CPD warns of economic risks
The Centre for Policy Dialogue yesterday advised the government to immediately take up action plans to manage ongoing economic concerns, which could otherwise aggravate deteriorating global and domestic situations.
The CPD suggestions include rationalisation of subsidies, an upward adjustment of fuel and electricity prices, better utilisation of foreign aid, containment of inflation and bank borrowing, and efficient public spending to deal with the growing risks evident in the economy since the second half of the last fiscal year.
The think-tank said this in its half-yearly economic review, usually released in January. Justifying the early release of the review, the CPD said it wanted to give the government a heads up over a stressed economy.
Dr Debapriya Bhattacharya, distinguished fellow of the CPD, read out the report while its Executive Director Prof Mustafizur Rahman delivered the welcome address.
The report analysed four critical issues, implications of the new wave of the global economic crisis, deepening stresses in public finance management, unabated price inflation and increasing pressure on the balance of payments, to highlight the major challenges facing the economy.
“The first and foremost message is the government has to take into cognisance the fact that the economy has entered a difficult period from the perspective of economic management,” said Debapriya.
“A denial syndrome will not help,” he said.
The CPD review report said the global economy was facing setbacks, including rising unemployment in the US, government debt crisis in Europe and downgrade of ratings of some countries that is signalling a sense of “double-dip” recession. Tsunami and earthquake in Japan also aggravated the situation.
Quoting the latest forecasts, the report said the US and the EU were expected to grow less in 2012 than they did in 2011 due to uneven recovery of output.
Global trade, which had expanded by 12 percent in 2010, is expected to fall to 7.6 percent in 2011 and a further 7.1 percent in 2012. A rising inflationary trend is also posing a great threat to the process of economic recovery, the CPD said.
The South Asian economy is projected to grow at 7.2 percent in 2012, mainly due to the robust growth of India. The other nations in the region are not in a good position to boost their growth prospects, said the CPD.
“It seems difficult for Bangladesh to attain seven percent growth rate this fiscal year,” said Debapriya. Earlier, the World Bank and the International Monetary Fund also forecast smaller growth than the government's target.
“It'll be difficult for Bangladesh to come up with response mechanisms as they did in 2008 due to weakened macroeconomic fundamentals including surging non-development expenditures, pressure on balance of payments and inflation,” said the CPD report.
Poor disbursement of foreign aid, heavy bank borrowing, depressing non-tax revenue collection, rising revenue expenditure, a surge in subsidy demand, higher interest payments and weak implementation of development programmes are deepening the public finance management, the report said.
Share of subsidy expenditures may increase to 29 percent or Tk 47,385 crore instead of 12.5 percent or Tk 20,477 crore of the revenue expenditure projected in the budget. Bulk of this subsidy is for Bangladesh Petroleum Corporation to pump up quick rental power plants.
“This (subsidy) is not sustainable. The government is left with no other policy choice but to adjust fuel and power prices in a phased manner,” said Debapriya.
He advised the government to hike fuel prices by at least Tk 10 a litre to make it at par with Indian prices.
On inflation, which has been on the rise since July 2009, the CPD report said the government can help contain the price rise by not borrowing heavily. The central bank has hardly anything in its hand to check inflation as it has hiked cash reserve requirement and statutory liquidity ratio.
The report found that the extraordinary export growth (41 percent) of last year is slowing down this year due to the deteriorating economic conditions in the US and the EU, two markets that consume Bangladesh's 75 percent exports.
“Exports to the US decreased in the first quarter of 2011-12. Knitwear export to the EU has also dropped,” Debapriya said forecasting a gloomy picture of the months ahead.
Though import growth would slowdown, fuel import will keep on rising, he noted. A decline in remittance inflow and pressure on exchange rate are also threatening the economy, said the CPD distinguished fellow.
“Balance of payments is expected to remain under pressure and the Taka may witness further depreciation in the coming months,” he said.
Analysing all the concerns, the CPD advised the government to take immediate action plan to tackle the looming crisis.
“A response plan should be prepared beforehand in case a second dip takes place,” said Debapriya.
The CPD report also covered the capital market situation and plans to allow new bank licence out of the box.
“The government is trying to stabilise the market on wrong policies,” said Debapriya. On new banks, he said the CPD does not think new banks are necessary; if licences are given, there should not be any concession of rules.
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