6.0%
4.5%
3.0%
1.5%
0.0%
-1.5%1980 1985 1990 1995 2000 2005 2010 2015
WFForecast
U.S. Real GDPBars CAGR Line Yr/Yr Percent Change
Yr/Yr Percent Change : Q3 @ 2.3%GDPGDP
CAGR: Q3 @ 3.2%
Period Average
24 MTBiz
FINANCIAL GLOSSARY
Churning: Churning is the unjustified overtrading by a stockbroker or fund manager. A broker or manager that earns a commission whenever a trade is carried out has an incentive to carry out as many trades as possible, hence the risk of churning.
Cyclical stock: Cyclical stock is the stock of a company whose profits tend to move in a cyclical manner in phase with the overall economy. If the economy is doing well, profits increase. If the economy is doing poorly, profits decrease. Many manufacturing companies are cyclical stock companies since they will sell more products in a prosperous economy and less products during recessions. A popular investment strategy is to purchase cyclical stock just before the economy starts to rise again after a low-period. Of course, detecting this spot is notoriously difficult.
Chartered Business Valuator (CBV): Is a certification offered to financial professionals by The Canadian Institute of Chartered Business Valuators. Certified members are able to evaluate the value of a company using assets, cash flow, and different economic conditions. Candidates must pass courses, an exam, and earn a certain number of hours of business and securities valuation work experience.
Directors dealings: When directors of a publicly quoted company buy or sell shares of that company, it is known as directors dealings. Most jurisdictions and stock exchanges have specific rules governing directors dealings. It is for instance not unusual to prohibit directors dealings during the two months leading up to an announcement of company results.
Dual purpose fund: In the United States, this term will typically denote a closed-end fund with a limited life and two main classes of shares: income shares (preferred shares) and capital shares (common shares). All the income goes to the holders of income shares. When the fund expires, holders of income shares are paid a fixed redemption price for their shares, and any assets remaining in the fund after that go to the holders of capital shares. In the United Kingdom, a similar solution is the Split Capital Investment Trust.
Entitlement offer: An entitlement offer is a time-limited offer to purchase a security or other asset that cannot be transferred to another party. An entitlement offer is offered at a set price. If there was no transfer ban, the offer would be called a rights offer, not an entitlement offer.
G O S S A R Y Y
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