| Dhaka, Nov 3: Forecasting a bleak outlook, the Centre for Policy Dialogue (CPD) says the economy is unlikely to absorb the shock of a second spell of global recession that has started to unfold of late, although it remained unscathed by the worldwide catastrophe in 2008 due to its strong fundamentals. In its report, “Bangladesh Macro Economic Performance in Fiscal 2011-12,” which was unveiled on Thursday, the CPD suggests raising fuel prices to reduce the huge amount of subsidy so that government borrowings from the banking sector can be decreased easing the inflationary pressure on economy.
Declining exports, low remittance from expat workers, least foreign aid, poor bureaucracy, corruption, meagre FDI (Foreign Direct Investment) inflow, non-productive ADP (Annual Development Programme) spending, rising inflation and weak fiscal management policy together impacted the country's economic strength, the CPD report points out.
While unveiling the report at CPD’s Dhanmondi office, distinguished fellow of the Centre, Debapriya Bhatacharya, said the high amount of subsidy for fuel had manifold increased government expenditure.
“Spending by borrowing always leaves pressure on inflation, which is maintaining a rising trend and there is no immediate sign of it abetting. The government must increase the prices of fuel to rationalise subsidy, and it should be equivalent to prices in India to prevent trafficking,” Bhattacharya said pointing out, “Currently, the difference in fuel prices between India and Bangladesh is Tk. 10.”
According to official statistics, the revised subsidy requirements for Bangladesh Petroleum Corporation (BPC) rose to Tk. 28,014 crore in FY 2011-12 from the actual target of Tk. 3,500 crore in June last. Total subsidy requirements in FY 2011-12, including that on fuel, stood at Tk. 47,385 crore vis-a-vis the June target of Tk. 20,477 crore.
The actual subsidy outgo increased to 29 per cent from 12.5 per cent of the current government budget.
Bhattacharya explained that improper government assessment had revised upwards the subsidy requirements.
He said the government should go for a hike in fuel prices after announcing it in advance to avoid the wrath of the opposition parties. Or, he said, the government might try to reach an all-party consensus on the issue.
“Simultaneously, the government should be prepared to deal with the resultant increase in commodity prices following a fuel price hike,” he said adding that food inflation in the country had reached a record high and that non-food inflation was inching up.
According to latest data, food inflation stood 13.75 per cent in September 2011 as against 9.72 per cent in the corresponding month last year.
According to Bhattacharya, the government should first recognise that the country's economy is slipping into a highly complex situation. He suggested that the government revise the development budget and try to mobilise foreign aid by initiating implementation of projects that had received commitments of foreign funds.
Simultaneously, the government should be aware of such terms and conditions for foreign funds that would ultimately obstruct the country's economy, he added.
Revisit and review of public finance programme needs to be resilient in order to identify priorities amid adverse developments in global economy, Bhattacharya said. The government may not achieve the GDP growth target this fiscal year due to external shocks and the structural problems of the economy, he pointed out.
The current foreign currency reserves are not sufficient to buttress the increasing demand for import and the balance of payments may worsen if the import target is not fixed accordingly, he said adding, volatility in foreign currency markets may create further pressure on the taka.
Turning to capital market issue, he said the capital market was being operated by a faulty policy which created mistrust among investors. He said the investors wanted implementation of the probe report on the recent stock market catastrophe, but the report was allegedly missing.
CPD executive director Prof Mustafizur Rahman said CPD usually came up with the report on macroeconomic performance in January.
“But we decided to give an early indication to the original state of economy as a set of stresses and strains emanating from different sources have become evident in it. Our report may help the government to move forward on the right track,” Prof Rahman added.
CPD’s head of research division, Dr Fahmida Khatun, senior research fellow Dr Khandaker Golam Moazzem and Syed Saifuddin Hossain were also present on the occasion.