MCCI stresses liberal access to credit
Metropolitan Chamber of Commerce and Industry (MCCI) recommended yesterday a liberal access to low-cost credit for small and medium scale industries, agriculture and rural non-farm sectors.
The liberal access to low-cost credit as part of monetary policy will soften the impacts of the global financial crisis on the country's economic growth, the chamber said.
“Monetary policy can play an important role in softening the impacts of the global economic crisis,” the MCCI said in its latest publication, Review of Economic Situation: January-March 2009, released yesterday.
It said the main challenge to monetary policy will be to enhance confidence in the economy so as to effect a sustained reduction in interest rates. “Purely national self-interest should be the prime consideration in the policymaking process, particularly in the conduct of monetary policy.”
“The falling inflationary pressure in the economy now provides the government with enough policy space for adopting an effective monetary policy, which has become an essential tool in the hands of policymakers,” MCCI said.
The chamber said falling domestic demand weakened farm prices and consequently farm income. A substantial slowdown in the export sector caused a decline in private investment and private consumption.
Most of the major economic indicators depicted signs of weakness during the January-March quarter. Export growth slowed down, and domestic demand, both in terms of private consumption and investment spending, also weakened considerably, the chamber said.
The slowdown of private consumption is reflected in the decline in the growth of government's VAT collection, which grew by just 10.1 percent in the third quarter, compared to the 30.5 percent growth in the same quarter last year, it said.
Private investment fell remarkably as indicated by lower investment in machinery as well as the reduced imports of capital goods.
The chamber said imports of industrial raw materials contracted by 1.4 percent in January-March period as against 51.8 percent expansion in the period of previous year. The declining trend in investment in the quarter was in line with weak business sentiment caused by the decline in both domestic and external demand.
The agriculture sector growth decelerated due to lower crop prices. In the industrial sector, particularly in the export-oriented manufacturing industries, production declined.
On the fiscal side, the MCCI said, government's revenue collection increased by a mere 10.4 percent in Q3 of FY09 compared to 24.1 percent in the same quarter of the previous FY.
“The weak revenue performance was the result of negative growth of customs duties and the slowdown in tax revenues from VAT and other taxes. Revenues from travel tax also declined during this period.”
The negative export growth witnessed in the second quarter of the fiscal year was reversed in the third quarter, but the nominal 6 percent growth achieved in this quarter was very low compared to the 30.3 percent growth achieved in the same quarter last fiscal year.
Despite the sharp decline in exports, a contraction of import payments caused the trade balance in the Q3 to register a lower deficit. The current account balance showed a sizeable surplus, thanks to a larger amount of remittance transfer, MCCI said.
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