Economy: it's rough weather out there

The economy may enter a danger zone due to double-digit inflation, the government's excessive borrowing from banks and a dwindling foreign exchange reserve, a leading chamber warned yesterday.
Dhaka Chamber of Commerce and Industry (DCCI) said inflation that eased to 10.63 percent in December from 11.58 percent a month ago has caused stagnation in other indicators of the economy, threatening the target of 7 percent growth in the current fiscal year.
"High inflation may bring about disaster for the economy because Bangladesh is an import-dependent country. If inflation cannot be contained, achieving the targeted GDP growth will not be possible," said DCCI President Asif Ibrahim.
"Poor macro-economic management is responsible for the current economic instability," he said at a press meet at the chamber's office.
The DCCI organised the meet to inform the press of its activities for trade and business promotion.
"The main challenge for 2012 is not only to tackle financial mismanagement but also to boost investment in industries," said Ibrahim, "Inflation will only be contained if productive sectors receive investment at a faster rate."
The business leader shared the views about the economy, citing the government's excessive borrowing from the banking sector, and a continuous depreciation of the taka against the dollar due to import payment pressure.
A slowdown in exports, repeated hikes in the prices of fuel and electricity, a rise in the banks' lending rates and sluggish foreign investment have also emerged as drawbacks at a time when risks of political instability loom large.
"There is high risk of political instability in 2012," said Ibrahim, "But a stable political environment is necessary to attract investment and ensure economic growth."
The DCCI president said the amount of the government's borrowing stood at Tk 21,321 crore in the first five months of the current fiscal year, exceeding its target of Tk 18,957 crore for the entire year.
"If the trend continues, it will be impossible for banks to provide funds for entrepreneurs. It will also affect investment and job creation."
Rising bills for fuel and food imports have also put pressure on the foreign exchange reserve, which came down to $9.59 billion on January 3 from $11.23 billion on the same day a year ago.
The DCCI president said the existing reserve would only equal two months' import payments instead of three months' bills needed in line with an international standard.
"The economy will face a huge challenge if the reserve falls below the $9 billion mark," he said, noting the fall of the taka against the dollar.
The taka has lost around 18 percent in the last one year. A dollar sells at Tk 83.60 now, the DCCI said.
The import costs will rise further and thereby fuel inflation, said Ibrahim.
He also blamed the government for its contradictory fiscal and monetary policies.
"On the one hand expansionary fiscal policy has been taken, but the monetary policy is contractionary. It is important to see whether these contradictory policies will create problem in the overall economy," said the business leader.
Noting a rise in interest rate due to the withdrawal of the ceiling on lending rate by the central bank, he said, "Many investors have lost courage to borrow from banks due to the high interest rate."
To tackle the challenges, the DCCI asked the government to provide electricity and gas connections to the newly established industrial units to help accelerate exports.
The chamber also asked for steps to develop an integrated transport infrastructure by setting up double rail lines.
The chamber urged the government to strengthen capacities of the Bangladesh's missions abroad to explore new markets. At the same time, it also appealed for expediting efforts to remove non-tariff barriers to exploit the advantage of duty-free exports to India.
The government should allow India transhipment of goods instead of transit.
"It will be profitable for Bangladesh.”
Because in that case different types of duties could be realised, said Ibrahim.