More austerity needed to rein in inflation: Speakers tell ICAB discussion

The government should adopt more austerity measures to rein in inflation and keep the macroeconomy stable since the global economic crisis derived from the Russia-Ukraine war and supply chain woes will not be resolved anytime soon, speakers said yesterday. 

They also suggested both the government and the Bangladesh Bank take initiatives to cut import payments to avert the balance of payments crisis.

The Institute of Chartered Accountants of Bangladesh (ICAB) organised the discussion on the monetary policy for the current fiscal year and existing economic issues at its office in the capital.

Selim Raihan, executive director of the South Asian Network on Economic Modeling, said the government was providing subsidies on petroleum products in order to give a respite to the common people.

"But the subsidy is coming from the pockets of the ordinary people, so the government should take more austerity measures."

This is because the ongoing global crisis derived from the war and the coronavirus pandemic will not end anytime soon, he said.

"So, the government should take effective measures to tackle instability."

According to the economist, some borrowers are facing challenges in securing loans from banks due to the 9-per cent lending interest rate cap, whereas the influential ones can access credits easily.

Raihan recommended the central bank address the default loan issue in the banking system to bring down the interest rate on loans.

Prof M Shamsul Alam, state minister for planning, said that the country was going through a challenging time owing to the instability in the global market.

"Inflation has gone up because of higher import payments, but there is no need to panic."

He stated that the central bank had already taken various measures, including imposing a 100 per cent margin on the import of non-essential and luxurious items, to curb imports.

"These initiatives would reduce imports."

The state minister claimed that banks used to set interest rates through meeting among themselves but this contradicted the free market economy.

"So, the government has imposed the cap to protect the interest of the commoners."

Md Shahadat Hossain, president of the ICAB, said the hiking of the central bank's policy rate by 50 basis points to 5.50 per cent in the monetary policy would have an adverse impact on the credit flow to the private sector.

"Both production and employment generation may face an impediment," he said, adding that the standard of living will be under stress owing to higher inflation.

NKA Mobin, a vice-president of the association, said that although the central bank's monetary policy had emphasised ensuring economic development, it had set a lower private sector credit growth.

The private sector credit growth goal has been set at 14.1 percent for the current fiscal year in contrast to 14.8 percent the year before.

"The lower target of the credit growth will create an additional pressure on the banking sector," Mobin said.

Muhammad Abdul Mazid, a former chairman of the National Board of Revenue, Ferdaus Ara Begum, chief executive officer of the Business Initiative Leading Development, Mahmuda Akter, executive president of the Bangladesh Institute of Capital Market, and Fouzia Haque, another vice-president of the ICAB, also spoke.