New FY begins with nosediving economic indicatorsJasim Uddin
The financial year 2012–2013 begins today with all indicators of macro-economy nosediving in the just concluded financial year because of the below par performance of the government.
Economists said that the government would need to face some major challenges in the new financial year in maintaining macro-economic stability such as curbing high inflation, maintaining GDP growth, financing budget deficit, containing bank borrowing, ensuring credit flow to the private sector, managing subsidy and ensuring political stability.
All the indicators turned worse in the just concluded 2011–2012 financial year.
The economists said that external factors such as economic crisis in Europe and slow market in the United States would major factors for Bangladesh’s export in the new financial year.
The gradual decline in fuel oil prices on the international market and decline in import of essential food items such as rice because of a bumper production in the country might give the government some relief.
The budget for the 2012-2013 financial year year will be implemented from today. The parliament passed the budget on on Wednesday.
Although the Tk 1,91,738 crore budget with a deficit of Tk 52,068 crore aims at containing the inflation within 7.5 per cent, economists feared that the inflation which was 9.15 per cent in May might not come down to the level targeted in the budget.
The government projected to take Tk 23,000 crore from banking system again after it had virtually emptied the banks in the just concluded year taking more than Tk 20,000 crore.
The GDP growth rate in the new financial year has been projected at 7.2 per cent although the country achieved only 6.32 per cent growth in the just concluded financial year against 6.7 per cent growth in the 2009– 2010 financial year.
It set a target to contain inflation at 7.5 per cent in the new financial year. The average inflation in the 2011–2012 financial year was around 10 per cent from around 8 per cent in the 2009–2010 financial year.
‘Curbing high inflation and maintaining gross domestic product growth momentum at the targeted rate will be major challenges for the government in the new financial year,’ the Centre for Policy Dialogue executive director, Mustafizur Rahman, told New Age on Saturday.
Non-food inflation still remains a major policy concern although the overall inflation marks a downward trend, the Bangladesh Bureau of Statistics observed.
Decline in fuel prices on the international market along with remittance and agricultural production being in a better shape may come as good news for the government in fighting inflation and in subsidy management but high prices of non-food items, price increase of fertiliser and other essential goods may frustrate the hopes, the CPD chief said.
The government may increase prices of fuel and power to handle the huge subsidy pressure which might increase the inflation further, he said.
Zaid Bakht, research director at the Bangladesh Institute of Development Studies, also termed inflation, deficit financing, power shortage and investment and political uncertainty major challenges for the government. Political outlook will be bad in the coming months, he said.
‘I do not think that inflation would ease soon the goods prices on the international market are high. If the global recession eases in the coming months, prices may increase further,’ he said.
Mustafizur said that confrontational politics instead of compromise might make the budget implementation impossible for the government. So the government needs to ensue that political situation is cooperation and stable.
Increasing investments to 29 per cent of the GDP will be another challenge for the government as it projected 16 per cent public and 23 per cent private investments in the year to achieve the GDP growth, he said.
Mustafizur said that the government needed to ensure the implementation of its plan to increase sales of savings certificates, in which the government failed in the outgoing financial year, to ensure credit flow to the private sector.
In deficit financing, use of foreign aid and loan will be important as in the 2011–12 financial year, the situation was not satisfactory, he added.
Zaid said that the World Bank’s cancelling of the Padma Bridge funding might create an adverse impact on foreign aid disbursement, resulting in a wide gap in the financing of budget deficit, pressure in balance of payment, containing inflation and other macroeconomic indicators.
Lower foreign aid disbursement will also put the balance of payment under pressure, he said.
Economists said that the balance of payment was also not in a good position because of a decline in export earnings and because of the government’s import of fuel oil to run rental power plants.
Trade deficit has widened at a staggering rate in the past few months. The deficit during July–April of the the 2011–12 financial increased by 9.87 per cent and reached $7.34 billion against $6.68 billion in the same months of the previous financial year.
Depreciation of the taka against the dollar made importable goods expensive.
In the just concluded financial year, the taka depreciated by 10 per cent and any negative impact on export earning might cause further volatility in the foreign exchange market.
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