It said that moderation in international and domestic demand will curb industry sector growth. Service sector growth will slow due to moderating industry growth and remittance inflows. Fiscal revenue will fall short of the target, but the overall deficit will remain well within the budgeted amount.

The Bangladesh economy managed to avoid the first-round shocks of the global financial meltdown due to the low integration of the country's financial sector with the global financial system. As the global financial crisis transformed into a global recession, the economy began to be affected by the global economic slowdown.

Moderation in the growth of exports and remittances has impacted the country's real sector, undermining near-term economic growth prospects. Although the agriculture sector, underpinned by favorable weather conditions and the Government's strong policy support, is poised for robust growth in 2009, industry and services are likely to slow, primarily due to weaker demand.

Since readymade garments (RMG) and knitwear together account for 40% of industrial value added, the slowdown in RMG and knitwear exports will affect growth in the industry sector. The services sector will moderate due to the slowdown in industrial activities and trade, and weaker private consumption due to the slowdown in remittance inflows.

While the Government on 19 April 2009 announced a Tk34.2 billion stimulus package to boost domestic production and raise business confidence, continued macroeconomic prudence is vital to limit the effects of the economic slowdown.

The newly elected Government attaches top priority to developing agriculture to enhance food security through raising domestic food production and support pro-poor growth. According to Bangladesh Bureau of Statistics (BBS) estimates, agriculture will post growth of 4.6% in 2009. Actual production of rice and wheat may be close to the target despite insufficient precipitation in February and March 2009. Good harvests of aman (monsoon) rice, maize, wheat, and potatoes in 2009 are likely to materialize. The poultry and fishery subsectors are expected to perform well. They recently experienced modest improvements in productivity and competitiveness; although these remain significantly lower than in neighboring countries.

The country's industry sector is beginning to feel the effects of the global economic slowdown. Growth in RMG and knitwear production has started to slow. The acute power shortages at the onset of the dry season have also decreased industry sector growth prospects. The gains in business confidence with the peaceful transition to the newly elected Government have been at least partly offset by the negative impact of the global economic slowdown. Export-oriented industries have been directly affected by falling export demand, while domestic marketbased industries are affected by lower consumption demand caused by slower remittance inflows.

After the robust performance of the first two quarters of the fiscal year, the services sector is also being affected by the global economic slowdown. Slower export growth and a fall in import volume have adversely affected transport and communications. Retail and wholesale services are affected by the drop in consumption demand caused by the moderated remittance inflows. The slowdown in industrial activity has adversely affected service sector growth. As a result, according to BBS estimates, service sector growth will fall to 6.3% in FY2009 compared with 6.5% in FY2008.

The prospects for attaining the originally projected GDP growth of 6.5% in FY2009 waned as the fiscal year progressed. The economy held up quite well in the first quarter of FY2009, supported by the rise in consumption demand and renewed private investment activity. With the moderation in export and remittance inflows, aggregate demand has started to slow, decreasing growth prospects.

Slowing private consumption and investment activity is expected to exert downward pressure on GDP growth. As a result, BBS now estimates GDP growth in the current fiscal year to fall slightly to 5.9% from 6.2% in FY2008.

A major weakness of the Bangladesh economy is prolonged low investment. Private investment increased marginally from 19.3% of GDP in FY2008 to 19.6% in FY2009. During the term of the caretaker government, investment uncertainties resulted from the anticorruption drives, which induced investors to adopt a wait and see attitude.

Public investment has steadily declined from 6.2% of GDP in FY2005 to 4.6% in FY2009. This is primarily due to poor performance of the annual development program (ADP), which is seriously constrained by the weak implementation capacity of government line agencies.

Government revenue has slowed significantly since the onset of the global financial crisis. Growth decelerated from 20.5% in the first quarter of FY2009 to 12.2% in the first 9 months of FY2009, over the corresponding periods of FY2008. The total revenue target for FY2009 (Tk545 billion) will not likely be attained.

Current expenditures during the first 7 months of FY2009 rose 15.1% over the same period of FY2008. This is well below the budget target of 19.5%. The major expenditure accounts are interest (19.8%), followed by education (17.7%), general public services (14.6%), agriculture (11.5%), defense (8.8%), and public order and safety (8.6%). ADP utilization remains dismal with only 41% of the total FY2009 allocation spent during the first 9 months of FY2009. In view of the under performance, the Government in its revision exercise in April 2009 reduced the ADP by 10%.

Growth of export earnings has been decelerating steadily as FY2009 unfolds, falling from 42.4% during the first quarter, to 19.4% during the first half, and to 14.5% during the first 9 months of FY2009 (Figure 19), indicating erosion of demand for Bangladesh's export products.#