Greater reliance on fiscal policy stressed to reduce inflationary pressure
Tuesday, 25 August 2009
FE Report
The Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) has stressed the need for a greater reliance to be placed on fiscal policy measures that would reduce production costs, enhance output and supplies and thereby reduce the inflationary pressure.
The MCCI said this in its review of economic situation of April-June,2009 quarterly.
It said that the average inflation rate after coming down to 8.1 percent in the third quarter of FY09, has started to rise again causing concern.
"This Chamber made it clear on many previous occasions that inflation in the country was caused essentially by supply-side bottlenecks," it added.
"The central bank could play a crucially important supportive role in this regard by adopting an accommodative monetary policy that would allow the private sector a greater access to credit for sectors having relatively greater potential for expanding output and employment," the leading chamber of the country said.
It further said additionally, the central bank may ensure that the commercial banks lowered their lending interest rates further.
The preliminary assessment of the performance of the real sectors in the April-June 2009 quarter indicates a moderate improvement over the March-April 2009 quarter.
Despite weak growth of manufacturing and power sectors and a declining growth in the mining sector, the overall GDP growth for the entire fiscal remains below the much-coveted 6 percent.
The expansion in agriculture largely offset the slow growth in manufacturing and electricity and the decline in mining sector production. Among the services sub-sectors, the Wholesale and Retail Trade activity recorded good growth, which partially offset the slowdown in the growth of transport, storage & communication sub-sector.
Credit policy was made less restrictive in the review quarter, reflecting the new government's pledge to promote growth and tackle the adverse impact of global economic recession. Some expansion took place in aggregate spending compared to the previous quarter.
This expansion occurred in both private sector spending (consumption and investment) and government's investment and current expenditure.
On the other hand, there was some deterioration in net external demand during the review period, compared to the previous quarter. The deterioration was caused by the decline of export by 0.6 percent in Q4FY09 from expansion of 6 percent in Q3FY09.
Exports in almost all categories of goods other than readymade garments declined. There was, however, a greater relative decline in import payments, which, together with higher remittances, produced a surplus in the current account balance and also boosted the surplus in the overall balance of payments.
On the fiscal side, the government's tax revenue growth dropped to 6.5 percent from 10.7 percent in Q3FY2009. The collection of customs duties depicted a negative growth, while the collection of income tax, domestic VAT, and non-NBR revenues decelerated in the review quarter.
The declining inflation trend continued in the review quarter. The average inflation rate stood at 7.2 percent in Q4FY09 compared to 8.1 percent in Q3FY08. The fall in the inflation rate primarily reflects the decline in food grains prices, a result of a bumper harvest.
The recovery in agriculture, which commenced in the second quarter of FY2009, continued in the
Continued to page 16
The Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) has stressed the need for a greater reliance to be placed on fiscal policy measures that would reduce production costs, enhance output and supplies and thereby reduce the inflationary pressure.
The MCCI said this in its review of economic situation of April-June,2009 quarterly.
It said that the average inflation rate after coming down to 8.1 percent in the third quarter of FY09, has started to rise again causing concern.
"This Chamber made it clear on many previous occasions that inflation in the country was caused essentially by supply-side bottlenecks," it added.
"The central bank could play a crucially important supportive role in this regard by adopting an accommodative monetary policy that would allow the private sector a greater access to credit for sectors having relatively greater potential for expanding output and employment," the leading chamber of the country said.
It further said additionally, the central bank may ensure that the commercial banks lowered their lending interest rates further.
The preliminary assessment of the performance of the real sectors in the April-June 2009 quarter indicates a moderate improvement over the March-April 2009 quarter.
Despite weak growth of manufacturing and power sectors and a declining growth in the mining sector, the overall GDP growth for the entire fiscal remains below the much-coveted 6 percent.
The expansion in agriculture largely offset the slow growth in manufacturing and electricity and the decline in mining sector production. Among the services sub-sectors, the Wholesale and Retail Trade activity recorded good growth, which partially offset the slowdown in the growth of transport, storage & communication sub-sector.
Credit policy was made less restrictive in the review quarter, reflecting the new government's pledge to promote growth and tackle the adverse impact of global economic recession. Some expansion took place in aggregate spending compared to the previous quarter.
This expansion occurred in both private sector spending (consumption and investment) and government's investment and current expenditure.
On the other hand, there was some deterioration in net external demand during the review period, compared to the previous quarter. The deterioration was caused by the decline of export by 0.6 percent in Q4FY09 from expansion of 6 percent in Q3FY09.
Exports in almost all categories of goods other than readymade garments declined. There was, however, a greater relative decline in import payments, which, together with higher remittances, produced a surplus in the current account balance and also boosted the surplus in the overall balance of payments.
On the fiscal side, the government's tax revenue growth dropped to 6.5 percent from 10.7 percent in Q3FY2009. The collection of customs duties depicted a negative growth, while the collection of income tax, domestic VAT, and non-NBR revenues decelerated in the review quarter.
The declining inflation trend continued in the review quarter. The average inflation rate stood at 7.2 percent in Q4FY09 compared to 8.1 percent in Q3FY08. The fall in the inflation rate primarily reflects the decline in food grains prices, a result of a bumper harvest.
The recovery in agriculture, which commenced in the second quarter of FY2009, continued in the
Continued to page 16