Economy may continue to face risks in 2012
Saturday, 31 December 2011
Bangladesh's economy in 2011 faced a wide range of risks and pressures, including soaring inflation, hefty bank borrowings, rise in government subsidies and a fall in foreign aid, which may make the macro-economic management of the country in the next year more difficult.
The economy in the outgoing calendar year also witnessed a fall in the private sector credit flow, depreciation of Taka against dollar, high import growth except capital machinery and raw materials, low foreign aid disbursement and current account balance deficit, and these are unlikely to be solved very quickly, said two noted economists, Dr Mirza Azizul Islam and Dr Salehuddin Ahmed, while talking to UNB.
Former finance adviser in the last caretaker government Mirza Azizul Islam said that the economy in the outgoing calendar year (2011) faced several risks - foremost being inflation that remained in double digit for the last couple of months. He expressed the fear that inflation may continue to be in the double digit for the rest of the current fiscal year (FY 2011-12).
Country's point-to-point inflation rate increased by 0.16 percentage point to 11.58 per cent in November compared to that of the previous month, mostly due to price-
hike of fuel oil, according to Bangladesh Bureau of Statistics (BBS). The point-to-point inflation rate was 11.42 per cent in October.
Apart from inflation, Mirza Azizul Islam said, there were some other concerns for the country's economy such as high bank borrowings by the government that have already exceeded the target set for the current fiscal.
He said the government bank borrowings in the last FY (2010-11) also exceeded the year's target by 25 per cent, of which a major chunk came from the central bank. The borrowing from the central bank put extra pressure on inflation, he said.
The former finance adviser said there were also liquidity crisis and high call money rates that affected trade and investment. Depreciation of Taka against dollar had also pushed up the production cost.
"The risks that the economy is currently facing do not bear a positive sign for the next year," he said, adding that there were, however, some success stories for the government in the agricultural sector - thanks to the continuation of good crops production over the last few years.
On power situation, Mirza Aziz said that there was partial success in the outgoing year as the intensity of load shedding is now reduced. "But, high cost solution through rental power plants has increased import of diesel and furnace oil."
To overcome the challenges that the economy is likely to face in the next year (2012), he suggested taking some unpopular decisions by the government including that of taking austerity measures.
He said that new government appointments would have to be stopped along with reduction of subsidies, especially in the loss-making state-owned enterprises (SOEs).
On the progress of implementation of the Annual Development Programme (ADP), Mirza Aziz opined that there is further scope to improve.
Mentioning that the government would not be able to utilise the Tk 460 billion (46,000 crore) ADP envisaged for FY 2011-12, he said that the government would have to prioritise the development projects before giving approval.
On the growth projection of 7 per cent for the current fiscal, he categorically said it would not be achievable; it may at best 6.2 to 6.5 per cent.
On the capital market scenario, Mirza Aziz, also a former chairman of the Securities and Exchange Commission (SEC), said that the key indexes in both the bourses - Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) - witnessed severe falls throughout the year with continuous volatility.
Former Bangladesh Bank Governor Dr Salehuddin Ahmed attached the highest importance to political stability, saying that otherwise it would be very tough for the policymakers to maintain good macro-economic management in 2012.
He said that the government would have to improve its economic management, and take decisions quickly and implement those swiftly.
"It will be of no use in the next year, if the government takes some erroneous policies and spends time as it did in 2011," he said adding that there should not be any political influence in decision-making for the sake of the economy.
Despite various pressures both from the internal and external sectors, the former central bank governor thinks that the macro-economic fundamentals of the country are still strong though there was not much improvement in the macro-economic management over the last one year.
Dr Salehuddin Ahmed, however, said that the outgoing year witnessed severe lack of coordination on various issues among the Ministry of Finance, the Ministry of Commerce and the Bangladesh Bank.
On the growth projection which has recently been turned into an issue of debate, he was not optimistic about achieving a 7 per cent growth rate.
"It will be good for the country if it can achieve a 7 per cent growth. But I won't worry if a 6.5 per cent growth is achieved; it will be enough if there is real growth in productive sectors,"
The former BB governor said that the outgoing year began with uncertainty in the capital market, coupled with some other domestic and external shocks.
"We're still facing the pressure of inflation both on food and non-food items along with excessive bank borrowings, liquidity crisis, stagnation in investment and in employment generation, and volatility in foreign exchange market."
Besides, he said, there will be another challenge for the government: removing regional disparities and income discrimination.
He also acknowledged the performance of the agricultural sector in the outgoing year as "more or less good" apart from the vegetable producers who were deprived of fair prices for their produce due to lapses in the marketing system.
Citing the present crisis in the Eurozone, Dr Salehuddin expressed the fear there might be some impact of this in the country's export earnings, especially of RMG in the months to come.
Besides, he said, there were low remittance inflows and low disbursement of foreign aid that would ultimately put pressure on the Balance of Payments (BoP) situation.
Increased imports of fuel and fertiliser that saw rise in prices on the international market pushed up the government's subsidy burden, according to Finance Ministry sources.
It prompted the government to borrow more from banks, especially the central bank, since the start of the current fiscal year. This has caused the inflation to go up.
Bangladesh Bank statistics say opening of L/Cs for capital machinery and raw materials fell by 34 per cent and 0.46 per cent respectively in the last four months of the current FY.
The country's average monthly imports skyrocketed to nearly $ 3.0 billion during the first four months of the current fiscal year as the import bill payment in the period amounted to $ 11.75 billion compared to $ 9.56 billion in the corresponding period of the last FY.
The country's import payment in FY11 was nearly $ 32 billion, posting a 35 per cent rise year-on-year, mainly because of oil import to feed the fuel-guzzling quick rental power plants.
The government borrowing from the banking system, however, has recently fell to some extent following the repayment of a considerable amount of debt to the Bangladesh Bank, said officials at the central bank.
Earlier, the government's borrowing from the banking system during the July-November period of the current fiscal year had exceeded the total borrowing target of Tk 189.57 billion, set for the entire FY 2011-12.
Its borrowing from the banking sources reached Tk 198.05 billion as on November 30, 2011, according to the central bank statistics.
In the outgoing year, a major reason behind the galloping inflation rate was the depreciation of local currency against the dollar. On December 21, the inter-bank exchange rate crossed Tk 81 with a 15 per cent increase since last year.
The value of Taka, which fell by over 15 per cent during the outgoing calendar year (2011), was another threat to the economy as it had inflated the cost of imported goods having a knock-on-effect at the consumers' level.
The economy in the outgoing calendar year also witnessed a fall in the private sector credit flow, depreciation of Taka against dollar, high import growth except capital machinery and raw materials, low foreign aid disbursement and current account balance deficit, and these are unlikely to be solved very quickly, said two noted economists, Dr Mirza Azizul Islam and Dr Salehuddin Ahmed, while talking to UNB.
Former finance adviser in the last caretaker government Mirza Azizul Islam said that the economy in the outgoing calendar year (2011) faced several risks - foremost being inflation that remained in double digit for the last couple of months. He expressed the fear that inflation may continue to be in the double digit for the rest of the current fiscal year (FY 2011-12).
Country's point-to-point inflation rate increased by 0.16 percentage point to 11.58 per cent in November compared to that of the previous month, mostly due to price-
hike of fuel oil, according to Bangladesh Bureau of Statistics (BBS). The point-to-point inflation rate was 11.42 per cent in October.
Apart from inflation, Mirza Azizul Islam said, there were some other concerns for the country's economy such as high bank borrowings by the government that have already exceeded the target set for the current fiscal.
He said the government bank borrowings in the last FY (2010-11) also exceeded the year's target by 25 per cent, of which a major chunk came from the central bank. The borrowing from the central bank put extra pressure on inflation, he said.
The former finance adviser said there were also liquidity crisis and high call money rates that affected trade and investment. Depreciation of Taka against dollar had also pushed up the production cost.
"The risks that the economy is currently facing do not bear a positive sign for the next year," he said, adding that there were, however, some success stories for the government in the agricultural sector - thanks to the continuation of good crops production over the last few years.
On power situation, Mirza Aziz said that there was partial success in the outgoing year as the intensity of load shedding is now reduced. "But, high cost solution through rental power plants has increased import of diesel and furnace oil."
To overcome the challenges that the economy is likely to face in the next year (2012), he suggested taking some unpopular decisions by the government including that of taking austerity measures.
He said that new government appointments would have to be stopped along with reduction of subsidies, especially in the loss-making state-owned enterprises (SOEs).
On the progress of implementation of the Annual Development Programme (ADP), Mirza Aziz opined that there is further scope to improve.
Mentioning that the government would not be able to utilise the Tk 460 billion (46,000 crore) ADP envisaged for FY 2011-12, he said that the government would have to prioritise the development projects before giving approval.
On the growth projection of 7 per cent for the current fiscal, he categorically said it would not be achievable; it may at best 6.2 to 6.5 per cent.
On the capital market scenario, Mirza Aziz, also a former chairman of the Securities and Exchange Commission (SEC), said that the key indexes in both the bourses - Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) - witnessed severe falls throughout the year with continuous volatility.
Former Bangladesh Bank Governor Dr Salehuddin Ahmed attached the highest importance to political stability, saying that otherwise it would be very tough for the policymakers to maintain good macro-economic management in 2012.
He said that the government would have to improve its economic management, and take decisions quickly and implement those swiftly.
"It will be of no use in the next year, if the government takes some erroneous policies and spends time as it did in 2011," he said adding that there should not be any political influence in decision-making for the sake of the economy.
Despite various pressures both from the internal and external sectors, the former central bank governor thinks that the macro-economic fundamentals of the country are still strong though there was not much improvement in the macro-economic management over the last one year.
Dr Salehuddin Ahmed, however, said that the outgoing year witnessed severe lack of coordination on various issues among the Ministry of Finance, the Ministry of Commerce and the Bangladesh Bank.
On the growth projection which has recently been turned into an issue of debate, he was not optimistic about achieving a 7 per cent growth rate.
"It will be good for the country if it can achieve a 7 per cent growth. But I won't worry if a 6.5 per cent growth is achieved; it will be enough if there is real growth in productive sectors,"
The former BB governor said that the outgoing year began with uncertainty in the capital market, coupled with some other domestic and external shocks.
"We're still facing the pressure of inflation both on food and non-food items along with excessive bank borrowings, liquidity crisis, stagnation in investment and in employment generation, and volatility in foreign exchange market."
Besides, he said, there will be another challenge for the government: removing regional disparities and income discrimination.
He also acknowledged the performance of the agricultural sector in the outgoing year as "more or less good" apart from the vegetable producers who were deprived of fair prices for their produce due to lapses in the marketing system.
Citing the present crisis in the Eurozone, Dr Salehuddin expressed the fear there might be some impact of this in the country's export earnings, especially of RMG in the months to come.
Besides, he said, there were low remittance inflows and low disbursement of foreign aid that would ultimately put pressure on the Balance of Payments (BoP) situation.
Increased imports of fuel and fertiliser that saw rise in prices on the international market pushed up the government's subsidy burden, according to Finance Ministry sources.
It prompted the government to borrow more from banks, especially the central bank, since the start of the current fiscal year. This has caused the inflation to go up.
Bangladesh Bank statistics say opening of L/Cs for capital machinery and raw materials fell by 34 per cent and 0.46 per cent respectively in the last four months of the current FY.
The country's average monthly imports skyrocketed to nearly $ 3.0 billion during the first four months of the current fiscal year as the import bill payment in the period amounted to $ 11.75 billion compared to $ 9.56 billion in the corresponding period of the last FY.
The country's import payment in FY11 was nearly $ 32 billion, posting a 35 per cent rise year-on-year, mainly because of oil import to feed the fuel-guzzling quick rental power plants.
The government borrowing from the banking system, however, has recently fell to some extent following the repayment of a considerable amount of debt to the Bangladesh Bank, said officials at the central bank.
Earlier, the government's borrowing from the banking system during the July-November period of the current fiscal year had exceeded the total borrowing target of Tk 189.57 billion, set for the entire FY 2011-12.
Its borrowing from the banking sources reached Tk 198.05 billion as on November 30, 2011, according to the central bank statistics.
In the outgoing year, a major reason behind the galloping inflation rate was the depreciation of local currency against the dollar. On December 21, the inter-bank exchange rate crossed Tk 81 with a 15 per cent increase since last year.
The value of Taka, which fell by over 15 per cent during the outgoing calendar year (2011), was another threat to the economy as it had inflated the cost of imported goods having a knock-on-effect at the consumers' level.