Issue 3 January - March 2016 QUARTERLY REVIEW ECONOMIC SITUATION IN BANGLADESH

Transcription

1 Issue 3 January - March 2016 QUARTERLY REVIEW ECONOMIC SITUATION IN BANGLADESH

2 Chamber Building Motijheel, C/A, Dhaka-1000, Bangladesh Phone : & (PABX), Fax : sg@mccibd.org, info@mccibd.org, Web : VISION Be the leading voice serving responsible business MISSION Become the leading Chamber for providing research and analysis related to business in Bangladesh Attract quality membership, representative of a cross section of business Effectively respond to changing business environment Collaborate with local and international institutions Engage and communicate regularly with our stakeholders Promote best practices that benefit business and society VALUES Fairness Integrity Respect Equal Opportunity CORE COMPETENCIES - ORGANISATION Research based Policy Advocacy Networking Business Intelligence CORE COMPETENCIES PEOPLE Professional Innovative Adaptable Team Player Proactive Communication & Interpersonal Skills CHAMBER COMMITTEE FOR 2016 PRESIDENT MR. SYED NASIM MANZUR VICE - PRESIDENT MR. AKHTER MATIN CHAUDHURY, FCA MEMBERS MR. M. ANIS UD DOWLA MR. TABITH M. AWAL MS. SIMEEN HOSSAIN MR. MD. SAIFUL ISLAM MR. RUBAIYAT JAMIL MS. NIHAD KABIR MR. HABIBULLAH N. KARIM MR. ADEEB H. KHAN, FCA MR. FRANCOIS DE MARICOURT MR. KAMRAN T. RAHMAN SECRETARY-GENERAL MR. FAROOQ AHMED DISCLAIMER The Quarterly Review is published for private circulation by Metropolitan Chamber of Commerce and Industry, Dhaka. The Chamber assumes no responsibility for the correctness of items quoted in the publication although every effort is made to give information from sources believed to be reliable.

3 Issue 3 Jan_March 2016 QUARTERLY REVIEW Content Executive Summary (2) Agriculture (4) Industry (6) Monetary and Credit Developments (8) Capital Market (13) Public Finance (13) Exports (15) Imports (16) Remittances (16) Foreign Aid (17) Foreign Direct Investment (FDI) (18) Balance of Payment (18) Exchange Rate (19) Foreign Exchange Reserves (20) Overseas Employment Situation (20) Price Situation (22) Chamber s Projection on Some Selected Economic Indicators (23) Concluding Observations (24)

4 Executive Summary General Bangladesh s economy is progressing well, but below its true potential. Inadequate infrastructure and shortage of power and energy are now major impediments to the growth of the economy. Some development partners have revised down their forecast of Bangladesh s GDP growth to between per cent for FY16 as against the government s estimate of 7.05 per cent growth for the fiscal. Government s original growth target for FY16 was 7.0 per cent. growers instead of middlemen or millers, to provide them incentives and ensure fair price. Farmers also got necessary inputs and policy support from the government, and hence the cultivation of food grains did not suffer. Industry In the quarter under review, manufacturing activities showed signs of regaining momentum, thanks to some improvements in the power situation. The sub-sector witnessed a higher growth of per cent in FY15, compared to 8.77 per cent in FY14. The small scale manufacturing industries performed slightly better, growing by per cent in FY15, compared to 6.33 per cent in FY14. Besides, the large and medium industries sub-sector grew by per cent in FY15, compared to 9.32 per cent in FY14. Construction On the positive aspects of the construction sub-sector, real estate business saw an improvement in the wake of some government decisions, including resumption of gas and electricity connections to households and housing loan facilities for expatriates. However, despite the high potential of this sub-sector, various factors like land value distortion, absence of secondary property market, asset securitization and sale of mortgages, and backward linkage industries such as cement, ceramic, brick manufacturing industries, etc. impeded its growth. There is no alternative to raising the level of investment, if Bangladesh is to attain the status of a middle income country by The seventh five-year plan (7FYP) projected 7.0 per cent GDP growth for FY16. It also projected that private investment would be 23.7 per cent of GDP for FY16. BBS estimation, however, shows that the private investment-gdp ratio has declined to per cent in FY16 from per cent in FY15. Again, 7FYP projected that public investment should be 6.4 per cent of GDP in FY16 while BBS estimation puts it at 7.6 per cent. According to 7FYP, investment-gdp ratio should be 30.0 per cent to achieve 7.0 per cent growth, while BBS estimated the investment-gdp ratio at per cent in FY16. Thus, all-out efforts will be needed to encourage investment, including foreign direct investment (FDI) in the country. Agriculture Farmers in most parts of the country started harvesting boro paddy with high hopes of getting a better price this season. Their expectations were buoyed by a recent government decision to procure grains directly from the Power Government has achieved commendable success in short-term actions for power sector crisis management but the long-term goals for sustainable power and energy supply issues remain unresolved. The power supply situation, however, improved in the quarter under review but the demand for power, too, shot up. As of 31 March 2016, total generation was 6,427 mw during day peak hours and 6,417 mw during evening peak hours while the demand was 6,046 mw. The maximum generation in 2016 was 8,348 mw on 09 April Services The broad services sector has nine sub-sectors, data on which are yet insufficient to enable an understanding of how they have fared in the quarter under review. Of the different sub-sectors, electricity, gas & water supply, hotel & restaurant, financial intermediation, real estate, renting & other business activities, health & social work, education, and public administration & defense have performed better in the current fiscal compared to that of the previous fiscal. Quarterly Review 2

5 Money and Capital Market Broad money (M2) recorded a higher growth of per cent at the end of February 2016 compared with per cent growth at the end of February Domestic credit, on the other hand, recorded per cent growth at the end of February 2016, which was also higher than the per cent growth recorded at the end of February Among components of domestic credit, private sector credit registered a growth of per cent during the period between February 2015 and February 2016 while public sector credit recorded a negative growth of 6.51 per cent at the end of February 2016, compared with the decrease of 0.46 per cent at the end of February Total liquid assets of the scheduled banks increased by 7.28 per cent and stood higher at Tk 257,009 crore as of end February 2016 compared with Tk 239,579 crore as of end June The minimum required liquid asset of the scheduled banks was Tk 140,420 crore as of end February Interest rate spread in the banking sector decreased to 4.81 per cent in February from 4.84 per cent in January The decline in the interest rate spread was more due to the cut in the interest rate on deposits than that on lending. The disbursement of industrial term loans during October- December of FY16 stood 40.3 per cent higher compared to the immediate previous quarter (July-September) of FY16. The recovery of industrial term loans also increased by 7.9 per cent during the period. In Q3 of FY16, the disbursement of agricultural credit and non-farm rural credit by banks, year on year, decreased by 0.99 per cent but in July-March of FY16, the disbursement increased year on year by per cent. The improvement in disbursement was partly the result of strong monitoring by the Bangladesh Bank (BB). The recovery, however, increased by 8.32 per cent in Q3 of FY16. The country s capital market passed a gloomy period as trading activities were dull in the quarter under review as they were throughout Various efforts taken by the government and the regulators to shore up the market in the past five years since the 2011 debacle failed to produce any good result. Public Finance Total tax revenue collection (NBR and non-nbr) during July- February of FY16 stood higher by 14.7 per cent at Tk 94,960 crore as against the collection of Tk 82,795 crore during the corresponding period of FY15. Tax revenue collection by NBR during this period increased by 14.4 per cent. The implementation of the Annual Development Programme (ADP) was very slow in July-March of FY16. Only 41 per cent of the ADP was implemented in this period, which was the lowest in seven years. In July-March of FY15, the implementation rate was 43 per cent. External Sector: Export, Import, Remittances, Foreign Aid, FDI and Exchange Rate Export earnings in July-March of FY16 rose by 8.95 per cent to US$ billion from US$ billion in the corresponding period of the previous fiscal year. Exports were also 2.12 per cent higher than the strategic target (US$ billion). The readymade garments (RMG) industry played a major role in the overall increase in exports. In fact, export earnings in Q3 of FY16 grew by per cent. In March 2016, year-on-year, exports grew by 9.18 per cent to US$2.831 billion above the strategic target (US$2.823 billion) on the back of higher shipments of garments, leather & leather goods, and jute & jute goods. Import payments (C&F) during July-February of FY16 stood at US$ billion, which is 6.44 per cent higher than import payments during the corresponding months of FY15. Import payments in February 2016 also increased by 4.40 per cent over the same month of 2015 but decreased by 6.54 per cent over the previous month of the same fiscal year (January 2016) because of a falling trend of commodity prices, including the price of fuel oil, in the global market. Remittance inflow in July-March of FY16 dropped by 1.76 per cent to US$ billion, year on year, compared to US$ billion mainly due to the lower price of petroleum products which greatly reduced the income of oil producing Middle-Eastern countries that are major employers of Bangladeshi workers. Remittances in the quarter under review also decreased by 5.29 per cent to US3.566 billion from US3.765 billion. The commitment of foreign aid to Bangladesh by major development partners declined by per cent year on year to US$257 million in July-October of FY16. The fall in commitment was due to the delay in project approval and slow completion of project works by government agencies. The disbursement of aid, however, showed a positive 5.03 per cent year on year growth to US$2.09 billion during July-February of FY16. In July-February of FY16, the net foreign direct investment (FDI) increased by per cent to US$1.45 billion from US$1.14 billion in the same period of FY15. The volume of FDI is too small to meet the country s development needs. The prospective foreign investors consider the underdeveloped Issue 3 Jan.-Mar (Q3of FY16)

6 infrastructure, shortage of power and energy, lack of consistency in policy matters, procedural bottlenecks, lack of proper regulatory framework, scarcity of industrial lands, administrative weakness of the Board of Investment, lack of coordination among government agencies, and political uncertainty as major impediments to new investment. The government needs to address these impediments to attract more FDI. Trade deficit decreased by 0.27 per cent in the first eight months of the current fiscal year due both to a decline in import payments and an increase in export earnings. The deficit in services trade, too, declined during the period, due to lower outward payments. Chiefly because of the improvement in services trade balance, the current account balance increased to US$2.710 billion in July- February of FY16, compared to US$2.199 billion during the corresponding period of FY15. The net foreign direct investment increased by per cent at the same time. The financial account also increased by US$377 million in the first eight months of FY16. The overall balance increased by per cent to US$3.149 billion in July-February of FY16 against US$2.223 billion during the same period of FY15 due to the strong position in the current account and the financial account balances. Between end-june of 2015 and end-march of 2016, Taka depreciated by a small 0.77 per cent in terms of US dollar. The foreign exchange market was thus pretty stable. The gross foreign exchange reserves (Forex) crossed US$29 billion-mark for the first time on 25 April 2016 despite the largest-ever cyber fraud that stole US$81 million from its reserve account. The Forex reserve rose to a record US$29.10 billion, which is worth eight months imports. Inflation In March 2016, the general point to point inflation in the country increased slightly - by 0.03 percentage points to 5.65 per cent from 5.62 per cent in February The rise in inflation was due to an increase in the expenditure on some food items. A year ago, in March 2015, the inflation rate was 6.27 per cent. The food inflation, however, increased by 0.12 percentage points to 3.89 per cent in March 2016 from 3.77 per cent in the previous month because of a rise in prices of meat, pulses and sugar. On the other hand, non-food inflation fell by 0.10 percentage points to 8.36 per cent in March 2016 from 8.46 per cent of the immediate past month (February). A comparison of inflation data for urban and rural areas in March of FY16 (general point to point) shows that the inflation rates were higher in urban areas than in rural areas. Thus, the point to point general, food, and non-food inflation in rural areas in March 2016 were 4.79 per cent, 3.15 per cent, and 7.82 per cent, respectively, while the inflation rates in urban areas were 7.27 per cent, 5.61 per cent, and 9.12 per cent, respectively. 1.0 Agriculture Complete data on agricultural production in the third quarter of the present fiscal (Q3 of FY16) is yet to be available. However, farmers in most parts of the country started harvesting boro paddy with high hopes of getting a better price this season. Their expectations were buoyed by a recent government decision to procure grains directly from the growers to provide them incentives and ensure fair price. The cultivation of food grains did not have to suffer as farmers got necessary inputs with continuing policy support from the government. The Department of Agricultural Extension (DAE) is confident that the production target of food grains (rice and wheat) for the year will be achieved. 1.1 Food Situation Domestic Production The DAE had set the food grains (rice and wheat) production target for FY16 at million metric tons (mmt), which is 0.57 per cent higher than that of FY15 ( mmt). Production targets for aman, aus, boro and wheat during the year are mmt, mmt, mmt and mmt, Quarterly Review 4

7 respectively. Preliminary estimates of aman and aus crops made by the BBS are mmt and mmt, which are, respectively, per cent higher and 1.68 per cent lower than the previous year s actual production ( mmt and mmt). According to unofficial estimates of DAE, wheat production has been finalized at mmt for FY16, which is almost the same as previous year s actual production. Boro harvest this year was not complete till the time of preparation of this report. However, the boro production target for the year may not be achieved as cultivation declined when many farmers switched to other crops such as wheat and potato, according to seed sellers. Farmers grew boro paddy on million hectares (mh) of land during the current harvesting season, fewer than last season s mh, according to the DAE. Taking the shrunken boro acreage into consideration, the US Department of Agriculture (USDA) projects Bangladesh s total boro production to be mmt in the current season. Food Grains Import As of 31 March 2016, about thousand metric tons (tmt) of rice was imported by the private sector. As in the past year, no rice was imported by the public sector. During the fortnight ending 31 March 2016, about tmt of wheat was imported by the public sector and 2, tmt by the private sector. Over the same period of last year, a total of tmt of wheat was imported by the public sector and 2, tmt by the private sector. Domestic Procurement To provide price incentive to farmers, government decided to procure at least 0.2 mmt of aman rice at Tk per kg from the domestic market. The drive began on 15 December 2015 and it was closed on 15 March As on 15 March 2016, about tmt of aman rice was procured. Public Distribution The government has enhanced its efforts to ease the hardship of poor households by distributing subsidized grains through open market sale (OMS) and fair price card (FPC) channels. In FY16, the target of food grains distribution was revised to 2.57 mmt from 2.78 mmt as against the actual distribution of 1.84 mmt in FY15. Over the fortnight ending 31 March 2016, a total of tmt food grains was distributed mainly through FFW (56.10 tmt), OMS (51.70 tmt), TR (44.00 tmt), VGD (16.70 tmt) and EP (12.10 tmt). As of that date, a total of 1, tmt had been distributed through PFDS, which is about per cent of the yearly target. The OMS drive, which was resumed in small scale - only rice in Dhaka and Chittagong areas, and atta all over the country - continues. Public Stock According to the Directorate General of Food, the public food grains stock, as of 31 March 2016, stood at 1, tmt tmt for rice and tmt for wheat. Domestic Market Prices In the fortnight ending 31 March 2016, the wholesale price of rice (Swarna) in Dhaka city markets remained unchanged at Tk per Kg, but the retail price decreased by 5.3 per cent to Tk per Kg. The wholesale and retail prices now are, respectively, 15.1 per cent and 19.4 per cent lower than they were a year ago. Over the same period, the wholesale price of atta in Dhaka city markets increased by 5.2 per cent to Tk per Kg, but the retail price decreased by 3.8 per cent to Tk per Kg. The wholesale and retail prices are, respectively, 21.9 per cent and 18.5 per cent lower now than the prices of last year. International Market Prices In the fortnight ending 1 April 2016, the prices of Vietnam 15% white, Thai 5% parboiled and India 5% parboiled rice increased by 2.6 per cent, 0.3 per cent, and 2.9 per cent, respectively, to US$360 per mt, US$366 per mt, and US$350 per mt. But the prices of Pakistan 5% parboiled and West Bengal coarse rice remained unchanged at US$350 per mt and US$309 per mt, respectively. However, the wholesale price of rice in Dhaka city stood at US$300 per mt. In the fortnight ending 1 April 2016, the prices of US Soft Red Winter (SRW) and Russian wheat increased by 0.9 per cent and 1.9 per cent, to US$194 per mt and US$185 per mt, respectively. But the price of Ukraine wheat decreased by 1.4 per cent to US$177 per mt. On the same date, Dhaka city wholesale wheat price stood at US$ per mt (increased by 1.3%). Issue 3 Jan.-Mar (Q3of FY16)

8 1.2 Fisheries and Animal Farming (Live stock and Poultry) According to provisional estimates of BBS, fisheries and animal farming (livestock and poultry) sub-sectors contributed around 5.42 per cent to the GDP in FY15, of which the fish sector contributed around 3.69 per cent and the animal farming sector contributed 1.73 per cent. Nearly 17.1 million people are involved in the fish sector, while the animal farming sector has created job opportunities for around 6.5 million people. For around a decade or so, fish production in the country has been increasing to keep up with the growing demand at home and abroad. According to the Department of Fisheries (DoF), the country produced 3.55 million tons of fish in FY15 and 3.45 million tons in FY14. Yet, the country has a deficit of 0.6 million tons, which could be met by providing fish farms with necessary inputs and assistances. Also, ensuring proper utilisation of water bodies as well as latest technologies, involving the real fishermen, fish production could be enhanced. Recently, the government has taken a move for sustainable fish farming by tackling climate change impacting sustainable fisheries and aquaculture. To this effect, a Memorandum of Understanding (MoU) has been signed between the Department of Fisheries (DoF) under the Ministry of Fisheries and Livestock and Bangladesh Shrimp and Fish Foundation (BSFF). Under the MoU, the DoF and BSFF would collaborate and cooperate to address the issues relating to challenges posed by the fallout of climate change for the aquaculture and fisheries sector. The DoF and the BSFF would also undertake studies and programmes on the possible adaptation measures including introducing alternative livelihood opportunities in fisheries or aquaculture sector needed in specific locations in Bangladesh to overcome the challenges and to support the joint activities towards making the shrimp and freshwater prawn industry more sustainable, with practical emphasis on reducing food safety risks. Also, addressing social and environmental issues and increasing the economic and trade benefits from the shrimp and prawn production would be the other highlights of the MoU and related to other issues. The country s poultry industry has achieved self-sufficiency in meeting local demand for meat and eggs. The industry is now producing 1,500 mt of poultry meat per day against the target of 1,400 mt. It also produces 16 million eggs per day against the demand for 15 million, and almost 10 million pieces of chicken every week against the weekly demand for nearly 9 million pieces. As a result, the industry has now an exportable surplus. However, Bangladesh could not yet export poultry due to the inability to maintain international standard. 2.0 Industry Data on the country s industry sector for Q3 of FY16 are not yet available. However, the broad industrial sector grew by 9.60 per cent in FY15, which was 8.16 per cent in FY14. Besides, the share of the industry sector in GDP also increased by 0.87 percentage points to per cent in FY15 from per cent in FY Manufacturing Industries In the quarter under review, manufacturing activities showed signs of improvement, thanks to some improvements in the power situation. The sub-sector witnessed a higher growth of per cent in FY15, compared to 8.77 per cent in FY14. The small scale manufacturing industries performed better, growing by per cent in FY15, compared to 6.33 per cent in FY14. Besides, the large and medium industries sub-sector grew by per cent in FY15, compared to 9.32 per cent in FY14. Data on manufacturing industries are available up to December During July-December of FY16, the general index (average, Base: =100) of industrial production of medium and large scale manufacturing industries registered an increase of 9.53 per cent to compared to over the corresponding period of FY15. According to industry Quarterly Review 6

9 insiders, the performance of industrial activity was not at the expected level due mainly to shortage of power and gas, infrastructure bottlenecks, bank s high interest rate and also political uncertainty. Among medium and large-scale manufacturing industries, the general indices of the following industries recorded an increase during July-December of FY16: non-metalic mineral products (42.42%), basic metals (16.56%), food products (12.88%), chemicals & chemical products (11.32%), wearing apparel (9.82%), textile (7.14%) and pharmaceuticals & medicinal chemical (0.28%). On the other hand, there was some decrease in the indices of leather & related products (25.95%), fabricated metal products except machinery (10.96%) and tobacco products (7.45%). The general index of small scale manufacturing industry during the second quarter (October-December) of FY16 increased by 1.93 per cent to points from points during the first quarter (July- September) of FY16. However, the index during the second quarter of FY16 ( points) increased by 7.86 per cent as compared to the same quarter of the previous fiscal year. 2.2 Construction Data on the country s construction sector are not available for Q3 of FY16. However, in FY15, the sector performed better, growing at 8.63 per cent compared to 8.08 per cent in FY14. The real estate, renting and business activities also performed better in the period as it marked a 4.66 per cent growth in FY15 from 4.25 per cent in FY14. In spite of the tremendous potential of the construction and real estate sector, various factors adversely affected its development. These factors are: land value distortion, absence of secondary property market, asset securitization and sale of mortgages, and backward linkage industries such as cement, ceramic, brick manufacturing industries, etc. The real estate business saw an improvement in the recent times in the wake of some governmental decisions, including resumption of gas and electricity connections to households and housing loan facilities for expatriates. The number of unsold ready apartments has now declined to 8,000 from 22,000 a couple of years back and the realtors hope that the recent cut in lending rates by banks and financial institutions would help raise the apartment sales further. In the wake of a comparatively-favorable business environment created for the sector, realtors started undertaking new apartment projects. The real estate sector now accounts for up to 15 per cent of the country s GDP, employing around a hundred thousand skilled people and 3.5 million others in the linkage industries, according to the Real Estate and Housing Association of Bangladesh (REHAB). 2.3 Power In the last couple of weeks, people witnessed severe power cuts because of a drop in oil-based power generation resulting from a shortage of fuel supply. A strike by waterways transport workers since 20 April 2016 caused the fuel shortage forcing most of the power plants run by fuel oil to remain shut, according to the Bangladesh Power Development Board (BPDB). Transport workers have not been supplying diesel and heavy fuel oil to the plants and so power generation dropped by megawatts (mw), leading to load shedding though Bangladesh has enough power generation and supply capacity to meet the demand. Meanwhile, with the mercury shooting towards degrees Celsius and no rain, the demand for electricity rose even in off-peak hours in the morning and noon. Usually the difference between morning and evening electricity consumption is very wide - about a thousand mw. But now the difference has narrowed down to some mw. As a result people are experiencing load shedding frequently. However, the government has achieved commendable success in short-term actions for power sector crisis management but the long-term goals for sustainable power and energy supply issues remain unresolved. Specialists and investors have been systematically raising concerns for sustainable development of primary energy sources in the country and their focus is concentrated on local coal and gas developments. The power supply situation, however, improved in the quarter under review but the demand for power, too, shot up more than ever. As of 31 March 2016, total actual generation during day peak hours was 6,427 megawatt (mw) and during evening peak hours was 6,417 mw. The demand was 6,046 mw and no load shedding occurred. The maximum generation in 2016 Issue 3 Jan.-Mar (Q3of FY16)

10 was 8,348 mw on 09 April 2016 and it was also the maximum generation in BPDB s history. Between April 2016 and January 2016, total installed capacity and derated/present capacity rose to 12,339 mw and 11,744 mw from 12,071 mw, and 11,476 mw, respectively, but production remained low because of gas shortage and also because some power stations were shut for maintenance. According to the BPDB website, about 12,339 mw installed capacity of power plants comprised of coal 250 mw (2.03%), gas 7,628 mw (61.82%), HFO 2,675 mw (21.68%), HSD 956 mw (7.75%), Hydro 230 mw (1.86%), and imported 600 mw (4.86%). Recently, the government signed a US$217 million financing agreement with the World Bank to upgrade Ghorasal power station, more than doubling the generation capacity of one of its units. A repowering project will transform a gas-fired steam unit, which is currently generating 170 mw, into an energyefficient 409 mw plant. Such a conversion to combined cycle technology will increase the plant s overall efficiency from an existing 30 per cent to 54 per cent while requiring only 18 per cent more natural gas, according to the WB. The project will increase efficiency in gas utilisation of an existing unit, while adding new generation capacity to address the country s severe power needs. The project will also reduce the specific fuel consumption per gigawatt/hour by 44 per cent and lower greenhouse gas emissions. In addition, the project will provide capacity building and institutional support to BPDB. sectors, electricity, gas & water supply, hotel & restaurant, financial intermediation, real estate, renting & other business activities, health & social work, education, and public administration & defence have performed better in the current fiscal compared to the previous fiscal. However, local logistics sector, particularly transport service, is continuing to grow significantly, keeping pace with the rapid expansion of trade and economic activities in the country. This sector has been playing a crucial role in facilitating the growth of every sector of the country s economy including industrialization, agriculture, infrastructure, trade and commercial activities. Currently, according to Bangladesh Truck & Covered Van Malik Samity, around 17,000 covered vans and 127,000 trucks and pickups are engaged across the country for transportation of goods including those of exportimport items, construction materials, agro-produce, industrial products and essential items. 3.0 Monetary and Credit Developments According to BB data, broad money (M2) recorded a higher growth of per cent at the end of February 2016 compared with the per cent growth at the end of February Domestic credit, on the other hand, recorded per cent growth at the end of February 2016, which was also higher than per cent growth recorded at the end of February Services Sector The broad services sector has nine sub-sectors, data on which are yet insufficient to enable an understanding of how they have fared in the quarter under review. Of the different sub- Among components of domestic credit, private sector credit registered a growth of per cent during the period between February 2015 and February 2016, compared with the lower growth of per cent during the period between February 2014 and February Public sector credit, on the other hand, recorded a negative growth of 6.51 per cent at the end of February 2016, compared with the decrease of 0.46 per cent at the end of February Within public sector credit, however, credit to government (net) recorded a negative growth of 7.24 per cent, and credit to other public sector recorded a negative growth of 1.85 per cent, during the period (Table 1). Quarterly Review 8

11 Table 1: Monetary and Credit Indicators Outstanding Stock (Taka in crore) % Changes in Outstanding Stock Particulars February February February February 2016 over February 2015 over 2014 R 2015 R 2016 P February 2015 February 2014 Total Domestic Credit (+) (+) Credit to Public Sector (-) 6.51 (-) 0.46 Net Credit to Government Sector (-) 7.24 (-) 4.58 Credit to Other Public Sector (-) 1.85 (+) Credit to Private Sector (+) (+) Reserve Money (RM) (+) (+) Broad Money (M2) (+) (+) Note: P=Provisional; R=Revised Source: Bangladesh Bank Total liquid assets of the scheduled banks increased by 7.28 per cent and stood higher at Tk 257,009 crore as of end February 2016 compared with Tk 239,579 crore as of end June The minimum required liquid asset of the scheduled banks was Tk 140,420 crore as of end February 2016 (Table 2). Table 2: Liquidity Position of Scheduled Banks Bank Group As of end June, 2015 R Total Liquid Assets (Taka in crore) Total Liquid Assets As of end February, 2016 P Minimum Required Liquid Assets Excess Liquidity (3-4) State owned banks Private banks (other than Islamic) Private banks (Islamic) Foreign banks Specialized banks* Total Notes: P=Provisional; R=Revised; *= SLR does not apply to Specialized banks (except BASIC Bank) as exempted by the government Source: Bangladesh Bank Bangladesh Bank data shows that, of the total liquid assets of scheduled banks as of end February 2016, some 4.09 per cent is held in the form of Cash in tills and Balances with Sonali Bank, per cent in the form of CRR, 2.09 per cent in the form of Excess Reserves, 3.18 per cent in the form of Balances with Bangladesh Bank in Foreign Currency and the remaining per cent in the form of Unencumbered approved securities. Issue 3 Jan.-Mar (Q3of FY16)

12 3.1 Interest Rate Developments Bangladesh Bank (BB) employs repo, reverse repo, and BB bill rates as policy instruments for influencing financial and real sector prices. Effective from 1 February 2013, the repo and reverse repo rates remained unchanged at 7.25 per cent and 5.25 per cent, respectively, up to December 2015, and then the rates were re-fixed at 6.75 per cent and 4.75 per cent, respectively, with effect from 14 January 2016 (Table 3). Table 3: Interest Rate (weighted average) movements in FY14 and FY15 Month/ Quarter FY15 R Repo Reverse Repo (in per cent) Lending Rate Deposit Rate Interest Rate Spread July August September October November December January February March April May June FY16 R July August September October November December January February Notes: P=Provisional, R=Revised Source: Bangladesh Bank The country s scheduled banks in February 2016 reduced their lending interest rates further in order to address the reluctance of the businesspeople to borrow due to the sluggish business atmosphere. According to the BB data, the weighted average interest rate on lending in the banking sector declined to per cent in February 2016 from per cent in January The weighted average interest rate on lending had continued to decline throughout last year. It dropped from per cent in January 2015 to per cent in December 2015 (Table 3). The weighted average interest rate on bank deposits also decreased to 6.10 per cent in February from 6.21 per cent in January of Majority of the banks had recently cut their interest rates both on deposits and lending in the face of dull business. The country s businesspeople have adopted a wait and see approach in regard to expanding their businesses by taking bank loans due to the sluggish business environment. Against this backdrop, the interest rate spread decreased to 4.81 per cent in February from 4.84 per cent in January Quarterly Review 10

13 3.2 Industrial Term Loans Data on industrial term loans are available only up to the second quarter (October-December) of the current fiscal (FY16). According to BB data, the disbursement of industrial term loans during October-December of FY16 stood 40.3 per cent higher at Tk 17,818 crore, compared to Tk 12,700 crore during the immediate previous quarter (July-September) of FY16 (Table 4). However, the recovery of industrial term loans also increased by 7.9 per cent to Tk 11,945 crore during October-December of FY16, compared to Tk 11,072 crore in the previous quarter (July-September of FY16). Table 4: Disbursement and Recovery of Industrial Term Loans (Tk. in crore) Quarter Disbursement Recovery LSI MSI SSCI Total LSI MSI SSCI Total October-December of FY15 R (45.6) (1.8) January-March of FY15 R (-28.4) (-11.8) April-June of FY15 R (12.2) (27.2) July-September of FY16 P (-15.2) (-17.3) October-December of FY16 P (40.3) (7.9) Notes: LSI=Large Scale Industries, MSI=Medium Scale Industries and SSCI=Small Scale & Cottage Industries P=Provisional; R=Revised; Figures in parentheses indicate the percentage change over the previous quarter Source: Bangladesh Bank 3.3 SME Loans Data on SME loans are not available for Q3 of FY16. According to BB data, total SME loans by all banks and non-bank financial institutions (NBFIs) increased by 9.29 per cent to Tk 148,793 crore at the end of December 2015 from Tk 136,148 crore at the end of December The disbursement of SME loans was 23.6 per cent of total loans disbursed by all banks and NBFIs at the end of December 2015 (Table 5). Issue 3 Jan.-Mar (Q3of FY16)

14 Table 5: Outstanding Position of SME Loans Quarter Type of Loans (Tk. in crore) SOBs PBs FBs SBs NBFIs Total Oct.-Dec. of FY15 R Total Loans SME Loans Percentage (+26.6) (+27.6) (+7.8) (+3.4) (+11.9) (+24.5) Jan.-Mar. of FY15 R Total Loans SME Loans Percentage (+22.1) (+27.2) (+8.3) (+4.1) (+11.5) (+23.5) April-June of FY15 R Total Loans SME Loans Percentage (+24.5) (+26.3) (+7.9) (+3.9) (+12.3) (+23.4) July-Sept. of FY16P Total Loans SME Loans Percentage (+21.8) (+25.9) (+8.0) (+4.0 ) (+12.1) (+22.7) Oct.-Dec. of FY16 P Total Loans SME Loans Percentage (+26.3) (+26.0) (+7.7) (+4.6) (+12.2) (+23.6) % change of SME loans at the end of Dec over end of Dec Notes: P=Provisional, R=Revised; SOBs= State Owned Banks, PBs= Private Banks, FBs= Foreign Banks, SBs= Specialized Banks, NBFIs= Non-bank Financial Institutions; Figures in parentheses indicate SME loans as percentage of total loans Source: Bangladesh Bank 3.4 Agricultural Credit and Non-farm Rural Credit In the quarter (Q3) under review, the disbursement of agricultural credit and non-farm rural credit by banks decreased by 0.99 per cent to Tk 4,056 crore from Tk 4,097 crore in the corresponding period of the previous fiscal (Table 6). In the first nine months of the present fiscal (July-March of FY16), the disbursement of agricultural credit and non-farm rural credit by banks increased by per cent to Tk 12,812 crore from Tk 11,168 crore over the corresponding period of the previous fiscal. The improvement in disbursement was partly the result of strong monitoring by the BB. Also, banks grappling with surpass liquidity amid dull business situation showed an increased interest in disbursing such credit. Of Tk 12,812 crore, the eight state-owned commercial banks (SCBs) and specialised banks (SBs) disbursed Tk 6,544 crore, and the remaining Tk 6,268 crore was disbursed by the private commercial banks (PCBs) and the foreign commercial banks (FCBs). All eight SCBs & SBs and PCBs & FCBs have achieved per cent and per cent, respectively, of their annual agricultural loan disbursement targets (Tk 9,290 crore and Tk 7,110 crore), for FY16. The recovery, however, increased by 8.32 per cent to Tk 4,222 crore in Q3 of FY16 from Tk 3,898 crore in the corresponding period of the previous fiscal year. In July-March of FY16, the recovery also increased, year on year, by 7.50 per cent to Tk 12,643 crore from Tk 11,761 crore. Quarterly Review 12

15 Table 6: Disbursement and Recovery of Agricultural Credit and Non-farm Rural Credit (Tk. in crore) Month FY16P FY15P Disbursment Recovery Disbursment Recovery July August September Total of Q (+16.50) (-4.33) (-3.88) (+4.87) October November December Total of Q (+28.50) (+15.18) (-5.85) (-12.21) January February March Total of Q3 Total of Jul.-Mar (-0.99) (+14.72) (+8.32) (+7.50) (+2.54) (-2.43) (-4.23) (-5.32) Notes: P=Provisional, R=Revised; Figures in parentheses indicate the percentage change over the same period of the previous fiscal year. Source: Bangladesh Bank 4.0 Capital Market The country s capital market passed a gloomy period as trading activities were dull almost throughout 2015 and also in the quarter under review. Various efforts taken by the government and the regulators to shore up the market in the past five years since the 2011 debacle, virtually failed to bring any improvement in the capital market. Yet another attempt was taken on 4 April 2016, when the Dhaka Stock Exchange (DSE) made a four-point proposal to the central bank seeking its immediate consideration to revive the capital market from the continuous bearish trend. In its proposal, the DSE proposed for extending the time limit for adjustment of excess exposure of the banks investment in the capital market up to As per the existing deadline, the banks will have to bring down their stock market exposure to 25 per cent of their capital by June The DSE also proposed to calculate bank s exposure on the basis of only the listed securities in stock exchanges. Recently, the central bank excluded the bank s capital given to its subsidiaries from the exposure. According to another DSE proposal, long-term equity investments or strategic holdings should be excluded from the capital market exposure as per a circular previously issued by the central bank. The premier bourse also proposed the BB s monitoring on capital market exposure on quarterly basis. According to the bourse, frequent monitoring and query create confusion and panic among investors. 5.0 Public Finance Data on tax revenue collection (NBR and non-nbr) are available only up to February of the current fiscal (FY16). According to provisional data of the National Board of Revenue (NBR), total tax revenue collection (NBR and non-nbr) during July-February of FY16 stood higher by 14.7 per cent to Tk 94,960 crore against the collection of Tk 82,795 crore during the corresponding period of FY15. Tax revenue collection by NBR stood at Tk 91,359 crore during July-February of FY16, which is higher by Tk 11,523 crore or 14.4 per cent against the collection of Tk 79,836 crore during the same period of the previous fiscal year (Table 7). Issue 3 Jan.-Mar (Q3of FY16)

16 Earlier, the NBR had set a revenue collection target of Tk 176,370 crore for FY16, which is about 17.8 per cent higher than that of the previous fiscal year s original target (Tk 149,720 crore) and also about 30.6 per cent higher than the revised target of Tk 135,028 crore. Table 7: Government Tax Revenue Collections Month Custom duties Tax Revenue Collections (Taka in crore) NBR VAT Income tax Others* Total Non- NBR Grand Total FY16 P July August September October November December January February Jul.-Feb (+19.9) (+11.9) (+10.5) (+23.0) (+14.4) 3601 (+21.7) (+14.7) FY15 R July August September October November December January February Jul.-Feb (+12.7) (+15.5) (+17.7) (+17.5) (+16.2) 2959 (+7.9) (+15.9) Notes: P=Provisional; R=Revised; *=include supplementary duties and travel tax; Figures in brackets indicate percentage changes over the corresponding period of the preceding year. Sources: BB, NBR and Office of the Controller General of Accounts 5.1 Public Expenditure The implementation of the Annual Development Programme (ADP) was very slow in the first nine months (July-March) of the current fiscal year (FY16). Only 41 per cent of the ADP was implemented in this period, which is the lowest in seven years. In the corresponding period of the previous fiscal (FY15), the implementation rate was 43 per cent. According to the Implementation Monitoring and Evaluation Division (IMED) data, 53 ministries and divisions could spend only Tk billion of the total allocation of Tk 1, billion, including the allocation for self-financed projects. Ten large ministries and divisions, which got 73 per cent of the total allocation of ADP, on an average spent only 44 per cent, affecting the overall implementation rate. These ministries and divisions were implementing some mega projects including Padma Bridge, metro rail and power plants. Among these large ministries and divisions, the performance of the Local Government Division was the best (54%), followed by the Road Transport & Highways Division (52%), the Power Division (51%), the Ministry of Primary and Mass Education (48%), the Ministry of Education (45%), the Ministry of Health and Family Welfare (35%), the Ministry of Water Resources and the Ministry of Railway (32% both), the Energy & Mineral Resources Division (31%), and the Bridge Division (28%). Besides, among the 53 ministries and divisions, the Ministry of Post & Telecommunications achieved the highest implementation rate of 77 per cent during this nine month period while the utilisation rate of the Legislative and Parliamentary Affairs Division was the lowest at 9 per cent. Earlier, on 5 April 2016, due to the slow pace of project implementation the National Economic Council (NEC) revised down the ongoing ADP outlay of Tk billion to Tk billion for FY16, including that of the self-financed projects. Quarterly Review 14

17 6.0 Exports The country s export earnings in the first nine months of the current fiscal year (July-March of FY16) rose by 8.95 per cent to US$ billion from US$ billion in the corresponding period of the previous fiscal year (Table 8). Export earnings were also 2.12 per cent higher than the strategic target (US$ billion). The readymade garments (RMG) industry played a major role in the overall increase in exports, which apparently indicates that Bangladesh has gained the confidence of buyers through improving workplace conditions. In fact, export earnings in the quarter under review (Q3 of FY16) grew by a higher rate of per cent, compared to the average 8.95 per cent growth in the entire nine months of the fiscal. In March 2016, year-on-year, exports grew by 9.18 per cent to US$2.831 billion on the back of higher shipments of garments, leather & leather goods, and jute & jute goods, which was also above the strategic target (US$2.823 billion). Table 8: Monthly Trends in Exports Exports (million US$) Month FY16 P FY15 R Growth Rate July (-) August September (-) 6.97 Total of Q October November December Total of Q January February March Total of Q Total of Jul.-Mar Notes: P=Provisional; R=Revised Sources: Export Promotion Bureau and Bangladesh Bank According to industry insiders, improvements in the safety standard in the RMG sector and peaceful political situation contributed to the export growth. According to EPB data, the RMG sector, the main driver of Bangladesh s export, alone earned U$ billion or per cent of total exports in July-March of FY16, registering a 9.74 per cent growth from U$ billion in July-March of FY15. An analysis of EPB s export data for July-March of FY16 shows that the country s major export products, i.e., woven garments, knitwear, specialized textiles, leather & leather products, petroleum bye products, chemical products, engineering products, other manufactured products, raw jute, and computer services experienced positive growth while home textile, plastic products, frozen & live fish, agricultural products, jute & jute goods, cotton and cotton products showed negative growth compared to the corresponding period in the previous fiscal. According to EPB data, woven garments earned U$ billion showing per cent growth and the knitwear sector received U$9.674 billion showing 6.68 per cent growth. EPB data also shows that among major and potential sectors, pharmaceuticals earned U$61.66 million in July-March of FY16 posting per cent growth. The leather & leather products export rose by 2.77 per cent to U$ million. Rubber export grew by per cent, followed by raw jute (23.08%), engineering products (22.61%), furniture (11.51%), and specialized textiles (5.77%). On the other hand, export earnings from agricultural products, frozen & live fish and home textile during July-March of FY16 declined by per cent, per cent and 6.14 per cent, respectively, compared to the same period of last fiscal. Issue 3 Jan.-Mar (Q3of FY16)

18 7.0 Imports Import payments (C&F) during the first eight months of FY16, for which data are now available, stood at US$ billion, which is 6.44 per cent higher than import payments during the corresponding months of FY15 (Table 9). Import payments in February 2016 also increased by 4.40 per cent over the same month of 2015 but decreased by 6.54 per cent over the previous month of the present fiscal (January 2016) because of a falling trend in commodity prices, including the price of fuel oil, in the global market. According to BB data, the settlement of import Letters of Credit (LCs) increased by 5.58 per cent to US$26.86 billion during July-February of FY16 compared to US$25.44 billion in the corresponding period of the previous fiscal as the businesspeople were still reluctant to import products due to the sluggish business situation in the country. However, the opening of fresh import LCs decreased by 1.67 per cent to US$27.58 billion during July-February of FY16 from US$28.04 billion in the same period of FY15 due to the falling trend of commodity prices in the global market. Table 9: Monthly Trends in Imports Month Imports (million US$) FY16 P FY15 R Growth Rate July August September (-) October November December January February Total of Jul.-Feb Remittances Remittance inflow in the first nine months of the current fiscal year (July-March of FY16) dropped by 1.76 per cent compared to the corresponding period of the previous fiscal. Remittance inflow has been on the decline for the last few months mainly due to the lower price of petroleum products on the global market. The majority of Bangladesh s expatriate workers now work in Middle Eastern countries. The economies of these countries mainly depend on their income from petroleum products. The lower petroleum prices Notes: P=Provisional; R=Revised Sources: Bangladesh Bank have hit the business of the Middle East, resulting in a squeezing of their expenditures. According to the BB data, Bangladesh received US$ billion in remittance in July-March of FY16 compared to US$ billion during the same period of FY15 (Table 10). However, remittances in the quarter under review decreased by 5.29 per cent to US3.566 billion from US3.765 billion. While, year-on-year, remittances decreased by 3.83 per cent in March 2016 to US$1.281 billion, in month on month basis, the amount depicts an increase of per cent. Quarterly Review 16

19 Table 10: Monthly Trends in Remittances Month Remittances (million US$) FY16 P FY15 R Growth Rate July (-) 6.84 August September Total of Q (-) 1.90 October November (-) 3.47 December Total of Q January (-) 7.40 February (-) 4.71 March (-) 3.83 Total of Q (-) 5.29 Total of Jul.-Mar (-) 1.76 Notes: P=Provisional; R=Revised Sources: Bangladesh Bank Most private commercial banks along with the state-owned ones have been trying to increase the flow of inward remittances from the Middle East, the United Kingdom, Malaysia, Singapore, Italy and the United States. In March 2016, private commercial banks (PCBs) channeled US$ million of remittances, the state-owned commercial banks (SCBs) US$ million, foreign commercial banks (FCBs) US$16.69 million, and specialized banks (SBs) US$12.02 million. Among the PCBs, the Islami Bank Bangladesh Ltd. received the highest amount of remittance (US$ million), while among the SCBs the Agrani Bank Limited received the highest amount of US$ million. The delivery channel of inward remittances to the beneficiary has improved significantly because of the bank-led effective mobile banking under the leadership of the BB. As part of the move, the BB is allowing local banks to establish exchange houses and drawing arrangements abroad to facilitate the inflow of remittance. Currently, 34 exchange houses operating across the globe have set up 1,127 drawing arrangements abroad to scale up the remittance inflow. The central bank earlier took a set of measures, including building mass awareness so that expatriate Bangladeshis remit their incomes through the banking channel (instead of the illegal hundi system), which also helps boost the country s foreignexchange reserves. Moreover, a joint international remittance receiving system initiated from MasterCard, Western Union, bkash and BRAC Bank launched recently which enables bkash s registered customers to use their mobile phones to receive remittances from abroad directly into their bkash accounts. This innovative service allows Bangladeshi migrant communities to send remittances directly into the bkash accounts of their friends and families back home in 24 hours of 7 days via Western Union, with the help of MasterCard s secure back-end solution. 9.0 Foreign Aid The government s target was to receive external assistance worth nearly US$6.0 billion in FY16. Data on the commitment of foreign aid to Bangladesh are available only up to October of the current fiscal (FY16). According to the Economic Relations Division (ERD), the commitment of foreign aid has plunged by per cent to US$257 million in the first four months of the present fiscal year (July-October of FY16) compared to US$697 million in the corresponding period of the previous fiscal as the major development partners have not confirmed adequate loans during the period. Also, the delay in project approval and start-up delay for project work by government agencies were among reasons behind the lower external fund commitment, though some development partners were willing to finance the much-needed infrastructure projects for accelerating economic growth in line with the country s seventh five-year plan. The disbursement of foreign aid, however, showed a positive 5.03 per cent year on year growth to US$2.09 billion during July-February of FY16. In FY15, the disbursement was US$1.99 billion. Earlier, the government set the target of foreign aid disbursement for FY16 at US$4.36 billion, up from US$3.35 billion last fiscal year. Of late, the ERD of the Ministry of Finance has started to formulate a foreign assistance policy that will make the government, development partners and NGOs responsible for not making the best use of the aid money. The ERD is developing the policy for the first time in Bangladesh under the name of National Policy on Development Cooperation, which will be effective from the date of approval by the government. The ministry took the move to manage the country s external resources as official development assistance (ODA) flows from bilateral development partners is likely to decrease when the country will achieve the desired middle income country status. However, the support from other potential sources, such as southern sources and dedicated funds may increase in the future, according to the draft policy. Issue 3 Jan.-Mar (Q3of FY16)

20 The external resources include ODA (grants and concessional loans), vertical funds and international foundations, climate fund, aid for trade, non-concessional, commercial, borrowings, and funds from other sources of cooperation such as south-south and triangular cooperation. The draft policy has outlined the government priorities regarding the provision of foreign assistance, including preferred aid modalities, basic principles to be followed, the main procedures as well as corresponding roles and responsibilities for the provision, acceptance, coordination and management of foreign assistance. Under the policy, some strategic principles like setting priorities by the national development planning and budgeting process, bringing harmonisation between development partners support and the government planning system, all data regarding development cooperation, both on-budget and off-budget, to be publicly accessible to ensure transparency will be practiced in external resource management and implementation. The ERD of the Ministry of Finance will be responsible for ensuring the implementation of this policy. ERD, however, must maintain strong collaboration and consultation with the Planning Commission and the ministries or divisions to ensure that national priorities are rightly communicated and protected, according the policy Foreign Direct Investment (FDI) In the first eight months of the present fiscal (July-February of FY16), the net foreign direct investment (FDI) increased by per cent to US$1.45 billion from US$1.14 billion in the same period of FY15 (Table 11). According to industry insiders, however, this investment is not enough for the country s development. The prospective foreign investors have adopted a go-slow strategy in making fresh investments since They consider the underdeveloped infrastructure, shortage of power and energy, lack of consistency in policy matters, procedural bottlenecks, lack of proper regulatory framework, scarcity of industrial lands, administrative weakness of the Board of Investment, lack of coordination among the government agencies, and political uncertainty as major impediments to new investment. The government needs to address these to attract more FDI in the country. Sector-wise, foreign investment in textile and weaving topped the list, surpassing the energy sector. FDI in the power sector rose five times in 2015 over In the past, the services sector led the foreign investment but it is gradually giving way to the manufacturing sector. The amount and growth of foreign investment in the manufacturing sector have gone up in the last few years, which create more jobs and use local inputs. It is ultimately benefitting the economy. USA, UK, and South Korea are among the top of the countries sending FDI to Bangladesh. Bangladesh is seriously thinking about providing specialised economic zone (SEZ) to investors from China, India and Japan. But FDI from China and Japan has not picked up yet. In fact, FDI from Japan declined, while India s investors brought in US$114 million to Bangladesh, up 56 per cent year-on-year. China s FDI in Bangladesh in 2015 stood at US$57 million, compared to US$47 million a year earlier. Recently a high-powered pre-screening committee approved the establishment of nine economic zones (EZs) in the country under an initiative of public and private sectors. The EZs are: Moheskhali at Kalarmarchara in Cox s Bazar, Ishwarganj in Mymensingh, Mymensingh EZ, Alutila Special Tourism Zone, Fakhrul Islam Chowdhury EZ Ltd, United City EZ Ltd, Eastcoast Group EZ at Bahubal in Habiganj, Sonargaon EZ, Kalapaharia special EZ at Aaraihazar in Narayanganj. Of the nine EZs, four will be developed by private sector investors and the five others by the government. With the latest approval, a total of 68 approved EZs in the country that would now be developed under private and public initiatives Balance of Payments According to BB data, overall trade deficit decreased by 0.27 per cent in the first eight months of the current fiscal year due to a decline in import payments and an increase in export earnings. During July-February of FY16, trade deficit stood at US$4.058 billion compared to the deficit of US$4.069 billion in the corresponding period of FY15 (Table 11). Exports grew by 7.81 per cent and imports grew by 6.44 per cent during these eight months, which had the effect of slightly narrowing the trade deficit. The reason for the slow import growth is the low demand for investment. According to customs data, capital machinery imports declined by 7.49 per cent during the period. The import of most intermediate goods used in industrial production also saw a decline. The deficit in services trade declined during the period under review from US$2.185 billion to US$1.738 billion due to lower payments in services. Trade in services includes tourism, financial service and insurance. Chiefly because of the improvement in services trade balance, the current account balance increased to US$2.710 billion in July- February of FY16, compared to US$2.199 billion during the corresponding period of FY15. The shrunken trade deficit also played a part in further improving the surplus in the Quarterly Review 18

21 current account balance in the first eight months of FY16. The net foreign direct investment increased by per cent to US$1.45 billion in July-February of FY16 from US$1.14 billion in the same period of FY15. At the same time, the financial account of the country s balance of payments, which includes foreign direct investment, portfolio investment, and medium- and long-term loans, also increased by US$377 million. The overall balance increased by per cent to US$3.149 billion in July-February of FY16 against US$2.223 billion during the same period of FY15 due to a strong position in the current account balance. Table 11: Balance of Payments Items July-February of FY16P July-February of FY15R Change Trade Balance (-) 4058 (-) Exports f.o.b (including EPZ)* Of which: Readymade Garments Imports f.o.b (including EPZ)* Services (-) 1738 (-) Credit Debit Primary Income (-) 1556 (-) Credit Debit Of which: Official Interest Payment Secondary Income (-) 4058 (-) Official Transfers Private Transfers Of which: Workers Remittances (current a/c portion) (-) 201 Current Account Balance Capital Account Capital Transfers Financial Account Foreign Direct Investment (net) Portfolio Investment (net) Of which: Workers Remittances (financial a/c portion) Other Investment (net) (-) 570 (-) 940 Errors and Omissions (-) 764 (-) Overall Balance Notes: P=Provisional; R=Revised; * = Exports and Imports both are compiled on the basis of shipment data Source: Bangladesh Bank 12.0 Exchange Rate Between end-june of 2015 and end-march of 2016, Taka depreciated marginally (by 0.77%) in terms of US dollar. The foreign exchange market was thus pretty stable. On the inter-bank market, the US dollar was quoted at Tk at the end of March 2016 and Tk at the end of June 2015 (Table 12). Issue 3 Jan.-Mar (Q3of FY16)

22 Month Foreign Exchange Reserve (million US$) FY16 P FY15 R July August September October November December January February March Note: i) P=Provisional; R=Revised Source: Bangladesh Bank Quarterly Review 20

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26 I Quarterly Review 24

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