The real GDP growth in Bangladesh will rise from 5.2 per cent in 2002-03 to 5.7 per cent in 2003-04. However, the export sector will not be able to take full advantage of any upturn in external demand, owing to restricted private-sector credit access, excessive bureaucracy and weak infrastructure (especially in the power sector), together with intensified competition in the US and the EU markets for Bangladesh’s principal industrial export, garments, especially from Chinese-based producers, investors may also be discouraged by uncertainties in the law-and-order situation, despite the recent improvement. The government will try to push ahead with privatization. Government — instigated improvements in the business environment and better export prospects are expected to provide the conditions for a modest acceleration in investment growth. Inward direct investment in the gas sector will also increase if gas exports are permitted.
Consumer price inflation has begun to edge upwards in recent months, touching 5.9 per cent year on year in 2003 compared with an average of 2.8 per cent in 2002 as a whole. The increase reflects rising food prices — up by 6.6 per cent as a result of an increase in fuel prices that pushed up distribution costs in early 2003. Non-food price inflation, however, fell to 4.8 per cent this year from 6.7 per cent in December 2002, reflecting improved exchange-rate stability and the government’s fiscal tightening. Consumer price inflation is forecast to average 6.1 per cent in 2003-04, as higher prices for imported cotton, industrial raw materials and capital equipment filter into the index and as the government attempts to increase fuel prices to levels closer to their real cost. Yarn prices have also been driven up by administrative restrictions on imports from India.
The slow economic upturn forecast in Bangladesh’s main export markets, the US and the EU, will underpin a recovery in merchandise exports over the forecast period. According to the latest available data, merchandise exports in the first seven months of the current fiscal year rose by 5.4 per cent compared with the year-earlier period. Imports have also begun to pick up. After a fall of 7 per cent year on year in the first four months of the fiscal year, six-month figures showed imports broadly unchanged on a year-on-year basis.
The external balance has been supported by strong, and potentially unsustainable, growth in remittances from expatriate workers. Merchandize exports are heavily reliant on garments, a product category that is vulnerable to foreign competition. Unless the government manages to diversify the export base, the currency will be prone to further attacks. The government will try to push on with its privatization programme, will attempt to keep the budget deficit under control, and may even address the thorny issue of gas exports to India. The GDP growth will quicken in 2003-04. Strong inflows of remittances from Bangladesh workers abroad will continue and prevent a sharp deterioration in the current-account balance.
Recent structural reform initiatives are also encouraging. The state-owned enterprise (SOE) reforms have led to a significant reduction in public sector participation in the manufacturing sector, creating a better environment for the private sector. The fiscal position is further strengthened through the closure or privatization of a number of loss-incurring SOEs and through adjustments in utility tariffs and energy prices. Bangladesh Bank has tightened its supervision of the banking system, and recent legislation strengthens its oversight of the nationalized commercial banks. The key challenge is to raise economic growth over time to at least 7 per cent per annum so as to reduce poverty by half by the year 2015. Such high growth will need to come from higher levels of investment and a more dynamic private sector. A further challenge is to complement such growth with policies that better direct the benefits of growth to the poor.
Despite a series of ambitious development plans and assistance from international aid agencies, Nepal’s economic growth has barely kept pace with its expanding population. In FY02, gross domestic product (GDP) per capita was only $231, making Nepal one of the poorest countries in Asia. Nepal’s overall human development index ranking (based on 2000 data) is 142 out of 173, lower than all the country’s South Asian neighbours except Bangladesh. Poverty has been the major cause of low human development. About 40 per cent of the population of 23.7 million lives below the national poverty line of NRs4,400 ($77) per capita per annum. Poverty is primarily rural, with urban poverty rates about half the national average. The incidence of poverty in the mid-western and far western development regions greatly exceeds the national average, as does the rate in the mountain districts. Data suggest that the incidence of poverty has improved little in recent years and, due to the growing population, the number of people living in poverty has probably increased.
The Nepali economy faces serious crisis. The big slowdown in the economy that started in the second half of the fiscal year 2000-01 is continuing. Therefore, in the fiscal year 2002-03 also no perceptible economic recovery was seen. In 2001-02 Nepal experienced a severe downturn in the economy, when the overall growth rate reduced by 0.6 per cent despite positive growth in the agricultural sector by about 2.2per cent. Sharp deceleration in the industrial, trade and tourism sector (by as much as 10 and 11 per cent respectively), the non-agricultural sector registered a negative growth rate of 2.4 per cent on the average. The combined effect of these sectors was very much experienced in the export front. The major export oriented industries faced serious crisis due to big reduction in their exports. The exports registered a negative growth of as much as 29.1 per cent owing to major commodity exports (like carpet, garment and pasmina) declining by about 37 per cent on the average. Likewise, the fall in tourist income had very adverse effect on foreign exchange earnings.
For the first tune after many years Nepal also experienced the BOP deficits in this year. The economic slowdown had very adverse effect on government’s budgetary front also. Despite marginal growth in overall government expenditure (0.3 per cent), a big jump in regular expenditure took place last year due to security expenses rising at a faster rate. As a result the share of development expenditure reduced to 40 per cent from 60 per cent historical level. As obvious this has had very detrimental effect on the ongoing development programmes. The slackness in economic activity had negative effect on the government revenue too and hence it grew by 0.1 per cent only. As a result prices went up by 2.9 per cent as against 11.9 per cent growth in money supply.
However, in 2002-03 recently updated data indicates that there was marginal growth in the GDP (1.5 per cent) as a result of some positive growth in both agricultural and non-agricultural sectors. The value added of these sectors grew at a rate of 1.8 and 1.3 per cent respectively. Despite main food crop paddy registering a negative growth rate, other agricultural commodities including both food and non-food crops grew positively. In the non-agricultural sector some recovery was noticed in the export-oriented industries. The garment and handicraft exports have surged up satisfactorily. The inflow of tourists had also started increasing. At the same time, the imports grew by 8 per cent on the average, indicating some revival in the economy.
Nepal at the moment needs topmost priority on rebuilding of destroyed infrastructures. This has to be accompanied by reforms in macroeconomic policies and programmes with equal emphasis on public resource management and governance related issues. Without better delivery and result-oriented performance of the government, neither creation of favourable environment to the private sector nor upliftment of socially excluded people who constitute the overwhelming majority in the total population will be possible. Therefore, political stability and credible reform programmes will be the key for overcoming from present crisis faced by Nepal.
In the fiscal year 2003-04 and 2004-05 the GDP will grow by about 4.5 and 5.0 per cent respectively. Such an improvement will be possible as a result of satisfactory growth in both agricultural and non-agricultural sectors. It is projected that the agricultural GDP will rise by about 3 per cent in both years. The non-agricultural GDP will grow at a rate of 5.5 and 6.3 per cent respectively during the same period. Likewise, the export will start picking up to register the growth rate of 8 and 10 per cent in these two years.
Indonesia experienced modest growth in 2002 with an economic growth rate of 3.7 per cent. Activity strengthened in the first three quarters of 2002, but slowed in the fourth quarter, partly as a result of the Bali bombing on 12 October. The Indonesian government sustained impressive fiscal consolidation in 2002 with a stronger Rupiah, lower inflation and reduced budget deficit. Private consumption accounts for almost 80per cent of the Indonesian economy and remains the main driver of growth. It grew 4.7 per cent in 2002, but slowed in the latter quarters. Declining investment has been a drag on growth since the 1997 crisis. Investment expenditure is still around 20 per cent below pre-crisis levels and stayed flatten 2002.
Indonesia made some progress on its reform agenda in the last months of 2002. It signed an agreement for the sale of Bank Niaga, sold a 42per cent stake in stat telecommunications company Indosat and passed a law on the Anti-Corruption Commission. The IMF completed the seventh review of its programme with Indonesia in December 2002 and signed a new Letter of Intent for 2003 on 18 March.