likely implications of the ongoing global financial crisis for bangladesh media briefing by the...

Likely Implications of the Ongoing Global Financial Crisis for Bangladesh

Media Briefing by the World Bank

November 26, 2008

2

Economy today

The current state of the Bangladesh

economy is stable,

3

Economy (possibly) in the coming months

The current state of the Bangladesh

economy is stable, but in view of the

unfolding global financial crisis, the

situation could deteriorate in as little

as three months time!

4

Three parts of this briefing

1. The economy today ~ what we know & what

was projected before;

2. Ongoing global financial crisis; and

3. Likely impact on Bangladesh economy.

5

Bangladesh: Economic Growth

Source: Bangladesh Bureau of Statistics

Overall Per Capita

FY05 6.0 4.5

FY06 6.6 5.1

FY07 6.4 4.9

FY08 6.2 4.7

FY09 (P) 6.5 5.0

Growth (%)

6

Structure of Economy

Sectoral Composition (in %)

29.521.1

46.5

24.6 24.4

47.5

18.427.6

50.6

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Agriculture Industry Services

FY91 FY00 FY08


7

Sectoral Growth Rates

Growth Rates (in %)

2.2

4.9 4.63.6 4.0

8.39.7

8.46.9 7.06.4 6.4 6.9 6.7

7.5

0

2

4

6

8

10

12

FY05 FY06 FY07 FY08 FY09 (P)

Agriculture Industry Services


8

Foreign Exchange Reserves(in billion US$ & in months of import)

Foreign Exchange

Reserves(in billion US$)

Jul-2007 5.0Jan-2008 5.4Jul-2008 5.8Nov-2008 5.0

Reserves in months of import

3.33.43.22.3

Source: Bangladesh Bank & World Bank Staff Estimate

9

Exchange Rate

Exchage Rate (Taka per US$)

66.0

67.5

69.0

70.5

72.0

Jul-0

6

Sep

-06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep

-07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep

-08

Nov

-08

Interbank Exchange Rate Informal Exchange Rate

Source: Bangladesh Bank

10

Foreign Direct Investment

Foreign Direct Investment (Million US$)

776 743 793

650

125

0

150

300

450

600

750

900

FY05 FY06 FY07 FY08 FY09(July-Aug)


11

Export

Source: Export Promotion Bureau

Billion US$

6.4 7.9 9.2 10.712.5

2.22.6

3.0

3.9

3.48.7

10.512.2

14.1

16.4

0

2

4

6

8

10

12

14

16

18

FY05 FY06 FY07 FY08 FY09 (P)

RMG Others Total

12

Import


Billion US$

1.6 1.4 1.9 3.5

6.9 8.0 8.910.9

4.65.4

6.3

7.213.1

17.2

21.6

14.7

02468

1012141618202224

FY05 FY06 FY07 FY08

Food Consumer & Intermediate Goods incl EPZ Capital Goods & Others Total

13

Remittances


Billion US$

2.7 3.2 3.75.0

6.31.21.6

2.9

3.7

2.23.84.8

7.9

10.0

6.0

0123456789

1011

FY05 FY06 FY07 FY08 FY09 (P)

Middle East Rest Total

14

Overseas Employment Growth

Source: Bureau of Manpower, Employment & Training

2.4 2.6 2.93.5

0.91.0

1.5

1.7

4.1

1.2

0

1

2

3

4

5

6

FY05 FY06 FY07 FY08 FY09 (projected)

Overseas employment

(million)

0

4

8

12

16

20

24

Overseas employment growth (%)

Middle East (Left Scale) Rest of the w orld (Left Scale) Overseas emplyment grow th (%) Right Scale

15

Remittances & Overseas Employment

Remittances (million US$) 3848 4802 5979 7915Growth 14.2 % 24.8 % 24.5 % 32.4 %

Overseas employment (million) 3.3 3.6 4.1 5.0Growth 8.3 % 7.9 % 14.5 % 23.9 %

Source: Bangladesh Bank, Bureau of Manpower, Employment & Training

FY08FY05 FY06 FY07

During FY05- FY08, remittances grew at a faster rate than growth in overseas employment, indicating that money remitted per worker has increased during the period.

16

Current Account Balance

Million US$

-557

824936

672

977

-600

-100

400

900

FY05 FY06 FY07 FY08 FY09 (P)


17

2. Ongoing Global Financial Crisis

Summer of 2007

• Sub-prime mortgage crisis

September 15, 2008

• US Investment firm Lehman Brothers

files for bankruptcy

18

Growth Forecasts

Pre-crisis Post-crisis

World 3.7 3.0 2.2

Advanced Economies 1.4 0.5 -0.3

Emerging and Developing Economies 6.6 6.1 5.1

Developing Asia 8.3 7.7 7.1

2009

Output (Percent Change)

2008

Source: World Economic Outlook, IMF

19

Trade Volume

Pre-crisis Post-crisis

World Trade Volume (Goods & Services) 4.6 4.1 2.1

Imports

Advanced Economies 1.8 1.1 -0.1

Exports

Emerging and Developing Economies 5.6 7.4 5.3

Trade Volume (Percent Change)

20092008

Source: World Economic Outlook, IMF

20

Remittances

Base Case Low Case

South Asia 16.2 -0.1 -5.5

Remittance Flows (Percent Change)

20082009

Source: Migration and Development Brief, Development Prospects Group, The World Bank

21

3. Likely Impact on Bangladesh Economy

Trade channel ~ export, import &

remittance, which in turn will affect

Economic growth

Government finances: expenditure,

revenue and fiscal deficit

22

Exports

FY09 exports ~ projected to grow by 16.3% to US$ 16.4

billion.

First 3 months of FY09 ~ exports US$ 4.4 billion. To

achieve the target, exports need to grow by 9% in the

remaining 9 months of FY09.

Two post-impact scenarios for exports:

5 % in 9 months ~ export earnings: $16 billion

3 % in 9 months ~ export earnings: $15.7 billion.

23

Remittances

FY09 projections ~ grow by 26.6% to $ 10 billion;

additional 800,000 people will go abroad for work

First 3 months of FY09 ~ 213,000 people have left ~

600,000 more need to go in the remainder of the fiscal

year to meet the $10 billion target

Two post-impact scenarios: Not 600,000 more, but

400,000; total remittance in FY09 is reduced to $9.2

billion

300,000; total remittance in FY09 is reduced to $8.9

billion.

24

Import

FY09 import projection: grow by 19.2% to $ 23.2

billion ~ falling commodity prices

First 2 months of FY09: goods worth $3.8 billion

imported ~ to get to benchmark, import will need to

grow by 16.2% for the remainder of the year

Two scenarios: Instead of growing by 16.2%, import

will grow by

10.3%: import bill reduced by $1 billion;

13.2%; import bill reduced by $.5 billion.

25

Benchmark & two possible scenarios

Source: Bangladesh Bank, Bangladesh Bureau of Statistics, and World Bank Staff Estimates

Benchmark Scenario 1 Scenario 2

Export 14.1 16.4 16.0 15.7(15.9) (16.3) (13.1) (11.6)

Remittances 7.9 10.0 9.2 8.9(32.4) (26.5) (16.8) (12.4)

Import 19.5 23.2 22.2 22.7(25.6) (19.2) (14.1) (9.8)

Billion US$ (growth in percent)

FY08FY09

26

1. Likely Impact on Economic Growth

Source: Bangladesh Bureau of Statistics, and World Bank Staff Estimates


GDP Growth 6.2 6.5 6.5 6.5

Likely Impact (in percentage point) of Export -0.2 -0.4

Import 0.2 0.2

Remittances -1.1 -1.6

Growth in Percent

FY08FY09

27

1. Likely Impact on Economic Growth

Source: Bangladesh Bureau of Statistics, and World Bank Staff Estimates


GDP Growth 6.2 6.5 6.5 6.5

Likely Impact (in percentage point) of Export -0.2 -0.4

Import 0.2 0.2

Remittances -1.1 -1.6

Likely Post-impact GDP Growth 6.5 5.4 4.8

Growth in Percent

FY08FY09

28

2. Likely Impact on Balance of Payment


Trade Balance -5,541 -6,816 -6,261 -6,982

Merchandise Export 13,945 16,411 15,966 15,746Merchandise Import -19,486 -23,227 -22,227 -22,727

Workers' Remittances 7,915 10,012 9,241 8,898

Current Account Balance 672 977 761 -303

% of GDP 0.9 1.1 0.9 -0.3

Balance of Payment Impact(Million US$)

FY08FY09

Source: Bangladesh Bank, and World Bank Staff Estimates

29

3. Likely Impact on Government’s Budget


Total Revenue 617.7 693.8 681.5 684.6

(11.4) (11.3) (11.2) (11.3)

Total Expenditure 819.0 999.6 963.2 963.2

(15.1) (16.3) (15.9) (16.0)

Deficit -201.3 -305.8 -281.7 -278.7

(3.7) (5.0) (4.6) (4.6)

FY09FY08

Billion Taka (as % of GDP)

Source: Ministry of Finance, and World Bank Staff Estimates

30

Knowing what we know now & planning…

The global financial crisis has started affecting

the real economies. All signs of a massive

downturn in the global economy ~ developed

and developing.

BD has been insulated from the financial crisis ~

lack of integration.

The crisis could easily come to our shores in the

post-Christmas period!

31

Knowing what we know now & planning…

Need to remain watchful ~ government and civil

society!

Perhaps contingency planning including any

possible government assistance need to be

carefully thought out.

Extremely important to ensure the new elected

government has the relevant briefing to be able to

quickly move & take relevant policy actions.

likely implications of the ongoing global financial crisis for bangladesh media briefing by the...

Documents