Bangladesh’s Stitched Repair Reaping

Bangladesh equities up almost 20 percent were at the MSCI frontier top range through May on the anniversary of the Rana Plaza garment factory collapse which ushered in new labor, minimum wage and inspection norms for exporters as the IMF commended “strong performance” in its latest program reading. The political climate has been calm despite another ferry disaster and opposition party threats to again mount strikes after it boycotted January parliamentary elections. GDP growth should exceed 5 percent on food-driven 7 percent inflation, with the current account surplus steady in the face of remittance decline as Gulf country hosts repatriate workers. Gross international reserves are $20 billion with the currency firm against the dollar, and state-run banks with NPLs at one-third the total have pared lending after recapitalization equivalent to 0.5 percent of GDP. Ten more private banks were licensed but commercial demand has been flat with 15 percent borrowing rates and uncertainty over clothing industry reforms to maintain overseas duty preferences in the US and EU.  The budget gap should come in at 4 percent of GDP as VAT raises low collection in comparison to other poor economies and energy subsidies are cut with government company professionalization.  External bond issuance could support power and infrastructure investment, as remaining current and capital account restrictions are lifted over time. The central bank has tightened rules on insider transactions and stock market exposure but distanced itself from the spat between founder Yunus and ruling officials over control over microfinance pioneer Grameen where it was assigned a board seat. A recent World Bank study of the country’s experience with 500 providers found that multiple institution borrowing was common with distinct household asset and education benefits

Pakistan was ahead 15 percent after a successful $2.5 billion bond market return despite the low junk rating and army rumblings that anti-terrorist strategy was lacking and that former chief and president Musharaff was being mistreated in his treason trial. Current President Sharif sparked optimism over business and diplomatic rapprochement with India as he attended Modi’s inauguration, which coincided with the release of Indian fisherman accused of trespassing. Trade normalization was suggested during the month-long campaign even as security representatives remain upset over the slow prosecution of Mumbai attack perpetrators. As Modi took office and named a well-known corporate lawyer and BJP party stalwart to the Finance Ministry, GDP growth was again reported under 5 percent at inflation almost double that figure. The current account deficit has halved since the height of last year’s Fragile Five scare but manufacturing and services exports are sluggish as special non-resident deposit and gold restriction schemes are removed. Portfolio inflows over $5 billion have resulted in a 15 percent MSCI gain as 90 percent of executives polled anticipate the unlocking of FDI projects blocked by the states and administrative delays. The OECD however warned that public sector banking stress could upset the cart as the new leadership ponders a suppler yoke.