Govt’s economic performance
CPD terms current FY the weakestStaff Correspondent
The Centre for Policy Dialogue on Monday termed the current fiscal year as the weakest year of the incumbent government and warned that the coming fiscal could be more tough and disastrous in terms of economic performance.
The CPD made the observation in an analytical review of Bangladesh’s macro-economic performance in FY 2011-12 and commented that some dark clouds still hovered over the economy which would continue in the coming year.
‘There are a lot of internal crises in the economy including lax macro-economic management, weak fiscal management, stagnation in investment, slow implementation of annual development programme and scanty foreign aid disbursement,’ the CPD distinguished fellow Debapriya Bhattacharya said at a press briefing held at its office on Monday.
Although the economy has grown by 6.3 per cent, the analysis indicated that from economic perspective, fiscal year 2012 had been the weakest of the three years of the present government,’ Debapriya said while sharing the analytical review of the country’s macro-economic performance in fiscal 2011-12.
CPD executive director Mustafizur Rahman, head of research Fahmida Khatun, senior research fellow Khandaker Golam Moazzem, among others, were present at the briefing.
In its review, the country’s leading independent think-tank, said that a stagnating investment held back the economy from achieving higher levels of economic growth in the current fiscal year.
The government failed to achieve its targeted growth at seven per cent in FY 2012 mainly due to negative growth in agriculture, services and import duty sectors.
At the end of the year, GDP growth might slip below the original estimate of 6.3 per cent by the Bangladesh Bureau of Statistics because of a drop in the growth in manufacturing and services sectors.
The CPD attributed the reasons behind the poor performance of the outgoing fiscal to lack of coordination in project implementation, slower investment, unplanned subsidy and the government’s weakness in expenditure management in power sector planning and low utilisation of foreign aid.
The energy sector alone made the fiscal management weak in the outgoing fiscal year, the CPD report said.
‘Poor understanding about the implications of massive use of rental power plants not only created serious instability in fiscal, but also in tackling balance of payment (BoP) problems. It also defeated the purpose of the initiative of quick and steady power supply,’ the report stated.
‘If the rental power plants continue to operate in the coming fiscal, it will create additional problems like those of the outgoing fiscal year,’ Debapriya said.
According to CPD’s analysis, investment situation remained stagnant in the country with decrease in private and foreign direct investments and insignificant public investment which—both of which will also continue in the next fiscal year.
FDI remained stagnant over the last three years, Debapriya pointed out.
He said the investors became frustrated due to absence of infrastructure, shortage of power supply, lack of access to finance, inefficient government bureaucracy, policy instability, and complex foreign currency regulations and tax rates.
Invertors are also talking about corruption which ranked second in the CPD study among top problematic factors for investment, he added.
In the absence of fast investment from private sector and improved implementation of government investment plans, achieving the GDP growth in FY 2013 would remain a far cry.
Meanwhile, controlling the government’s borrowing demand would be the central bank’s one of the important preoccupations. It would be very important for Bangladesh Bank to create adequate space for the private sector’s access to credit to meet the investment demand, the report stated.
According to CPD the soaring revenue expenditures and mounting subsidy demand were the weakest side of the fiscal management in FY2012.
‘An increase of 32.5 per cent in expenditure against 18.1 per cent increase in revenue created a big problem in economy,’ Debepriya said.
Subsidy expenditure also increased by 69.8 per cent with failure in financing from non-bank sources and foreign aid which pushed the government to excessive borrowings from banking sectors, he said.
CPD blamed that the government kept the amount for subsidy lower for next fiscal year based on full fuel price adjustment expectation to fulfill the condition of international monetary fund.
Annual development programme implementation rate in July-April was only 55.4 per cent, the lowest in the tenure of the current government and aid utilization rate has been even lower at only 47.6 per cent.
An inflationary pressure continues as non-food inflation remains in the driving seat.
‘Indeed, adjustment of administered prices of petroleum products and electricity, depreciation of the Taka and increased cost of production made a mark on price level on non-food items,’ the report said.
If the government takes price adjustment in power and energy following IMF conditions, the inflation would increase further, Debapriya said.
The CPD advised the government to adopt a monetary policy that would facilitate credit to the private sector to achieve the targeted growth.
‘We don’t think that tightened monetary policy will reduce inflation rather it will deter obtaining 7 per cent GDP growth,’ Debpriya said.
‘There are some stability in the balance of payment but we are not sure how long it will sustain amid slow growth in exports and lower disbursement of foreign aid,’ he said.
The CPD said that restoring fiscal discipline would be one of the major challenges in the coming fiscal 2012-13 because lax macro-economic management has been greatly responsible for many of the recent economic woes.
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