DHAKA, JAN 5: The performance of the country’s economy, especially macroeconomic stability, in 2012-13 will depend on how political challenges are addressed in the coming days.
“Any political uncertainty may destabilise the country’s macroeconomic stability and will have serious impact on the performance of the economy,” said Dr Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue (CPD), on Saturday. He was addressing a press conference. The private think-tank -- the CPD -- called the press conference at its office in Dhaka to release its interim review of the country’s macroeconomic performance, "Analytical Review of Bangladesh Macroeconomic Performance in Fiscal Year 2013".
Describing the country’s overall macroeconomic scenario, the CPD fellow said major domestic and external indicators, which were under significant pressure in the last fiscal, appeared to have stabilised somewhat at a lower level.
But this stability could come under pressure if the downside risks are not addressed through enhancing domestic resource mobilisation, stimulating private sector investment, further improving public investment and raising quality of governance across all spheres of economic management.
But all these depend on political stability, said the CPD fellow, stressing the need for a consensus among major political forces on economic issues to lead the country towards economic emancipation.
Earlier, the CPD’s executive director, Prof. Mustafizur Rahman, presented the paper describing the country’s macroeconomic situation in the last fiscal and the recent developments, especially during the last five months of the current fiscal.
According to the paper, Bangladesh's economy passed through a difficult period in the last fiscal from the perspective of macroeconomic management. Weaknesses in macroeconomic situation were manifested by high inflation, stagnation in private investment and economic growth. “Indeed the lax macroeconomic management was greatly responsible for many of the economic woes, particularly during the first half of the last fiscal,” said the economist.
The country failed to attain the projected growth rate in the last fiscal, said Mustafiz, adding that the current trends indicate that the GDP target may not be accomplished this fiscal as well.
The paper also gave a brief description of the implementation of Sixth Five-Year Plan (SFYP) which made its halfway journey in the last fiscal. The macroeconomic performance was better in first year of the plan as most of the targets were achieved, but the achievement could not be continued in the second year. The poor performance in the second year (2011-12) is mainly attributed to a number of internal and external shocks. Weak fiscal and financial management and lack of good governance accentuated the problem.
Investment, as a share of the GDP, failed to accelerate in line with expectation in the second year of the SFYP. Private investment, as a share of the GDP, declined in 2011-12 to 19.1 per cent, from 19.5 per cent in the previous year. Revenue collection, however, proved to be a source of some comfort. But the revenue growth may once again witness a shortfall in the current fiscal (2012-13) as the current (July-Nov) trend indicates. In addition to the revenue shortfall, a significant rise in revenue expenditure will put further pressure on the fiscal balance.
The CPD also expressed its apprehension that the government might borrow more money from the banks at the end of the current fiscal, which they said might squeeze credit flow to the private sector and could have an adverse impact on investment.
External sectors, such as exports and remittance, showed some resilience in the current fiscal, but this upbeat mood might be changed because of the global economic meltdown. The first four months of the current fiscal observed a balance of payment surplus mainly because of high remittance and lower import growth. The low import of capital machinery, however, might have some adverse impact on investment
With the increase in prices of petroleum products, the BPC can reduce its loss by Tk. 2.9 billion every year. However, the government did not make clear the impact of price hike on farmers. Diesel subsidy to farmers needs to be increased to prevent the rising cost of agricultural production, including Boro paddy. “In the backdrop of falling rice prices, the government will need to allocate incentives to the paddy farmers to ensure food security in the country, said the CDP study.
The CPD expressed concern over siphoning off of money from the country and urged the government to strengthen the central bank’s supervisory activities. On an average, USD 1.4 billion is being drained out from the country every year, said Debapriya, adding that the highest amount was siphoned off in 2006-07 and 2010. “There is a close link between laundering of money and some sort of political clique,” said Debapriya, adding that this happens mostly in transitional periods.
Replying to a question regarding appointment of directors in public banks, he said there are neither any criteria nor any guidelines in this regard. “We still do not know who makes the appointment, is it the Banking Division, or the central bank or someone else...., asked Debapriya.
“In the early 1990s provisions were introduced to appoint qualified professionals in banks. There was a drastic change when political persons or persons blessed by political parties started being appointed,” said the CPD fellow.
“The situation reached to its climax during the present regime,” he added.
Directors are appointed to financial institutions on political considerations, he said, stressing the need for a change in the culture for betterment of the country’s financial institutions. “These responsibilities should lie with the central bank,” he added.
Regarding the Padma bridge scam, the CPD fellow said he feels that chances of funding by the World Bank has become thinner. “Government moves make it feebler….”
The CPD always prefers WB funding as there will be no cheaper and quality funding other than this one… “Now all depends on the WB experts panel report,” said Debapriya.