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Expects greater political unity to address problem of terrorist attacks
ADB predicts agriculture-led robust economic growth in current fiscal
FE Report

          The Asian Development Bank (ADB) has expressed the hope that Bangladesh's major political parties would take steps to fight the spate of terrorist attacks for the sake of greater 'national interest'.
But the Manila-based lending agency has played down the fear of any major economic fallout from the latest suicide bombings.
"I am sure major political parties would address the issue (terrorist attacks) together for the national interest," Country Director of the ADB Hua Du told a press conference Sunday.
The local chief of the ADB, however, ducked a question whether the donor community was informed of any forthcoming national dialogue involving all major political parties focusing on the terrorist attacks.
"The world leaders, in general, and the SAARC leaders, in particular, pledged to fight national terrorism," Du said, noting that the issue of terrorism is not "specific to Bangladesh".
In its latest economic update, the ADB said that Bangladesh economy is poised to grow by 6.0 per cent in the fiscal 2006, which was 5.4 percent during the previous fiscal.
Asked if the ADB study considered the latest political developments, particularly the suicide bombings, the ADB official said the issue was taken into account.
In his intervention, an ADB economist Rezaul Karim Khan, however, said the projected growth rate of 6.0 per cent was not enough to "cut poverty substantially".
"Bangladesh needs to grow faster to cut poverty substantially. The country can achieve 7.0 to 8.0 per cent growth rate as its neighbours, particularly India, are doing the same," Khan pointed out.
"It will be difficult to achieve higher growth rate -- 7.0 to 8.0 per cent -- in order to cut significant poverty, if such attacks (terrorist) continue," Khan said.
To attain higher growth, he suggested that the country should improve governance and infrastructure and carry out policy reforms.
The ADB report basically dealt with the issues of agricultural and industrial production, fiscal management, monetary developments, balance of payments (BoP) and inflation.
While aggregate growth in the FY06 will be aided by recovery in agriculture, growth in industry and services sectors is expected to moderate from its strong performance in the FY05.
"This slowing in part reflects a more moderate gain expected in overall export growth as the garment and textile industry comes under more intense competitive pressure," says the report.
"The outlook for growth points to the need to tighten monetary policy, both to keep a lid on pressures on the exchange rate as the current account deteriorates and also to contain inflationary pressures".
The Update attributed the point-to-point inflation to rising food prices and imported oil prices, saying it climbed to 7.0 per cent in September 2005.
"The expansionary monetary policy contributed to a strong domestic demand, further aggravating inflationary pressures," the ADB report said.
In reply to a question, Rezaul Karim said the current inflation rate was not 'alarming'.
On the agriculture front, the ADB report said it is expected to recover during the current fiscal as the outlook for summer crops 'appears to be good'.
About industrial production, it said that the sector continues to register strong performance, reflecting steady growth in manufacturing and construction and supported by the utilities sub-sectors, which include power, gas, and water supply.
Painting an optimistic picture, the ADB said the recent steady increase in imports of industrial raw materials, machinery and capital goods, and by the expansion of private sector credit suggest the industrial production would rebound.
However, it added, "some moderation" is expected in export-oriented manufacturing, particularly in the apparel sector.
Elaborating on the issue, Khan said the exports of woven garments declined during the quota-free regime, though those of knitwear registered an increase.
He said Bangladesh remains competitive as far as low wages are concerned, but it lags behind its competitors such as China and India in terms of lead time. 'Reduction in the lead time is a challenge," he added.
Referring to the strain on the BoP, the Bank said that the pressures heightened during FY05 and in the first few months of FY06 as global petroleum prices rose.
However, a serious BoP crisis was avoided mainly due to robust growth in workers' remittances.
Despite 'a robust growth' in workers' remittances, the foreign exchange reserves went down to US$2.53 billion in November 2005 from $3.02 billion at the end of the last fiscal, the ADB remarked.
But on the reserves situation, the ADB economist predicted that the situation is likely to improve soon as the World Bank disbursed the Development Support Credit amounting to $200 million.
Similarly, the loans from the IMF and the ADB would help keep improving the reserves position in the foreseeable future, he added.
Dwelling on the fiscal management, the ADB said revenues continued to record steady gains, although at "a pace lower than projected annual growth".
Revenue collection during July-October period of the current fiscal jacked up by 14.2 per cent compared with the same period of the previous fiscal.
The ADB listed several risk factors that affect the country's medium-term economic prospects.
The risks include the longer-term consequences of the loss of quotas for the garment industry, the implications of high oil prices on macroeconomic management and weak governance and uncertainty, specially in the lead up to the looming general elections.


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