Positive trends in the economy

Let there be a start with a positive note on a few recent economic issues. The monetary policy stance, as recently released by the central bank, has fittingly put due emphasis on containing inflation. In fact, this is a continuation of the objective of macroeconomic management set forth. Very high and very low inflation both hinder economic progress. The trade-off between inflation and unemployment, at least in the short-run, has been well-articulated in economic text-books. Just a few months back, the country experienced double-digit inflation which posed to threaten its macroeconomic stability.
The central bank has targeted average inflation at 6.5 per cent for fiscal 2015. This stands slightly higher than the target set by the government at 6 per cent. One may recall that the rate was 7.4 per cent in the previous fiscal. Empirical evidences tend to show that 6-7 per cent inflation goes well with economic growth. In other words, an economy needs to tolerate such a level of inflation to strike a balance between inflation and unemployment. Possibly to rein in inflation, the Bangladesh Bank (BB) also aims at capping private sector credit growth at 14 per cent by December this year against 15 per cent compared to last year. By and large, lowering private sector credit growth may sound right given the ailing financial health of some banks. But given the current business and investment climate, one could also question whether the private sector credit growth would be the BB's line.  An indirect indication of this follows from excess liquidity in banks and their attempts to lower deposit rate.
Another piece of good news is that the country's foreign exchange reserve (forex reserve) is reported to have hit a new high with record $22 billion. We are told that this is the first instance in the country's history. There are three main factors adducible to it: extraordinary rise in significant remittance flow, especially large pick-up in last July (roughly $1.5 billion), steady export growth and increase in corporate borrowing from foreign sources. It is also reported that the reserve might rise further with no payment pending with the Asian Clearing Union (ACU).
While the stock of reserves could be able to absorb any rise in imports induced by a pick-up in domestic investment, the bad news is that investment is sluggish due to poor investment climate. In fact, during almost the whole fiscal 2013-14, imports grew at about 10 per cent while exports rose at about 12 per cent. The reserve also poses another challenge. It is that monetary management would have to grapple with excess liquidity in the banking system. As it appears from newspaper reports, some banks have already begun to slash deposit rates on the heels of huge liquidity. It could be learnt that the central bank has already purchased about $800 million of foreign currency, and in the fiscal 2013/14, nearly $5.2 billion.
In this context of rising export earnings, one can hardly keep one's eyes closed to what have been happening with the RMG workers by whose sweat the sweet earnings pour into the foreign exchange plate. While the workers are fighting for their due dues, police and political cadres allegedly have swooped on them. The owner of the Tuba group, allegedly responsible for killing more than 100 RMG workers working in a factory that caught fire, is on bail to add further fuel to the fire. Any sensible person would expect an amicable settlement of the payments of dues to the Tuba group workers. It is in fact good news that RMG exports performed well despite a gloomy picture portrayed following the Rana Plaza incident. It was assumed that the image crisis in foreign countries would cost RMG exports heavily. It now appears that the workers and management could produce output at competitive prices to attract foreign buyers. More to say on good news, RMG exports are on way to find a niche in China - a country that alone absorbs nearly half of the total world output of textiles. There are many factories that are engaged in productive pursuits but there are some which embarked on creating crisis. To encourage exports, good performers should be rewarded and the bad ones punished. But unfortunately, as in other sectors and cases, the bad performers eke out a political mileage through various evil means. That needs to be stopped at any cost.  
Not unusually perhaps, Boro output is going to provide another boost to food grain production in the country. It may be mentioned here that of the total output, Boro alone accounts for more than half, thus indicating its importance to food security. However, although short of the target of about 36 million tonnes in 2013-14, the food grain output is reported to have increased to 35 million tones. In fact, the deficit is owed to less than expected production of Aus and Aman.  The rise in Boro output could be adduced to two important factors: First, the area of cultivation is outpacing the target to reach 4.8 million hectares, and second, the favourable weather condition. No less important are perhaps steady supply of electricity and availability of other inputs. The good news is that wholesale prices of coarse rice may go down further. But the problem lies elsewhere and it is that the growers, more often than not, are deprived of a fair price for their produce. The inefficient and corruption-ridden procurement drive allegedly drives out small peasants. The so-called syndicate of the owners of mills and chatals (space used for storing and drying)  allegedly rob farmers of their due rewards. While a lower price would undoubtedly be welcome from consumers' point view, that of the producers' interest should not be overlooked. The time has changed so much that even the sharecroppers expect a better price for their harvest with a rise in marketable surplus over time.
 The writer is a Professor                       of Economics at                     Jahangirnagar University.                  [email protected]