MDTA MDTA Recent Recent

Macroeconomic and Macroeconomic and PRGF DevelopmentsPRGF Developments

MDTA MDTA Recent Recent

Macroeconomic and Macroeconomic and PRGF DevelopmentsPRGF Developments

June 17, 2004June 17, 2004By IMF Dhaka officeBy IMF Dhaka office

Do not quoteDo not quote

Bottom Line• The economic recovery that started in FY03

strengthened further in FY04• Although inflation has picked up• Macroeconomic management remains

cautious and all quantitative benchmarks and PCs were met

• Good headway has been made on the structural agenda, but with some slippages in key areas

Production and Inflation

• Real GDP growth is likely to accelerate to 5.5 percent in FY04 from 5.3 percent in FY03

• Under program, this will be growth and inflation are targeted at 5.5 percent each

• Industrial production, services, and exports were main contributors to growth

• Mainly due to higher prices of imported items, inflation has gone up and will reach 6 percent (year average) in FY04

Industrial Production, 1998-2004(12-month running totals)

0.0

2.0

4.0

6.0

8.0

10.0

12.0M

ar '9

8

Sep

'98

Mar

'99

Sep

'99

Mar

'00

Sep

'00

Mar

'01

Sep

'01

Mar

'02

Sep

'02

Mar

'03

Sep

'03

Mar

-04

Yea

r-on

-yea

rpe

rcen

tage

cha

nge

Net Foodgrain Production1991/92-2003/04

15.5

17.5

19.5

21.5

23.5

25.5

27.5

90/9

1

91/9

2

92/9

3

93/9

4

94/9

5

95/9

6

96/9

7

97/9

8

98/9

9

99/2

0

20/0

1

01/0

2

02/0

3

03/0

4

Mill

ion

To

ns

-10.00

-5.00

0.00

5.00

10.00

15.00

Ch

an

ge

in p

erc

en

t

Productin in MTChange

National Consumer Price Inflation, 1998-2004('85/86=100 for Jul '98-'00; '95/96=100 as of Jul '00)

02468

101214161820

Jul '

98O

ct '9

8Ja

n '9

9A

pr' 9

9Ju

l '99

Oct

'99

Jan

'00

Apl

'00

Jul '

00O

ct '0

0Ja

n '0

1A

pl '0

1Ju

l '01

Oct

'01

Jan

'02

Apl

'02

Jul '

02O

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2Ja

n '0

3A

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3Ju

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3O

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03Ja

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04

12 m

onth

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General index Food Nonfood

Fiscal policies were tighter than programmed

• The budget deficit for FY04 targeted in the revised budget is 4.2 percent of GDP, and is likely to come out lower, against 4.8 percent in the program

• Revenues are falling short of the target, as do ADP spending and foreign financingb

Government Revenue and Expenditure, FY00-FY05

0

2

4

6

8

10

12

1999/00 2000/01 2001/02 2002/03 2003/04 2004/05

Per

cent

of

GD

P

Revenues (excl. grants)Revenue ExpenditureAnnual Development Program

b

Broad and Reserve Money Growth, 1999-2003(12 months, end-of-period, percentage change)

2468

1012141618202224

Jan'

99

Apr

'99

Jul '

99

Oct

'99

Jan

'00

Apr

'00

Jul '

00

Oct

' 00

Jan

'01

Apl

'01

Jul '

01

Oct

'01

Jan

'02

Apl

'02

Jul '

02

Oct

'02

Jan

'03

Apl

'03

Broad Money

Reserve Money

Monetary policy remains prudent

• This is appropriate in light of the increase in inflation

• Private sector credit has grown less than programmed, as has credit to government

Broad and Reserve Money Growth, 2001-2004(12 months, end-of-period, percentage change)

13579

111315171921232527

Jun

'01

Sep

'01

Dec

'01

Mar

'02

Jun

'02

Sep

t '0

2

Dec

'02

Mar

'03

Jun

'03

Sep

'03

Dec

'03

Mar

'04

Broad Money

Reserve Money

Bank Credit, 2001-2003(12 months, end-of-period, percentage change)

2

4

6

8

10

12

14

16

18

20Ju

n '0

1

Aug

'01

Oct

'01

Dec

'01

Feb

'02

Apl

'02

Jun

'02

Aug

'02

Oct

'02

Dec

'02

Feb

'03

Apl

'03

Jun

'03

Aug

'03

Oct

'03

Dec

'03

Feb

'04

Apr

'04

Pri

vate

Cre

dit

-15

-10

-5

0

5

10

15

20

25

30

35

Ne

t Cla

ims

on

Go

vt

Private CreditNet Claims on Govt

1-month T-bill rate, 2000-2004(in percent per annum; end-of-month)

2.02.53.03.54.04.55.05.56.06.57.07.58.08.59.09.5

10.0Ja

n '0

0

Apl

'00

Jul '

00

Oct

'00

Jan

'01

Apl

'01

July

'01

Oct

'01

Jan

'02

Apr

'02

Jul '

02

Oct

'02

Jan

'03

Apl

'03

Jul

'03

Oct

'03

Jan

'04

Apr

-04

2.02.53.03.54.04.55.05.56.06.57.07.58.08.59.09.510.0

The external sector is recovering

• From the start of FY04, exports grew by 15 percent through April and imports by 18 ½ percent through February

• Export is led by RMG and frozen food.• External debt management has been

prudent• Gross international reserves now

stand at $2.6 billion

5. Merchandise exports and imports, 1998-2003(12-month running totals)

-20

-10

0

10

20

30

40

Jul '

98

Oct

' 98

Jan.

99

Apr

'99

Jul '

99

Oct

' 99

Jan

'00

Apr

'00

Jul '

00

Oct

' 00

Jan

'01

Apl

'01

Jul '

01

Oct

' 01

Jan

'02

Apl

'02

Jul '

02

Oct

' 02

Jan

'03

Apl

'03

Jul '

03

Oct

' 03

Jan

' 04

Ye

ar

to y

ea

r p

erc

en

tag

e c

ha

ng

e

Imports Exports

Trade balance and workers' remittances, 1998-2004

(12-month running totals)

0500

1,0001,5002,0002,5003,0003,5004,000

Jul '

98Se

p '9

8N

ov '9

8Ja

n. 9

9M

ar' 9

9M

ayJu

l '99

Sep

'99

Nov

'99

Jan

'00

Mar

'00

May

Jul '

00Se

ptN

ov '0

0Ja

n '0

1M

ar '0

1M

ayJu

l '01

Sep

'01

Nov

'01

Jan

'02

Mar

'02

May

Jul '

02Se

ptN

ov '0

2Ja

n '0

3M

ar '0

3M

ayJu

l ' 0

3Se

p ' 0

3N

ov '

Jan

' 04

Mar

'

Tra

de d

efic

it (m

illio

n U

S$)

Trade Deficit

Workers' Remittances

International Reserves, 2000-2004(in millions of US$, weekly)

500

1,000

1,500

2,000

2,500

3,000

3,500

Aug

. 03'

00

Oct

. 12'

00

Dec

. 21'

00

Mar

. 01

, 01

May

. 10

' 01

July

19,

01

Sep

27

'01

Dec

06

'01

Feb

14

'02

Apr

24

'02

Jul 0

4 '0

2

Sep

t. 19

'02

Nov

. 28

'02

Feb

. 06

'03

Apl

. 17

'03

Jun.

26

'03

Sep

. 04,

03

Nov

. 13

' 03

Jan.

22

' 04

Apr

. 01

' 04

Jun.

10'

04

The exchange rate has become a bit more

volatile• In recent weeks, transient factors

have pushed down the taka.• The increase in volatility is a sign

of a maturing of the exchange rate market.

Exchange rates, 2003/4Taka per US dollar

54.055.056.057.058.059.060.061.062.063.0

Jan

'01

Jan

'31

Mar

'01

Mar

'31

Apl

'30

May

'30

Parallel market

Interbank market

Structural Conditionality:

Tax Administration• Set up CIU: delayed• Revamp bonded warehouse system: met• Expand audit program to 1,000

taxpayers: not met• Expand LTU system to VAT and

withholding tax: by end-September• Replace tax holiday system with rational

investment incentives: by next budget

Structural Conditionality: NCBs

• Contracting new management/support for NCBs: delayed

• Implement MOUs: met; continuous• Sign new MOUs with lending cap and recovery

targets: at final step• Adopt bank-by-bank resolution strategies: at

final step• Bring Rupali, Agrani, and Janata to the point of

sale: Rupali at end-1994, then Agrani and Janata

Structural Conditionality:

Others• Adjust NSC rates in line with

market developments: to be done• Adjust trade taxes: done in budget

One slide about MFA• MFA phase out is a major risk to the program• RMG exports have been buoyant due to

strengthened competitiveness, especially in the duty-free EU market

• But Bangladesh is vulnerable due to heavy reliance on quotas

• Without a policy response, the adverse impact on the BOP could be as much as $1 ½ billion in FY05-06, or 1 percent of GDP on average

• Attracting FDI, the flexible exchange rate regime, increased international reserves, liberalizing the regime for imports of RMG inputs, and measures to reduce the social impact should be part of an policy package