BB for more support to informal sector to meet fiscal challenges

FE Team | Published: September 23, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Shakhawat Hossain
The central bank has suggested the government to provide additional assistance to the country's informal sector in order to overcome the financial challenges currently being faced by the national economy, said a Bangladesh Bank (BB) review report.
Identifying high rate of inflation, unemployment and lower than expected private sector credit growth as major economic challenges, the BB recommended a number of remedial measures which included assistance to the countrywide informal sector for restoration of the normal economic activities.
Experts feared that the normal economic activities were affected adversely due to the current anti-corruption drive, hampering the normal functioning of the informal sector since early this year.
Among other measures, the BB noted that increase in import of capital machinery and raising of the production level of agricultural output would help create an environment congenial to business expansion.
The review report on the current economic status was prepared early this month and sent to Finance and Planning Adviser Mirza Azizul Islam.
It reviewed the major micro-economic indicators like private sector credit growth, revenue generation, exports and imports, foreign remittances and inflation in recent times.
The report expressed satisfaction over the performances in most of the indicators excepting credit growth and inflation.
Private sector credit growth decreased by three percentage points in 2006-07 compared to the growth in the previous fiscal and inflation has crossed double digit figure on a point-to-point basis in July last.
The International Monetary Fund (IMF) saw no respite in inflationary pressures as it predicted 9.0 per cent inflation on annual average in the current fiscal.
The Washington-based multilateral agency that concluded a mission in the current month also predicted an economic slow-down following floods and price-hike of commodities in local and global markets.
The IMF recommended proper handling of the anti-corruption drive and accelerating the private sector activities to overcome the sluggish economic trend.
The government, experiencing the adverse impact on the economy, has already taken a number of steps to encourage the private sector resume their normal business activities.
There is no available data about the size of the country's informal sector.
However, a study by an Austrian University in April 2003 suggested that Bangladesh's informal economy or informal sector rose by 4.5 percentage points on an average annually in the last decade and reached 34.9 per cent of the official Gross Domestic Product (GDP) in 2000-01.
"Quite a remarkable increase for a developing country like Bangladesh, which had a shadow economy of 26.2 per cent of the GDP in the year of 1989-'90," said the working paper of the Johannes Kepler University.
The paper include unreported income from the production of legal goods and services either from monetary or barter transactions in the shadow economy as all currently unregistered economic activities contribute that to the officially calculated Gross National Product but were not reflected in the official estimates of GDP.
For determining the size of the informal economy of 18 Asian countries including Bangladesh, the study applied the 'Currency Demand and the Model (MIMIC)'.