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Bangladesh economy stable despite chaos

DHAKA: Bangladesh's economy has weathered the country's political crisis and is set to grow at more than four percent annually in the next two years, Hong Kong-based Peregrine Capital Limited said.

"Despite its turbulent history, Bangladesh has a very stable economy, built on sound fundamentals," the merchant bank said in a report made available to Reuters on Monday.

"We expect that growth over the next two years will remain relatively flat at about 4.4 percent."

The report said Bangladesh's resilient nature had helped its economy to grow at an average rate of more than 4.0 percent in the past five years, despite turmoil and natural disasters.

"We believe that the Bangladesh economy will continue to provide a solid base for growth and a stable environment for investment," the report said.

But it noted Bangladesh's political turmoil had slowed down the pace of growth over the past two years.

Opposition-inspired strikes have hit the industrial sector, restricting growth to a mere four percent in fiscal 1995/96 (July-June) compared with an annual average of 10 percent over the previous five years, it said.

The report said Bangladesh's manufacturing and service sector had suffered due to the political crisis. "The reform process has also been shelved as a result of the political deadlock," it said.

Bangladesh's two years of political deadlock ended on March 30 when President Abdur Rahman Biswas dissolved parliament, formed after controversial polls in February, and appointed former chief justice Habibur Rahman as head of a caretaker government to oversee new elections due before the end of June.

The Peregrine report said the country was "experiencing a period of economic slowdown as a result of poor crops. But it is expected that the agriculture sector may recover this year."

Bangladesh harvests fell by millions of tonnes in 1995 due to floods and a fertiliser crisis.

The report praised Bangladesh's economic policies that helped it gain macro-economic stability, solid foreign exchange reserves, steady trade growth and a stable currency.

But it said a private credit expansion helped fuel inflation, which has risen unchecked since the beginning of 1995, primarily due to soaring food prices.

Despite central bank steps to squeeze money supply there is still no impact on inflation. "This is partly because there is a long time lag for monetary policy to take effect in an inefficient economy such as Bangladesh's," the report said.

It said in April 1995, year-on-year inflation rose to over 6.0 percent against 1.8 percent in fiscal 1994.-Reuter