Is the economy doing too bad?

Mamun Rashid A young journalist, who passed out from English department of a university college, recently converted into a full-fledged university, and working for a English daily as a reporter for last 4 months, came 30 minutes before the start of a programme organised by our institution. When I enquired, the gentleman told me, being a new person in financial journalism, he wanted to clarify few pertinent issues with me, most important one being- 'Is the economy doing too bad?.' In fact, who is right? The finance minister is telling that the economy is doing fine despite few challenges while a few economists giving you a feel- that the situation is too bad. I didn't have an `instant coffee' kind of answer, what is generally dished out by some `Eveready battery' kind of economists. Yes, I know, economy is passing through some challenging times- inflation has reached the highest level in last 10 years, foreign exchange reserve in every likelihood would go down with increased import settlements and service pay outs, export is consolidating, so is inward remittances, revenue collection is good, yet it can't create enough buffer to neutralise government borrowing since foreign aid disbursement is low with reduced sales of national savings certificate. Though balance of payments was comfortable up to August, from September onward especially in October it has become quite fragile with very high import payments for fuel mainly consumed by rental power plants. However, I would not subscribe to the view that our economic situation is very bad. That may send a wrong message to the rank and file. In comparison to its peers, Bangladesh economy is showing huge potentials and progress too, though with some pains and stress on the management side of it. Indian growth is quite good, however inflation is pretty high. Look at flour, rice or sugar prices in these countries, all are much higher than those of ours. Foreign exchange reserve has recently gone below $10 billion after its level remaining slightly above the double-digit mark for three years. The reserve with Bangladesh Bank is now hovering around $9.88 billion. The country paid USD 38 billion, for settling its import bills last fiscal. The good part is, most of the import payments were against rental power equipment, capital machinery and industrial raw materials. Analysts are expecting this to rationalise a bit with the reduction in the import of rental power equipment. While fuel import is likely to go up, thanks to our farmers and their well wisher like Ms. Matia Chowdhury, the food import is likely to be much less, helping the money saved thus to neutralise increased spend for fuel. At the same time, we possibly need to review our social safety net programmes more seriously and, if possible, divert some extra bucks to the most deserving channels. Government extra borrowing won't make me too agitated, if this is short term in nature and the government can bring this down to the targeted level by the end of the fiscal through expediting offshore borrowing or assistance. Some expenditure discipline with constant monitoring seem to be an important task that the government must try to accomplish. Our exports grew by 22.5 per cent during the first quarter against an annual target of 15 per cent. Though we don't want this, but it seems we have room for further rationalisation in view of worsening global scenario. Import is up by around 30 per cent during the same period. Fuel is likely to dominate our import payments, necessitating further fuel price hike. That might again fuel inflation. If we want to live in a little bit of comfort we need to desperately augment development support. The increasing pressure on the reserve also led the US dollar to rise against taka. While Bangladesh Taka depreciated by almost 7 per cent during last fiscal, in the first 3 months of this fiscal it again depreciated by 1.35 per cent. While Taka was at 69.50 against one US dollar as of 30th June 2010, it was at 74.24 as of June 2011 and 75.24 as of September 29, 2011. In the informal market, one unit of dollar recently changed hands at Taka 79.20. Report says, the pressure on informal or curb market is likely to continue and even go up further with possible impact on inflation. Courtesy democracy, more Bangladeshis are seen buying foreign assets, frequently traveling or sending even average kids for foreign education or businessmen visiting the holy cities every now and then, all creating extra pressure on our dollar price in the informal market. On the other hand, the inflow of remittance is also seem to be witnessing some dullness, though IMF has projected this to hover around 10 to 15 per cent growth during this fiscal. After rising around 15 percent in July and August this year, it has been on a slope again in September. With Middle East situation settling down a bit, with higher fuel price and some integrated solutions on the Kualalumpur-Dhaka front, we are likely to maintain the status quo. However, that may not help our situation entirely, unless we can get the committed bucks from our development partners and show some improvement in the foreign direct investment flow in the country. Looking around, it's a tough time no doubt. However country like Bangladesh needs not to panic, rather should play its cards well. It needs to continuously invest on capacity building and policy reforms, without losing sight of the 'energy' and 'food' security issues. In fact, 'macro economic stability' is more important than the popularity parade that one may be put into by the political activists. For public good, if we have to re-open the dialogue with our proven and predictable friends, even by going through some drastic hair cut here and there, we have to do it. Regulators need to focus more on their core jobs, rather than playing to the gallery. Our today's action will either ensure or damage the future of country and more importantly our future generation. We need more `deep dive' research, cohesive actions and political harmony to take Bangladesh to next possible trajectory. (The writer is a banker and economic analyst. E-mail: mamun1960@gmail.com)