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Think-tank suggests steps to contain inflation

March 05, 2018 00:00:00

Bangladesh has hit an enormous current account deficit, highest in a decade.

Unnayan Onneshan (UO), an independent think-tank, said this on Sunday attributing this current account deficit to huge increase in import payment together with low export growth amid no possibility of revival of the generalised system of preferences (GSP), reports UNB.

In its monthly publication of the 'Bangladesh Economic Update' for February 2018, the think-tank also feared that the recent hike in oil price and high import of consumer goods are likely to result in an upsurge of food inflation, adversely affecting the standard of living of the low-income people.

Taking the rising trend in inflation and recent upsurge in oil price into consideration, it projected that food inflation is likely to hit 8.34 per cent at the end of the current fiscal year in the absence of immediate price stabilisation measures.

Such increase in prices in the commodity market coupled with reduced production of food grains, decline in real wage, and lack of employment opportunities is likely to adversely affect people's standard of living and threaten overall food security in the country, comments the research organisation.

Calling for the expansion of country's productive capacities that enhance utilisation of available resources through efficient entrepreneurial capabilities and increased production linkages, it recommends adoption of measures to stabilise price in the short run and strategies to foster employment augmenting growth in the long run.

Referring to the monumental increase in opening and settlement of Letter of Credits (L/Cs) for consumer goods and consequential price hike in recent time, the think-tank pointed out that during the period of July-December 2017, fresh opening and settlement of L/Cs increased by 56.35 per cent and 60.47 per cent respectively compared to the July-December 2016.

Twelve-month average food and general inflation stood at 7.17 per cent and 5.70 per cent respectively in December 2017 compared to 4.51 per cent and 5.52 per cent respectively in December 2016. On point-to-point basis, food and general inflation increased from 5.38 per cent and 5.03 per cent in December 2016 to 7.13 per cent and 5.83 per cent respectively in December 2017.

Compared to the target of export earnings of USD 21,373 million for July-January 2017-18, the actual earnings fell short by USD 48.13 million, signalling the failure in achieving export target at the end of the fiscal year. In addition, a declining trend in cumulative export growth has been observed since the beginning of the current fiscal year, posing challenges to external balance.

Since the suspension of generalised system of preferences (GSP) facility for Bangladesh in June 2013 by the US, which is the country's single largest export destination, export growth considerably declined from 11.69 per cent in FY 2013-14 to 3.39 per cent in FY 2014-15. Despite the increase to 9.77 per cent in FY 2015-16, export growth plunged to 1.72 per cent in FY 2016-17. Failure to restore the GSP facility may further hinder the country's export, fears the research organisation.

With the rise in import payables along with shortfall in the primary income and income from the services, the current account balance exhibits a deficit of USD 4767 million during July-December of 2017 compared to a deficit of only USD 543 million during the corresponding period of 2016.

As a consequence, the total balance of payment undergoes a deficit of USD 354 million in July-December of FY 2017-18 compared to a surplus of USD 2265 million in July-December of FY 2016-17.

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