Inflation is the biggest challenge: Muhith

The minister says economy volatile, but no signs of a crash

19 January 2012, 18:00 PM

Star Business Report

From left, Latifur Rahman, former president of Metropolitan Chamber of Commerce and Industry (MCCI); Anis Ud Dowla, former MCCI president; Mohammad Tareque, finance secretary; AMA Muhith, finance minister; Amjad Khan Chowdhury, MCCI president; Farooq Ahmed, MCCI secretary general, attend a discussion on the country's current economic situation, organised by the chamber, in Dhaka yesterday. Photo: MCCI

Finance Minister AMA Muhith yesterday said arresting inflation is the biggest problem for the government as a volatile economic situation is prevailing in the country. The minister agreed that the economy is going through volatility, but said there were no signs that it was heading for a crash. The budget deficit in the current fiscal year might not be contained to 5 percent of the gross domestic product due to the volatile economic situation, he said. According to Muhith, the budget deficit should be cut to rein in soaring inflation. The minister said the amount of subsidy will be higher this year, although the projected subsidy in the budget was 2.3 percent of GDP. He said the government will reduce subsidy gradually as the measure might cut pressure on inflation. Muhith spoke to a group of businessmen at a discussion on the current economic situation of the country, organised by the Metropolitan Chamber of Commerce and Industry (MCCI) at its office in Dhaka. The budget deficit was projected at Tk 45,000 crore this year, but the government is not sure whether it will be within the limit as expenditure is increasing for different reasons, the minister said. Of the total amount of the deficit money, Tk 27,000 crore was supposed to be supplied from the domestic sources and Tk 17,000 crore from foreign aid. “But this year there are some problems with foreign aid. The condition of foreign aid receipt is very bad this year,” the minister said. The major reasons behind less receipt of foreign aid are some traditional habits in project implementation such as taking development projects without feasibility study, complexities in appointing project directors and manpower shortage, Muhith said. He said it is better to reduce subsidy to cut budget deficit. Traditionally, the government spends 20 percent of foreign aid, but this time, it is difficult to spend as much, Muhith said. There are about $13 billion foreign aid in the pipeline. Criticising politicians for their recent comments on the economy, Muhith said their comments are spreading panic. He advised them to be more restrained while commenting on the economy. On the stockmarket, the minister said: "The government's position is clear. There is a regulatory body that will look after the market." The minister criticised the perception that the government is being dictated by the International Monetary Fund and World Bank. “No matter if there is pressure from the IMF or World Bank, people will talk about it.” In fiscal 2009-10, both the IMF and WB wanted to give loans to Bangladesh, but it was not needed then as there was no pressure on balance of payments (BoP), Muhith said. Then in 2011 the IMF and WB came up with the extended credit facility (ECF) idea and now it is needed as there is a pressure on the BoP, the minister said. Bangladesh is now negotiating with the IMF to get $1 billion ECF fund to meet the growing negative BoP. The minister said the price of electricity would have been cheaper if the dependency on furnace oil and petroleum products could be shifted to coal. Some big coal plants will go into operation from 2014 which will reduce pressure on furnace oil-based electricity generation, he said. Finance Secretary Mohammad Tareq said India and China would be the biggest challenge for Bangladesh. He said domestic loan is important for fiscal management. It is not important from which sources the loan is received. The loan received through selling savings certificates also means borrowing from the banking sector, he said. Former MCCI president Anis Ud Dowla urged the government to relax the rules of holding 2 percent shares by directors of any company. He also suggested the government increase the number of primary dealer banks and financial institutions. Rokia Afzal Rahman, a former adviser to a caretaker government, said investment in different sectors is in trouble due to the gas and power crises. MCCI President Amjad Khan Chowdhury said it has become difficult to do business in such an economic situation. Former MCCI president Latifur Rahman, Chief Executive Officer of Green Delta Insurance Nasir A Chowdhury and Managing Director of National Housing Finance and Investments Ltd Md Abdur Rob were also present.