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‘Macroeconomy now under considerable pressure’

Worsening current account balance eroding forex reserve, says CPD

FE Report | June 12, 2019 00:00:00

Debapriya Bhattacharya speaking at a press briefing on Tuesday — FE photo

The country's macroeconomy is now experiencing considerable pressure not witnessed anytime during the past one decade, the local think-tank CPD observed on Tuesday.

"This is a matter of concern that the economy is under pressure in comparison with any period of the last one decade," Dr Debapriya Bhattacharya, a distinguished fellow at the CPD told mediamen.

He said the balance of payments (BoP) is in the negative, especially in view of the worsening current account situation.

The country's foreign exchange reserve can now meet only five months' import requirements. A few months back, it was enough to meet up to eight months' requirement, he added.

Bhattacharya said macroeconomic stability was the strength of Bangladesh's economy but now there is a crack in it.

The Centre for Policy Dialogue (CPD) organised the media briefing on the State of Bangladesh's Economy and the Budget Challenges held at the city's CIRDAP auditorium ahead of unveiling of the national budget on Thursday for the next fiscal year.

Bhattacharya viewed the poor performance in the area of revenue mobilisation as one of the key reasons for it.

"This (slow revenue collection) is now an insurmountable hurdle…" he said.

"If we cannot overcome this hurdle, the prospects for higher investment will remain bleak."

Bhattacharya said there is a rising trend in exploring "costly" foreign

loans to overcome the ongoing liquidity crunch.

"In my view such foreign loans will worsen the macroeconomic conditions further," he said.

He also noted that the use of foreign loans, in many cases, is not being monitored.

The CPD fellow said the central bank was selling dollars to the market in order to stabilise the local currency, Bangladesh Taka (BDT).

"But, there is no more time for appreciation of the local currency. Rather depreciation of the BDT is needed," he said.

"Taka remains at least 3.0 per cent higher than its actual worth against the greenback," he said. "This is very much important for the macroeconomic stability."

He argued that there is little scope for inflation to go up a result of the local currency depreciation as the country has been maintaining a low inflation rate for long.

About the state of the banking sector, he said the government took some measures to handle it but there is no outcome.

"The steps taken so far by the present government for improving the banking sector have backfired," he noted.

Referring to the incumbent finance minister's assurance that non-performing loans would not go up further, he said the classified loans actually increased by Tk 170 billion during the first quarter of the current calendar year.

He felt that reducing the interest rates would not help solve the banking crisis.

"We need good governance in the banking sector and we must punish the wilful defaulters."

He said there is "realisation" that the crisis exists in the banking sector but there is no "reaction" on the part of the government [to address the crisis].

The CPD observed that VAT should have one rate and it should be at 12 per cent. "We also think that there is a need for VAT waiver on some essential goods," Dr Bhattacharya said.

CPD senior research fellow Towfiqul Islam Khan presented the keynote paper while its acting executive director Dr Khondaker Golam Moazzem moderated the function.

Mr Khan said an action plan for mobilising a higher volume of revenue should be included in the forthcoming budget.

He said a public expenditure reform agenda is required for addressing issues like over-capitalisation, cost and time overrun and excessive expenditure in the last quarter of every fiscal year.

He reiterated that an independent commission for the banking sector should be constituted without further delay.

He also said the government must keep in mind the commitments it made in the election manifesto and in the 7th Five-Year Plan.


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