Aziz optimistic about financing budgetary deficit without fuelling inflation

FE Team | Published: June 09, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

FE Report
Finance and planning adviser Mirza Azizul Islam said Friday a three-pronged strategy as mapped out in the proposed budget -- abolition of import tariffs, increase of domestic supply and boosting local production -- would help keep the prices of essentials at "tolerable" levels.
But the finance adviser made it clear that a "major change" in prices is unlikely against the backdrop of a wobbly international commodity market.
"Perhaps, the prices (of essentials) will not go down in a bigger way as expected, thanks mainly to the international situation," Islam told a post-budget press conference in the city.
Finance adviser announced Thursday a Tk 871.37 billion budget for the fiscal 2007-08, with an eye on taming inflation and the immediate development priorities.
Outlining the three-fold plan, the adviser said the budget has set aside adequate allocations for imports of food items to eliminate the supply side constraints.
He said: "Engaging the BDR (Bangladesh Rifles) as part of the market intervention will be continued, while the Trading Corporation of Bangladesh (TCB) will also be involved."
To help boost production, he said some 23 per cent allocations of the ADP (annual development programme) would go to the agriculture sector and related areas.
The finance adviser said the budgetary measures have been proposed keeping the poor people's sufferings in mind.
"For that reason, the social safety net has been expanded for poor people to help them offset the adverse impact of price spiral," he noted.
He, however, parried a question as to whether the existing safety net was enough to offset the shock of the poor, already burdened with sky-rocketting prices of essentials.
Islam, a former United Nations economist, dismissed the critics' views on the budgetary targets, saying the caretaker authority would be able to mobilise both domestic and external financing to narrow down the budget deficit.
"I can assure you that this budget can't be ambitious," he said, noting that the government could opt for domestic loans, even if foreign aid is squeezed.
"If we can accelerate project implementation, aid will be flowing into the country," he said, referring to his private consultations with bilateral and multilateral donors.
He seemed confident about his capability to convince the donors and gave statistics in support of his argument.
"When we took over charges, the inflow of foreign aid was less than US$ 400 million. But the flows almost tripled to $1.1 billion in just three months. Besides, a large amount of aid is in pipeline, " he pointed out. "If the country can improve its aid utilisation capacity, money will certainly come in."
About the revenue collection target, the finance adviser noted that it could not be termed "highly-ambitious", as the budget proposed a nominal increase of 10.8 per cent from 10.6 per cent.
The finance adviser categorically stated that the government's bank borrowing would neither squeeze the private sector credit flow, nor it would further build up inflationary pressure.
"The bank borrowing accounts for only 1.6 per cent of the gross domestic product (GDP). The loans will be spent on implementing development projects. It will have a positive impact on supply side, as the government borrowing is 100 per cent production-oriented. So, it wouldn't have any adverse effect on the price index," Islam explained, as he dismissed the fear of a fallout from hefty government borrowing, projected to be Tk 72 billion in the upcoming fiscal.
On the issue of crowding out effect on the private sector credit, Bangladesh Bank governor Salehuddin Ahmed said the current trend is not a sign of stagnation as far as private loans are concerned.
"Private credit flow recorded a 17 per cent growth in recent months. This is not a sign of recession," Ahmed told a questioner while supplementing the response of the finance chief.
In his intervention, Bangladesh Bank governor said the growth target for the upcoming fiscal, set at 7.0 per cent, is "doable," notwithstanding the downside risks.
"This year's growth has stuttered, mainly because of the external factors and political instability. But the current growth momentum in agriculture, manufacturing and services sectors bode well for the economy. Although the construction sector remains stagnant, it is expected to pick up in the coming months," the central bank chief told newsmen as he voiced optimism for the economy.
The finance adviser defended the proposed tariff hike on industrial raw materials, saying the entrepreneurs must face global competition.
"You can't continue the legacy of inefficiency for long. Protection means money should come from somewhere else," the adviser said, pointing his fingers at the local industrialists who prefer to enjoy unlimited incentives.
"For entrepreneurs tariff cuts matter little. What matters most is the sustained supply of electricity and port efficiency," the Boston-educated economist pointed out.
In reply to a question, the finance adviser said he would consider further cut in tariffs on imports of newsprint in the interest of the newspaper industry.
Among others, cabinet secretary Ali Imam Majumdar, finance secretary Mohammad Tareq, Economic Relations Division secretary Aminul Islam Bhuiyan and chairman of the National Board of Revenue Badiur Rahman were present in the meeting.