US embassy cable - 05DHAKA3884

C O N F I D E N T I A L DHAKA 003884 
 
SIPDIS 
 
E.O. 12958: DECL: 08/09/2015 
TAGS: EFIN, ECON, KCRM, KTFN, BG 
SUBJECT: FINANCE MINISTER DISCUSSES CHALLENGES FACING 
BANGLADESH ECONOMY 
 
 
Classified By: CDA Judith Chammas; reason 1.4(d) 
 
1.  (C) Summary:  Finance Minister Rahman told CDA he is 
satisfied with the economy's performance in FY05. He cited 
several factors, including continued high oil prices, which 
may adversely affect the economy going forward.  End summary. 
 
2.  (U) CDA Judith Chammas paid a courtesy call on Finance 
Minister Saifur Rahman on August 8, accompanied by econoff 
(note taker). The 30-minute meeting focused principally on 
the economy. 
 
3.  (C) Rahman dismissed press reports that he had described 
the economy as "in crisis."  He acknowledged, however, that 
several factors are putting pressure on the economy and the 
government's budget.  Chief among these is high oil prices, 
which have increased pressure on foreign exchange reserves 
and driven up the cost of government fuel subsidies.  Rising 
costs of other commodities, especially fertilizer and scrap 
metal, and increased food imports to offset lower production 
following last year's flood, have had a similar impact. 
 
4.  (C) Even good news creates problems.  Industrial growth 
is nearing eight percent; however, it has contributed to a 
surge of capital goods imports.  Despite strong export 
growth, imports are growing faster, as is the trade deficit. 
Remittances, which traditionally offset the trade deficit, 
have slowed, adding to pressure on foreign currency reserves. 
Reflecting these pressures, the taka has depreciated by 10% 
this year against the dollar.  Inflation at 6.6% remains low 
by regional standards but is edging up. 
 
5.  (C) Rahman admits these pressures are taking a toll on 
the budget, noting an increase in the projected fiscal 
deficit for FY06.  Moreover, it is increasingly difficult for 
the BDG to meet IMF and World Bank fiscal targets.  Rahman 
said failure to meet some benchmarks triggered a 35% decline 
in World Bank development support credits. The loss of these 
funds, coupled with diversion of revenues for food and oil 
imports, is crowding out developments funds, Rahman said. 
 
6.  (C) On anti-money laundering and terrorism financing, 
Rahman expects the Law Ministry to complete shortly 
formalities for the deposit of the instruments of accession 
to the UN Convention on the Suppression of the Financing of 
Terrorism.  He is reviewing draft amendments to the 
anti-money laundering law and is working with the Law 
Ministry to strengthen the enforcement provisions. 
 
CHAMMAS