Bangladesh’s Cloistered Clothing Destruction
Bangladeshi shares continued to lag on the MSCI frontier index following another textile factory tragedy as hundreds of workers perished in a multi-story building collapse just a day after major cracks were acknowledged by the owners and management. The garment industry union again led protests demanding stricter safety standards and enforcement as the prime minister vowed action after visiting the site amid preparation for upcoming elections. Multinational buyers like Wal-Mart who have relocated operations from higher-cost China also reiterated a commitment to facility protection and decent wages under pressure from outside monitoring groups. The calamity occurred on the heels of the IMF’s mixed report on the first year of its standby assistance. For the current fiscal year ending in June GDP growth should near 6 percent on inflation at 8 percent on rough current account balance with steady remittances. The suspended $1 billion Padma Bridge project remains an aid and infrastructure bottleneck until corruption allegations are resolved. VAT passage, subsidy adjustments, and state-owned company audits should bring the fiscal deficit to 5 percent of GDP as non-concessional debt was incurred with Russia for nuclear energy development and a technical committee was established to consider a pilot sovereign bond. Monetary policy has tightened in response to food costs as regulators investigate a large government bank fraud and modernize the primary dealer system to ensure competitionand transparency. Existing practice tends toward “devolvement” with the intermediaries assigned price and volume mandates from Treasury issue organizers. Commercial banks are “under stress” according to the Fund with the average capital adequacy ratio only 4 percent, and NPLs at 15 percent of the portfolio on flat profits. New guidelines will limit stock market exposure to 25 percent of regulatory equity as the Dhaka and Chittagong exchanges get ready for demutualization with Asian Development Bank advice. Foreign exchange rules are under review as the sub-region liberalizes and the central bank will refrain from pegging the taka with reserves over $12 billion or three months’ imports.
Pakistan’s level is below that figure on a heavy $5 billion debt repayment schedule this year as the civilian administration looks to a first post-independence handover in May elections, with perennial candidate Sharif pitted against former cricket superstar Khan appealing to young voters for a new leadership generation. Top economic and financial officials serving on an interim basis have urged the IMF to reconsider a $5-10 billion loan after the previous program lapsed as GDP growth slips to 3 percent on chronic power and security threats. The incumbent PPP may again come out ahead and be forced into a coalition, while returning army head Musharraf still commands a following if he can dismiss power abuse charges. Private sector capital outflows with poor confidence have offset good remittance trends as the business fabric further shreds.
