Big govt borrowing will further fuel inflation: Shomonnoy
FE Report | Thursday, 12 June 2008
A big borrowing plan of the government to offset the budget deficit in the new fiscal will further fuel inflation, Shomonnoy, a local research organisation, said Wednesday.
"The government will have to borrow huge money from the banking system to minimise the deficit. It will discourage investors to make new investment. The lending rate as well as production and business costs will go up. It will add more inflation," said economist Atiur Rahman, chairman of Shomonnoy.
He was presenting the budget analysis of his organisation before journalists at his office in the city Wednesday.
Terming the budget of fiscal 2008-09 "populist but reckless", Rahman said: "Implementation of the budget will depend to a large extent on the successful political transition and certainty."
When asked, he said: "As there is a plan for huge expenditure without confirmed sources of income in the next budget, it can be a reckless one."
Mr Rahman said as the caretaker government will handover office to an elected government after December this year a "transitional budget" for six months should have been announced.
About the inflation, the economist further said: "Though the finance adviser in his budget speech has projected the average inflation at 9.0 per cent in the next fiscal, I do not think it will come down below double digit."
"The projected 6.5 per cent economic growth will be challenging in the next fiscal as the current level of investment has decreased to 24.2 per cent and the business confidence has fallen. Besides, there is a possibility of hike in lending rate because of increased government borrowing," Mr Rahman, who is also a Dhaka University professor, said.
Hailing the government's initiatives for expansion of social safety net programmes, introduction of employment guarantee scheme, higher allocation for augmenting food production the Shomonnoy chairman said: "The success will depend on the timely implementation of the budget."
Terming the huge revenue collection target a "challenging one" in the next fiscal, Mr Atiur, however, said the proposed four-tier duty structure on import will encourage investment by local entrepreneurs.
Criticising the lower allocation to the annual development programme (ADP), the DU professor said: "The smaller ADP will have a negative impact on the employment and investment in the next year."
He urged the government to introduce public-private partnership in implementing the ADP efficiently.
"The government will have to borrow huge money from the banking system to minimise the deficit. It will discourage investors to make new investment. The lending rate as well as production and business costs will go up. It will add more inflation," said economist Atiur Rahman, chairman of Shomonnoy.
He was presenting the budget analysis of his organisation before journalists at his office in the city Wednesday.
Terming the budget of fiscal 2008-09 "populist but reckless", Rahman said: "Implementation of the budget will depend to a large extent on the successful political transition and certainty."
When asked, he said: "As there is a plan for huge expenditure without confirmed sources of income in the next budget, it can be a reckless one."
Mr Rahman said as the caretaker government will handover office to an elected government after December this year a "transitional budget" for six months should have been announced.
About the inflation, the economist further said: "Though the finance adviser in his budget speech has projected the average inflation at 9.0 per cent in the next fiscal, I do not think it will come down below double digit."
"The projected 6.5 per cent economic growth will be challenging in the next fiscal as the current level of investment has decreased to 24.2 per cent and the business confidence has fallen. Besides, there is a possibility of hike in lending rate because of increased government borrowing," Mr Rahman, who is also a Dhaka University professor, said.
Hailing the government's initiatives for expansion of social safety net programmes, introduction of employment guarantee scheme, higher allocation for augmenting food production the Shomonnoy chairman said: "The success will depend on the timely implementation of the budget."
Terming the huge revenue collection target a "challenging one" in the next fiscal, Mr Atiur, however, said the proposed four-tier duty structure on import will encourage investment by local entrepreneurs.
Criticising the lower allocation to the annual development programme (ADP), the DU professor said: "The smaller ADP will have a negative impact on the employment and investment in the next year."
He urged the government to introduce public-private partnership in implementing the ADP efficiently.