They also opposed the central bank's move on IMF prescription to raise the already high bank interest rates, saying an attempt to control credit to the private sector through such an artificial way would not bring any positive result for the economy.

During a pre-budget meeting with Finance and Planning Minister M Saifur Rahman at his secretariat office, they also suggested prioritising and undertaking projects under the Annual Development Programme on the basis of needs.

In response, meeting sources said, Saifur told the economists the government did not send any instruction to the banks to increase interest rates. "Bangladesh Bank is an autonomous institution and it took the decision independently," he was quoted by a source as saying.

"I am always against increasing interest rates," he declared in the meeting.

He also urged the economists to create pressures on the politicians so that they do not press the finance ministry to expand budget expenditures ahead of the parliamentary elections.

Participants at the meeting also observed that the Anti-Corruption Commission (ACC) has been failing to carry out its mandate and asked the government to make it functional.

Talking to newsmen after the meeting, eminent economist Dr Wahiduddin Mahmud said the private sector is becoming more and more dynamic day by day. "Money supply has also increased remarkably," he said, adding, in this context it is important to think out how inflation can be contained.

Mahmud said the recent suggestion of multilateral donor agencies to scale up interest rates "is not the only solution." Rather, he noted, "it will be improper to check monetary system in such an artificial way."

"The same task [of containing inflation] can be done by curtailing the development budget and dropping large, unproductive projects," Mahmud suggested.

He observed, "We have seen that the last two elected governments increased their development expenditures during the fag end of their tenures. This trend hampers macroeconomic stability." Such increments create room for corruption and misuse of funds, he added.

The eminent economist supported some sort of devaluation of the local currency against dollar to facilitate a smooth growth of the private sector. "It would be a blessing in disguise," he said.

During the meeting, former finance minister M Saiduzzaman said though the central bank should enjoy full autonomy in fixing monetary policies, the process must be accountable.

Referring to the recommendations of Expenditure Review Commission submitted to the government long ago, former adviser to caretaker government M Hafiz Uddin Khan said they are totally in the dark about the government's stand on those. He said, "We don't know which of those have been implemented and which have not."

Former cabinet secretary M Mujibul Haq emphasised good governance and checking corruption, saying, "No policy will be effective if we fail to arrest corruption and if lack of good governance lingers on in the country." There might be difference over the report of Transparency International Bangladesh (TIB) on corruption, he said, but there is no way of ignoring the fact of unabated corruption in the country.

Centre for Policy Dialogue (CPD) Executive Director Dr Debapriya Bhattacharya said discussants at the meeting stressed transparency of government expenditure, arresting corruption and improving governance.

Bhattacharya said currently the exchange rate of taka is under the influence of ballooning imports including those of capital machinery, fertiliser and petroleum. "If investment increases, inflation will be contained and we will also be able to control the balance of payment problems," he added.

Former Revenue Commission chairman Mir Mustafizur Rahman expressed the opinion that there should be no zero-tariff on any import item.

Bangladesh Economic Association President Dr Kazi Kholikuzzaman, former adviser to caretaker government Maj Gen (Retd) Moinul Hossain, former secretary Dr Moshiur Rahman were also present at the meeting, while Finance Secretary Zakir Ahmed Khan and NBR Chairman Khairuzzman Chowdhury aided the finance minister.

MOVE TO HIKE INTEREST RATES
Economists said the central bank's move to discourage private sector borrowing by raising the bank interest rates may result in a revenue shortfall and have negative impacts on the country's GDP, employment and investment.

Bangladesh Bank (BB) recently advised all the banks to increase interest rates on the ground that an upward credit trend has been putting huge pressures on the foreign exchange reserve and stoking up inflation.

The country's business leaders denounced the move instantly, terming it a completely wrong strategy. Economists and bankers, even officials at the BB, share the same opinion. They said, instead of dissuading, the central bank rather should encourage private sector borrowing by scaling down the interest rates.

"This is a wrong move. The hike in inflation rate was not triggered by the credit trend but by the price hike of commodities," noted a BB official.

Only two years ago, the BB pushed the banks to cut down their interest rates. After reduction, the interest rates on deposit stood between 3.5 and 9 percent and on borrowing between 8 and 14 percent.

In contrast, the maximum interest on borrowing in any western country is just 5 percent. Even in neighbouring India and Pakistan, the rates are half of those in Bangladesh.

According to BB statistics, fresh borrowing by the private sector from July 04 to February last was Tk 10,711 crore, marking an 11.32 percent growth. The amount was Tk 4,920 crore in the corresponding period of the previous fiscal year with a growth of 5.94 percent. The BB termed the credit growth 'excessive' and related it to diminished liquidity in banks and also the upward trend in inflation.

From Tk 11,754 crore in June last year, the bank liquidity came down to Tk 9,281 crore in February. And the average inflation rate that had reached 6.21 percent in October last year gradually came down to 6.12 percent in February.

Side by side, high import pressure pushed up the trade deficit by 68 percent in the first seven months of the current fiscal year. In January the deficit stood at $157 crore.

On the issue, Bangladesh Institute of Development Studies (BIDS) Research Director Zaid Bakht remarked, "It's incorrect to assume that inflation will go down if money supply is reduced. The on-going inflation is actually caused by a higher price level of commodities."

He said, "May be both IMF and Bangladesh Bank believe that since the election year is ahead, the government may not be able to cut down its expenditures. So they want to control private sector borrowing as an alternative and to ensure some sort of fiscal discipline."

A BB high official bears out the speculation informing that the central bank has recently advised the government to control unnecessary expenditures. He however said the BB move for interest rate hike was meant for commercial and unproductive lending only, not for export or industrial credits.

But, pointing out that the major bulk of private borrowing goes to productive sectors and only a small portion represents consumption, Bakht said, "In such a context, if the government squeezes credit, the central bank will not achieve its express goal."

Rather, he predicted, "we will have revenue shortfall and face budget deficit."