Economy facing some key challenges : Economists

A former adviser of caretaker government and a former central bank governor have voiced concern over the overall macroeconomic situation of the country stating that the economy of Bangladesh is now vulnerable and on the verge of some key challenges. Talking to UNB, former adviser Dr. Mirza Azizul Islam and former Bangladesh Bank governor Dr. Salehuddin Ahmed also underscored the need for some immediate integrated steps from the ministries of Finance, Planning and Commerce, and the Bangladesh Bank. Otherwise, they said investment and employment generation will come under threat. When contacted, former caretaker government adviser Dr. Mirza Azizul Islam said some key indicators show that the macroeconomic situation of the country is now vulnerable. "Four key indexes of macro economy - depreciation in exchange rate, high rate of inflation, high interest rate and capital market index - hint that the macro economy is heading towards a negative direction." He said the external sector is also facing imbalance as foreign aid disbursement is on the downtrend while the export growth is also not so well in the July-October period of the current fiscal compared to the same period of the previous fiscal. The export growth has dropped almost by half and the remittance inflow in the first four months is not favourable, while the current account balance and the trade balance are also deteriorating. Considering the recession in euro zone and in America, the former adviser opined that growth in export and in remittance might be affected in the current fiscal and also in the first part of the next fiscal year. Asked whether the government should take some austerity measures, he felt such measures should be taken with the non-essential projects dropped from the Annual Development Programme (ADP). On the rising trend of government's bank borrowing, Mirza Aziz said this was not seen in the past, as the present government already borrowed over Tk 15,000 crore in four months till October, approaching the fiscal target of around Tk 18,000 crore. This will put pressure on inflation and increase the liquidity crisis in the banking sector, he said. Commenting on the prevailing liquidity problem, the former adviser said that some funds of the banks are stuck up in the capital market as well as those gave as syndicated loans to establish rental power plants. He said it has been difficult for the banks to go for new financing in commercial activities due to liquidity problem, mainly caused by excessive bank borrowings, rental power financing and stuck up fund in the stock market. Mentioning that the government had no other option but to increase fuel price to reduce subsidy, Dr. Aziz said it was due to the government's failure to handle the energy subsidy properly. "The government knew it will have to give huge subsidy for the rental power plants and they should have proceeded after estimating the subsidy." He observed that subsidy should not be given only for petroleum fuel, but it should also be redirected to food and agricultural sector so that the marginal people get the benefits. Former central bank governor Dr. Salehuddin Ahmed said the whole economy is facing some challenges and if those are not addressed properly, there would be negative impact on investment and employment generation. He said there are weaknesses in financial management including in the banking sector, budget management and in capital market. The economy is also facing challenges of inflationary pressure, stalemate in investment and employment generation, and volatility in foreign exchange. "To face these challenges, there should be coordinated efforts as ad hoc measures would not bring any good results for the government," he said adding that ministries of Finance, Commerce and Planning, and the Bangladesh Bank should take the necessary steps. On the hefty bank borrowing, the former central bank governor said this situation is not acceptable, as it seems the budget management is very weak. As a result, the banks are facing liquidity problem that will reduce investment in the private sector. Such rising trend of bank borrowing should be stopped immediately, he said, and suggested that increased foreign aid flow should be ensured to meet the resource gap. On austerity measures, Dr. Salehuddin said the government should raise tge quality of its expenditure and also the source of its income including direct tax. "Resource gap will exist unless the domestic revenue and foreign direct investment are increased." He also observed that the recent fuel price hike and the possible CNG and electricity tariff hike would affect the whole economy, as cost of doing business will increase.