I. Recent Economic Developments

I. Recent Economic Developments

6. 
   GDP growth in FY13 decelerated for the second successive year. Disruptions caused by political strife, deepening political tensions over the impending political transition and inadequate improvements in the provision of power, gas and infrastructures were key factors in the growth slowdown. These combined to weakening investor confidence leading to decline in the private investment rate. However, robust increases in exports and remittances helped maintain a healthy GDP growth rate. Monetary policy restraint and favorable global commodity prices decelerated inflation. A large increase in the overall balance of payment surplus boosted official foreign exchange reserves as the Bangladesh Bank intervened to prevent a large appreciation in the nominal exchange rate. While weak corporate governance and regulatory lapses have stressed the financial system, fiscal performance complemented macroeconomic stabilization with a modest overall budget deficit, underpinned by better expenditure control and improved composition of deficit financing.
   

Weaker agriculture growth as well as disruptions of services have underpinned growth deceleration on the supply side

6. 
   Growth in Bangladesh has accelerated steadily over the past decades with only occasional year to year deviations from the rising trend. FY13 was one such deviant year with GDP growth declining from the previous year. The Bangladesh Bureau of Statistics (BBS) estimated the real growth rate to be 6.03 percent in FY13 (Figure 1).¹ While this is still healthy compared with the average 5 percent growth in developing countries in 2013, it was the second consecutive year of growth decline. Slower growth reflects decline in both agricultural and service sector growth. Growth came largely from construction and manufacturing while services also made significant, though lower than last year, contribution (Table-1).
   
7. 
   Agricultural output growth weakened to 2.2 percent in FY13 from 3.1 percent in FY12, primarily because of stagnant cereal crop production coupled with a drop in profitability due to lower output prices and increased production costs for farmers in the first half of FY13. Total food grain production in FY13 was 34.89 million metric tons—almost the same as last year. Boro (the largest rice crop) production increased marginally over that of last year despite reduced acreage and damage caused by cyclone Mahasen. Adequate supply of water at the maturity stages, spread of recently introduced rice seed varieties, and good weather conditions helped increase boro yield.
   
8. 
   Services growth declined from 6.3 percent in FY12 to 6.06 percent in FY13. Services suffer most from the direct impact of strikes and political violence because they just cannot do business and even if they keep their outfits open, it is hard for the customers to come to get the services. It is therefore no surprise that land transport, wholesale and retail trade and health and social work registered the largest decline in growth within the services sector. The disruptions in transportation and normal pace of activities inflicted a large toll on services. Domestic retail and wholesale trade was impacted by a sharp fall in consumer demand for durable and non-durable purchases.