A major independent review on Bangladesh economy rated the government’s achievements in financial sector high, but raised concern about increasing inflation as it poses a big threat to economic stability.
Researchers at the country’s leading think-tank Centre for Policy Dialogue (CPD) carried out the survey, bringing into accounts the status of all the major areas of the economy in the past one year.
The review especially focused on the fiscal targets for 2009-10, evaluated the achievements and identified major future challenges with recommendations for both short-term and long-term remedies.
Inflation can soon emerge as a major concern for Bangladesh as prices of staples like rice are increasing since October last year, says a study by Centre for Policy Dialogue (CPD). It also says that outlook for the global recovery in the next half of the fiscal year signals that prices are expected to go up on the international market. The private research arm suggested boosting farm output by supplying enough inputs during the upcoming Boro crop season and maintain the spread of prices at different level import price, wholesale price, retail price and farm level. “Inflation can be contained by ensuring higher agricultural production or the other way is by importing food which would increase the subsidy burden,” CPD executive director Mustafizur Rahman said on Monday. Briefing the media on the released report titled State of the Bangladesh Economy in FY 2009-10, he said that the robust remittance flow could also worsen the inflationary situation. But the central bank has done a good job in maintaining the exchange rate by controlling the supply of US dollars to the market, Rahman added. Inflation rate in the recent past has been tolerable, but since October there has been upward movements of prices, reads the report. The high growth in agricultural and industrial credit along with excess liquidity in the banking sector and high reserve of foreign currency could also adversely affect inflation, according to CPD. It, however, found “overall macroeconomic stability” at a time of global economic crisis. AGRICULTURE CPD cited highest production of rice and wheat in the country’s history as the major development thanks to the government’s timely input supply and subsidies. Trends of the global food price indicate that prices would see a hike in the coming time, according to Rahman. “The USDA Rice Outlook forecast a 3 percent fall in global rice production in 2009-10 while the FAO Rice Market Monitor also predicted a decline.” But, the most crucial issue would be balancing interests of farmers and consumers, says the study. It recommended reducing production cost by input subsidies and improved technologies as well as tuning the procurement price and policies. “Procurement for Boro may be fixed at Tk 15 per kg for paddy and Tk 25 per kg for rice with a procurement target of 15000 tonnes for a balanced situation,” the CPD executive director told the briefing. INDUSTRY The study finds investments in the sector did not match the resources available in 2009. “Term loan disbursement was 9 percent higher in the July to Sep quarter of 2009, but the disbursements in large scale industries registered a low growth, only 4 percent.” Credits to SMEs, however, grew by 35 percent. CPD says that the overall sluggish investment scenario has contributed to the excess liquidity situation. Substantial increase in credit facility for domestic-market oriented industries especially, the SMEs would be a good use of the extra liquidity, says the study. Meanwhile, low level of import of raw materials and capital machineries portrayed a low expansion of business in 2009. “Uncertainties in domestic market and sluggish demand in international market have dampened its demands,” said Rahman. He emphasised public sector reform and initiatives for sick industries to foster industrial growth. POWER Power and energy crises have become the “Achillies’ heel” for Bangladesh’s industrial development, according to the study. CPD commended initiatives to boost power generation and import power from India, but said the imported amount (100 MW) would not ease the situation. It also stressed a final decision on the National Coal Policy. EXPORT CPD finds export performance “quite resilient” in FY 2008-09 as it saw a 10.28 percent rise over the last fiscal year but said achieving the export target would be a tough job. RMG exports saw negative growth in the first quarter of the current fiscal year. “However, stock prices of major US RMG retailers reflect rising demand of RMG in US market,” Rahman told the media. He also expressed concerns over the falling purchase power for exports. Summing up the overall scenario, Rahman said though the report has not attempted to forecast the GDP growth rate, a growth rate of between 5.5 and 6 percent would be possible if the government addresses some of the challenges mentioned by CPD. “The major challenge for the government would be maintaining vigilance against potential inflationary pressure.” CPD recommends revitalising investments, stimulating the export sector, consolidating agriculture, maintaining fiscal balance, enhancing employment and combating climate change as the key issues for the government.
