Economy heading towards uncharted territory

Since the beginning of the nineties, Bangladesh has had a robust macro-economic regime marked by consistent above-average growth and single digit inflation in parallel with mostly stable democratic governance (even the interim caretaker governments formed before each election had got constitutional sanction through an amendment passed by a democratically elected parliament; although the provision has been repealed by the present parliament triggering strong political controversies. The other munificent benefits of sound macro-economic management over the last two decades are low foreign debt as measured against GDP and also seasonable budget deficits which in most years remained at or below 5 per cent of GDP. However, in the current fiscal there has been alarming rise in the latter pointing to a troubled economic health in the days ahead. Inflation has overshot the target and entered the double digits territory in recent months, reaching 11.97 per cent in September on point-to-point basis. Money supply has grown by 25 per cent although the declared monetary policy is supposed to contain such growth to well below 20 per cent. Subsidies in agriculture, food-grains, electricity and petroleum have risen so sharply that economists fear that such government help may eat up as much as a half of the its revenues this year. Increased subsidies have led to increasing borrowings by the government from the banking system which in turn has shrunk bank lending to the private sector by more than a third. Import growth has far outpaced export growth and have reached more than 50 per cent. These, combined with export growth and foreign remittance growth flattening out and balance of payments taking a nose-dive into negative territory, certainly give us a cause to worry about. The food price escalation in recent years is largely due to abnormal rise in food-grain and other essential foodstuff prices in the global market. For a developing nation, such as Bangladesh, food prices constitute a large part of the price index basket. As such any increase in food prices has pronounced effects on overall inflation. More damaging is the fact that food price escalation leads to subsequent escalation in non-food prices which 'feeds' inflation further. Since our economy is import-dependent (negative overall balance of trade) inflationary pressures and money supply growth devalues our currency against foreign currencies which further aggravates inflation. To be sure the real economy is still quite robust with manufacturing and agricultural productions registering healthy growth despite global turmoil. Our service sector has also done well. The overall economic growth is still above par. But the positives will drown out if the negative developments are not restrained immediately. If the economy is a ship then it is certainly adrift and to bring it back on course will require some tough and unpleasant measures without delay. In order to prevent the devastation of runaway inflation, money supply situation has to be tightly monitored and government borrowings need to be sharply reduced through lowering subsidies. If lending to private sector remains anemic then manufacturing growth will be hampered, making the higher growth targets of 7 per cent simply unattainable. With the funding for Padma bridge facing uncertainty and delay, investments in the power sector still months -- if not years -- away from meeting demand; no end in sight for traffic gridlock in Dhaka, Chittagong and in between; and spiraling inflation, we get a picture of a nation on the edge. In the third year with the blueprint of the Vision 2021 of the present government, if anything, we imagined a different situation for the nation - a situation where we are supposed to be three firm steps afoot on the path to attaining solid middle income status through accelerated economic growth and without the negative vibes that are perpetrated mainly through absence of appropriate management of monetary measures and fiscal discipline. The economic dashboard is clearly showing distress signs but the policy planners also have instruments in their hands to ease the stresses and put the ship of the economy on an even keel within this fiscal. Viewers may watch today's (Sunday, 30th) episode of Orthonitir Chaka at 5:30pm on Boishakhi Television for an analysis of the economic situation of the country with Dr. Mustafa Mujeri, Director Genral, Bangladesh Institute of Development Studies (BIDS) and Dr. Ahsan Mansur, Executive Director, Policy Research Institute (PRI). The programme will be repeated at night at 12:30am and will also be available online from Thursday at BDeshTV.com. The Financial Express is the media partner and American International University of Bangladesh (AIUB) is the technical collaboration partner of Orthonitir Chaka. Habibullah N Karim is an IT entrepreneur, policy activist and the anchor of Orthonitir Chaka. He can be reached at hnkarim@gmail.com