MCCI suggests 25pc cut in ADP allocation

FE Report The Metropolitan Chamber of Commerce and Industry (MCCI) has suggested for a 25 per cent cut of the budgetary allocation for Annual Development Programme (ADP) for the current fiscal to help ease the pressure of spiralling inflation and reshape the overall economic situation. The huge amount of domestic borrowing, being taken recourse to by the government is affecting the macro-economic fundamentals adversely, it has noted. The MCCI put forward recently the suggestion, along with other ones, and also its observations on the current economic situation to Finance Minister AMA Muhith and Bangladesh Bank (BB) governor Atiur Rahman for consideration. The views of the MCCI, contained in a letter signed by its president Maj Gen Amjad Khan Chowdhury (Retd), said a significant contradiction, now existing between the fiscal policy and the monetary policy, gave unclear messages about the macro-economic situation. "The macro-economic situation has also been adversely affected by the high borrowing of the government from domestic sources. As a large share of the borrowing has come from Bangladesh Bank (BB) rather than the deposit money banks, this will result in the injection of a large quantity of high-powered money into the economy with consequent impact on liquidity expansion," read the letter of MCCI. According to BB statistics, bank borrowing of the government as of October, 31 last stood at Tk 149.05 billion. About the contradiction between the fiscal and the monetary policies, the MCCI's letter to Mr. Muhith said the government's goal was to implement a large budget which, in the absence of adequate foreign financing, was being financed largely through excessive domestic borrowing, while Bangladesh Bank was trying to contain excessive demand pressure by increasing cash reserve ratio, statutory liquidity ratio and repo and reverse repo rates. "Such contradictory measures seem to be giving unclear messages to the agents concerned," stated the letter of the MCCI president. It underscored the need for ensuring effective fiscal-monetary mix for maintenance of fiscal discipline which is vitally important for sustained growth of the economy. "The coordination between the two policies should be conducive to development, measured not just by how fast output growth is achieved but, more importantly, by expansion of productive capacity, rise in economic efficiency, and success in promoting balanced economic structure," the MCCI stated in its letter. Suggesting a way out from the problems, it said, "re-examining the project bundle included in the current ADP is now a necessity." "We strongly recommend that the government should urgently undertake an exercise to downsize the ADP by at least 25 per cent from its present size of Tk 460 billion. This may be considered as a short-term measure to ease the pressure," the MCCI chief, Amjad Khan noted in the letter. The chamber, furthermore, said the current stress in the foreign exchange market also seems to be fuelling inflationary pressure. The import bill is rising fast, especially due to additional import of fuel for rental power plants, it added. "The present external market and domestic inflationary pressure have led to a continuous depreciation of Bangladesh Taka, which will no doubt have some impact on inflation as well. The global economic outlook is also not favourable to stable prices in the international market at least until the medium term," it pointed out.. Expressing worries over the spiralling inflation, the MCCI said inflation has now emerged as the major concern about maintenance of macro-economic and external sector stability and for protecting the poor and vulnerable groups from the onslaught of rising prices of basic necessities. The latest available data on inflation shows that the 12-month point-to- point consumer price inflation reached 11.97 per cent in September last. At the same time, food inflation rose to 13.75 per cent. "Various indicators show that there probably exist some fundamental flaws with our estimates of demand and supply in the food grains market which should be urgently addressed to bring out the real picture to adopt effective measures," MCCI noted. "In that context, strengthening of the TCB could have gone a long way in stabilising the market infrastructure for essential commodities, but this does not seem to have received priority attention of the policy makers," it added. The chamber recommended a number of measures that included, among others, containing population growth, setting up of coal-based power plants instead of costly rental power plants, developing skills of migrant workers and supporting the growers with subsidised farm inputs.