Published in Daily Sun on Friday, 11 July 2014.
Gloomy prospect for achieving GDP target
Political turmoil, lack of capacity may hinder growth
Monirul Alam
Economists see a gloomy prospect for achieving the ambitious GDP growth target this fiscal amidst the fear of political unrest coupled with capacity shortfall in handling a large annual development programme (ADP) outlay, higher revenue target and smooth foreign aid mobilisation.
Analysts also observed that the country’s economy currently stands at a very sensitive point and taking appropriate policy measures has became very crucial to accelerate economic growth.
They said the challenges for the government ahead include improving the law and order, meeting shortcomings in the infrastructure outlay to facilitate local and foreign direct investment, creating a friendly credit-regime for industrial entrepreneurs, ensuring good governance in the financial sector, providing smooth gas and power supply to industrial units, meeting a higher revenue target, checking corruption in public spending and containing inflation.
The budgetary outlay for the current fiscal that began from July 1 has been set at Tk 2.5 trillion, including a Tk 863-billion ADP fund. The budget also carries a deficit of Tk 675 billion.
Former Bangladesh Bank (BB) Governor Dr Salehuddin sees a looming political uncertainty in the days to come and stressed the need for peaceful solutions to conflicts to ensure a smooth journey towards attaining the middle-income status for the country by 2030.
The former BB governor said though public investment has increased, it is not an alternative to private investment, which is crucial for accelerating economic growth.
He said political uproar last year battered the economy severely, which resulted in a low degree of confidence among the investors, leading to a slower growth in private-sector investment.
“An investor never wants to put his/her investment at risks when political uncertainty is still there,” Dr Ahmed said, underscoring the need for a consensus in the political class to put the country’s economic goal above everything else.
His also feared that the country’s economy is likely to be in jeopardy again by political upheaval apparently after the Eid al-Fitr as BNP chairperson Begum Khaleda Zia has already threatened to stage anti-government demonstrations to press for dialogue over holding, what she says, a free, fair and acceptable election.
Meanwhile, Dr Khondaker Golam Moazzem, additional research director of Centre for Policy Dialogue (CPD), identified some structural flaws in the public finance plans.
“We have talked before about public finance – the income and expenditure structure—which mainly depends on the speculative target of revenue collection. If the government fails to achieve the target, high borrowing from the banking system will become a necessary. It will fuel inflation,” Dr Moazzem said.
“Besides, the budget for fiscal 2014-15 also targets higher foreign aid mobilisation, which might not be possible unless the government improves its fund-utilisation capacity,” he said.
While evaluating the current state of the economy, executive director of South Asian Network for Economic Modelling Dr Salim Raihan said, “It is relatively stable as export-import, remittance inflow and investment are maintaining a upward trend, though in a slow pace. Such sluggish growth is not enough when the target of GDP growth is higher. Given the current state of economy, more emphasis needed on strengthening the key policy issues to facilitate investment and accelerate growth.”
The government in its budget for fiscal 2014-15, targets 7.3 percent growth in GDP.
“Higher GDP growth target needs the optimum utilisation of resources with appropriate policy measures to boost credit, investment, employment and production,” Dr Raihan said.
“GDP growth rate will remain stagnant at 5-6 percent unless anything disastrous happens to the economy,” he said.
Meanwhile, Asian Development Bank (ADB) in its Asian Development Outlook (ADO) 2014 projected lower GDP growth unless higher investment is made in the infrastructure sector.
For the fiscal 2013-14, ended on June 30 last, the global lending agency had forecast a downturn in GDP growth from 5.6 percent to 6.o percent in the previous fiscal (2012-13).
The ADB said the garment industry has been facing challenges in adopting tough compliance and safety standards coupled with a fall in remittance inflow and political unrest.
“Growth should improve in the following year (fiscal 2014-15) to 6.2 percent, but a major boost will come only with ramped up investment in infrastructure,” the ADO said.
It has argued that domestic demand was depressed in the first half of the year because the prolonged political unrest ahead of parliamentary elections in January 2014 dented consumer and investor confidence.
The ADO also forecasts that the current account balance will stand at a minus 0.5 percent at the end of fiscal 2013-14, ended on June 30 last, while the inflation would rise to 7.5 percent.
The country is maintaining a surplus in current account since the last fiscal despite a fall in inward remittance.
In February this year, the current account saw a surplus of $ 2.65 billion, which came down to $1.38 billion at the end of April, central bank data show.
The central bank said the surplus was the result of higher export income and a fall in petroleum import.
At the end of April, country’s trade deficit widened to $5.89 billion from $4.94 billion at end of March, according to Bangladesh Bank data.
Income from merchandise exports stood at $27.37 billion in 11 months during the July-May period of last fiscal against import bills of $30.21 billion in 10 months from July to April.
The central bank says the growth in export income has been measured at 12.56 percent against a 10.54-percent rise in import.
Private sector credit grew by 9.41 percent during the July-May period over the corresponding period of the previous fiscal.
Private sector credit experienced a lower growth at 8.89 percent during the same period in 2012-13 fiscal.
Business leaders have often been blaming banks of charging higher lending rates for the lower growth in credit to the private sector.
They also raised voice against a strict regulatory regime about loan classification and provisioning that imposed embargo on loan renewal and fresh disbursement on defaulters.
The point-to-point inflation increased slightly by 0.02 percent to 7.78 percent in May as the consumer price index (CPI) of some food items rose, data released by the Bangladesh Bureau of Statistics (BBS) show.
The BBS says food inflation in the rural areas rose to 8.72 per cent in May from 8.52 per cent in April last fiscal.
The non-food inflation also increased to 4.71 percent last month from 4.81 percent in the previous month.
Data show that inflation in urban areas came down by 0.04 percentage points to 7.92 percent in May this year while the rural inflation increased by 0.08 percentage points to 7.27 percent during the same period.
The non-food inflation, however, had fallen by 0.07 percentage points to 5.16 percent last month compared to 5.23 percent in April.
Finance Minister AMA Muhith has set a target of keeping the average inflation within 7.0 percent throughout the 2014 calendar year, as announced in the budget speech.
However, inflation has already soared up in the current month of Ramadan.
BBS is yet to come up with statements of inflation in June.
Meanwhile, the National Board of Revenue (NBR) is likely to miss the revenue collection target (Tk 1250 billion) set for the immediate-past fiscal.
The NBR authority had been saying that cut in tax at source on export earnings, sluggish business activities due to political impasse and income shortfall of banks together resulted in the lower growth in the revenue income.
The tax authority has so far collected Tk 1036 billion in revenue during the July-May period of the 2013-14 fiscal.
“Usually, the month of June alone brings a significant portion of revenues as it is the last month for revenue collection. And, we will be able to achieve the target,” NBR chairman Ghulam Hossain, however, said.
Meanwhile, the government has been criticised for the low ADP implementation rate, caused mostly by deficit in mobilising finance and lack of capacity.
The immediate past fiscal starts with a low status of ADP implementation while at the end of June (2014), the status has jumped to an abnormal 91 percent.
The government has spent Tk 549 billion, out of total (revised) Tk 659 billion of the ADP outlay, data released by the planning ministry show.
Finance Minister AMA Muhith often has been saying that the government could not utilize foreign aid as much as it had availed mainly due to capacity shortfall.
The government’s deficit-financing plans include borrowing Tk 242 billion from foreign sources and Tk 432 billion from the domestic sources, which includes Tk 312 billion from banks with the remaining from sales of savings certificates, bonds and other non-bank sources.