Atiur Rahman

The annual board meeting of the Asian Clearing House (ACU) is a unique platform for exchange of experiences and ideas on the opportunities and challenges in deepening ACU intraregional trade and investment relationships that keep arising from unfolding developments in the regional and global scene.

An overview of recent economic trends in Bangladesh shows that the country's economy is getting ahead with firm footing on stable growth path, with real GDP (gross domestic product) growth averaging above six per cent annually over the last decade. Poverty has been on steady decline by about two percentage points a year, coming down to 31 per cent of the population by 2010. But of course along the way the economy faces occasional external and internal jolts impacting in various degrees on growth, inflation and exchange rate stability. Lagged effects from the global financial crisis and energy supply shortages played part in causing a short spell in mild growth slowdown, with real GDP growth coming down from 6.2 per cent of FY08 to 5.7 and 6.1 per cent respectively in FYs 09 and 10. However, economic activities rebounded sharply in FY11 as energy scarcities eased and export demand picked up, with 6.7 per cent real GDP growth, nearly 42 per cent growth both in exports and imports, and 28.4 per cent expansion in domestic credit. The credit growth surge stoked up creep of CPI inflation, pushing it beyond comfort zone into double digits since October 2011. Bangladesh Bank's (BB's) monetary policies adopted a restraining stance in FY12 for orderly, smooth touchdown to trend levels from the FY11 credit and external trade surge, aimed at limiting domestic credit growth to 19 per cent and bringing inflation down to single-digit level by June 2012. Towards attaining these objectives, besides raising policy interest rates (BB's repo, reverse repo interest rates) by 100 basis points and restraining reserve money growth, interest rates caps on some types of lending imposed during the global financial crisis were done away with, freeing up lending and deposit interest rates.

These steps slowed down domestic credit growth and helped stabilise the exchange rate of Taka in a new equilibrium (Taka 81.83 per USD in March 2012 against Taka 72.78 per USD in March 2011), trimming off excess demand. Import growth came down to 14.53 per cent during July-Feb, of FY12 from 41.8 per cent in the same period of FY11, export growth stood at 10.4 per cent during July-March FY12 against 40.3 per cent in the same period of FY11. Remittance inflows from workers abroad increased 10.3 per cent during July-March in FY12, helping sustain the BoP (Balance of Payment) current account balance in positive. Decline in CPI (Consumer Price Index) inflation has been slower to show up than the decline in monetary growth, mainly due to repeated rounds of hikes in administered user prices of energy needed to ease fiscal subsidy burdens. Nevertheless, point to point CPI inflation at 10.10 per cent in March 2012 was the lowest since the beginning of FY12.

To avert negative impact of the tightened monetary stance on GDP growth, BB is maintaining a deliberate pro-growth directional bias in credit policies. An ongoing comprehensive financial inclusion drive is working towards ensuring adequate credit flows to supply side activities including farm and non-farm productive pursuits of micro and small enterprises, while discouraging credit growth for conspicuous consumption and unproductive, speculative uses. Refinance support lines available from BB to banks against their lending to agriculture and SMEs are being funded by the government and external development partners. Flexibility of the market based exchange rate of Taka is helping preserve external sector competitiveness; exporters affected by demand weakness in advanced economies are making successful forays into newer markets in fast growing emerging economies. With growth supportive macroeconomic policies and a congenial, welcoming openness to foreign direct investments, Bangladesh economy looks well poised for attaining the expected near seven per cent real GDP growth in FY12 and single-digit inflation by June 2012, on track towards still faster growth over the medium term.

Bangladesh's trade with ACU member countries remained buoyant in calendar year 2011, even as overall ACU intra-union trade settlement transactions were on decline. According to ACU Secretariat Newsletters data, Credit (export receipt) and debit (import payment) transactions of Bangladesh with other ACU members increased 99.6 and 23.1 per cent respectively in 2011 compared to 2010, although total ACU intra-union imports and exports registered a 29.5 per cent decline. January-February 2012 transaction volumes were also on declining trend, both for Bangladesh and ACU-wide totals. These declining transaction trends may be transient, mainly reflecting the current demand slack in Western advanced economies. Of greater relevance for stable longer term regional growth is the share of ACU intraregional trade as percentage of total external trade of the region. This still remains slow changing and quite small, particularly for the larger ACU member countries, despite our regular lip service to strengthening of intra-union trade and investment cooperation in successive board meetings like this. Increasingly, the global community is looking up to our region as a key growth driver in the global economy; and we need to prepare our Union to play that role with optimal use of its potentials. Ideas on steps towards greater trade and investment cooperation mooted in past several Board meetings have been routinely passed on to technical committees that have tended to come up with suggestions largely in favour of continuing with status quo.

There should be resolute efforts towards some real progress in deepening ACU-wide co-operation and integration on at least some directions that others have already started adopting. This may inter alia include broadening and upscaling of our ACU swap arrangement on lines similar to the bilateral swap arrangements between central banks in the ASEAN+3 Chiang Mai initiative; and reintroduction of settlement of intra-Union trade transactions in member country currencies. India is reportedly adopting this approach in her trade with other BRICS (Brazil, Russia, India, China and South Africa) countries; we can look into their exchange rate risk hedging arrangements to help drawing up hedging arrangements suitable for intra-Union trade settlements in ACU currencies. All ACU member central banks are also financial sector regulators; it should not therefore be too difficult for us in this forum to act concertedly towards expanding presence and engagement of banks and financial institutions of ACU member countries in each other's territories, deepening trade and investment cooperation.

(The 41st board meeting of the Asian Clearing Union (ACU) was held at Kathmandu, Nepal on May 17, 2012. Dr Atiur Rahman, Governor of Bangladesh Bank, made 'Bangladesh country presentation' at the meeting. This article is adapted from the presentation.)

The Financial Express/ Bangladesh/ 20th May 2012