BB predicts higher fiscal deficit this year

---

FE Report
The Bangladesh Bank (BB) has identified some downside risks, including adverse impact of oil price and commodity price hike in the global market, in the economy during the current fiscal.
"In light of the recent floods, the near-term economic outlook in FY08 can be characterised as cautiously optimistic," the central bank says in its quarterly for January-March and April-June 2007, published Tuesday.
While the human distress, damage to infrastructure, and immediate economic dislocation caused by the flood are substantial, the economy has developed resilience to such natural calamities and the capacity of the authorities to manage and deal with such calamities has improved, according to the quarterly.
Bangladesh has suffered losses worth about Tk 26.896 billion due mainly to the recent floods that affected 40 districts throughout the country, a government flood damage assessment report said. The report was placed at a meeting of the Local Consultative Group (LCG), a platform of the donors working in the country, and the Economic Relations Division (ERD) Tuesday.
"….the overall macroeconomic impact is likely to be limited given the adequate and timely public and private sector response in particular to restore public services (health, sanitation and water) and rehabilitation of damaged infrastructure, supported by additional international assistance," the quarterly noted.
The government's macroeconomic policy is thus geared towards targeted increase in public expenditure for rehabilitation of infrastructure and public services facilitated by reallocation of existing annual development programme (ADP) and additional quick disbursement of international assistance.
The central bank has already put some directives in place so that allocation of credit to agriculture sector remains smooth to meet the demand of that sector.
Meanwhile, the BB has set a target of Tk 76.98 billion, which includes an amount of Tk 10.78 billion from private commercial banks -- both local and foreign - for disbursement among flood-affected farmers across the country.
"Given the revenue target, the budget deficit may be higher due to flood induced net additional expenditure but the impact on domestic financing of deficit is likely to be limited if the additional expenditure is financed by incremental foreign assistance," the BB predicted.
The provisional figure indicates that the overall fiscal deficit stood at 3.61 per cent of gross domestic product (GDP) in FY07 as against the anticipated level of 4.10 per cent in revised budget. The deficit was accommodated by both domestic and external financing.
Since the impact of flood on export activities appears to be relatively small, the overall impact on external trade and balance of payment is likely to be minimal, the central bank observed.
"However, a number of downside risks remain in FY08, which include adverse impact of oil price and commodity price hike in the international market," the quarterly noted.