Press reports on the Media Briefing on “Bangladesh Economy in FY2014: Three Months after the Budget, Three Months before the Elections,” at CPD Office, on Tuesday, 22 October 2013.
Published in The Daily Star
Violent Electroal Transition
CPD worried about economy
Staff Correspondent
The Centre for Policy Dialogue (CPD) yesterday asked politicians to protect the economy from the negative impacts of an electoral transition.
“No economic activities and livelihood concerns, however large or small, should be held hostage to our unique democratic practices,” the civil society think tank said in a media briefing while releasing its independent review report on the economic updates at its Dhaka office.
The report is titled “Bangladesh economy in FY 2014: Three months after the budget, three months before the elections”, a subject on which Dr Debapriya Bhattacharya, a distinguished CPD fellow who led the team that prepared the report, made a presentation.
The report was based on three broad issues – year closing figures of the economy and the starting benchmarks of the new fiscal year, movements of key economic indicators of the first quarter of 2013-14 and analysis of the political business cycle to understand its impact on macroeconomic prospects.
Bangladesh generally goes through a tumultuous time during every election year. Ruling and opposition parties take an antagonistic stand to realise their demands, causing sufferings to the masses and hurting the economy. The upcoming election is no exception and the country has already witnessed a lot of strikes and acts of vandalism, which have forced the business community to take a wait-and-see approach before making any new investments.
“Working out this package of economic safeguards is, in our view, no less important than generating a consensus on electoral modalities,” said the CPD in its report.
Bhattacharya said with apparent regret that the chiefs of the two top political parties love to proclaim that they keep apparel sector out of political strikes, but they do not do the same for other sectors.
“What is wrong with a day labourer or a small retailer who suffers the most during a strike?” he questioned.
On the political business cycle (PBC), the report said the governments in low-income countries like Bangladesh tend to increase consumption expenditures during election years, while investments remain unchanged. The overall fiscal deficit ratio increases by about 1 percentage point of GDP during an election year. Revenue collection falls but rises after the election.
CPD’s analysis, which found the impacts of PBC in the Bangladesh economy, said the country’s real GDP growth slowed down by 0.67 percentage point in this election year. Public investment and tax revenue also went down by 0.21 and 0.16 percentage point respectively, while revenue expenditure increased by 0.17 percentage point in this election year.
Responding to a query on the recent rise in import of capital machinery, Prof Mustafizur Rahman, executive director of CPD, said more capital moves out of Bangladesh during an election year.
“But it needs to be examined whether importers of capital machineries are taking capital out by over-invoicing or not,” he said.
Published in The Daily Star Business
Cut budgetary targets: CPD
The think-tank urges govt to discount weak growth prospects
Star Business Report
Debapriya Bhattacharya, distinguished fellow of Centre for Policy Dialogue, speaks at a programme at the CPD office in Dhaka yesterday. Second from right, Mustafizur Rahman, executive director, also spoke. Photo:Star
The Centre for Policy Dialogue (CPD) yesterday called for this year’s budgetary targets to be downsized given the weakening of certain key macroeconomic fundamentals.
“It appears that the relative stagnation in economic activities observed in fiscal 2012-13 may continue in this fiscal year as well,” the private think-tank said in its report titled, “Bangladesh economy in FY 2014: Three months after the budget, three months before the elections”.
The need to readjust the fiscal parameters will be no less an important task, along with maintaining fiscal discipline in fiscal 2013-14, it added.
“There is little indication that investment demand has picked up in the early months of the ongoing fiscal year.”
Private sector credit growth is “stagnating” at 11.3 percent as of August 2013 – much lower than the target of 16.5 percent (for end of June 2014).
Performance of the banking sector has been deteriorating, with the industry’s non-performing loans rising to nearly 12 percent on June 2013 from 7.2 percent a year ago.
State-owned commercial banks are facing severe capital shortage, as well.
“Despite having over Tk 80,000 crore of excess liquidity in the banking sector, lending rates and spread do not decrease,” said Debapriya Bhattacharya, distinguished fellow of CPD.
The private think-tank said the growth in revenue collection between the July-August period of the fiscal year stood at 16.2 percent, which is well below the annual target of 25.3 percent. “Large Taxpayer unit has also missed its first quarter targets for income tax and VAT collection.”
Import duties have seen negative growth of -1.5 percent in August, indicating continued depression in the import situation. It found the planned expansion of total public expenditure in fiscal 2013-14 to be “rather ambitious”: 27.7 percent growth target is envisaged over actual expenditure is fiscal 2012-13, when the actual growth of expenditure last fiscal year was 14.3 percent over actual expenditure in fiscal 2011-12.
Taking into account the first two months’ progress, CPD predicts the allocation for annual development programme (ADP) would not be fully utilised.
The government’s borrowing from bank and non-bank sources have shot up in the July-August period of the year, while net foreign aid disbursement was negative in July. “Government’s reliance on banks for funds will increase this year,” said Bhattacharya.
Seeing inflation moved up 0.6 percentage points to 7.4 percent in September 2013 from June 2013, the think-tank tipped it to overshoot the government’s target of 6-6.5 percent for fiscal 2013-14 and go up to 7 percent.
CPD identified critical infrastructure bottlenecks as well, and the economy would not be able to utilise its full potential without resolving them.
Still, there are some strong areas in the economy: export growth, foreign investment and the balance of payment situation are on a favourable condition. “To summarise, the economy has both upside opportunities and downside risks in a period of democratic transition,” the report said. “The incumbent policymakers would need to redefine the fiscal goal posts, promote credit expansion in private sector, maintain support to the crop sector and contain potential inflationary pressure.”
Mustafizur Rahman, executive director of CPD, also spoke on the occasion.
Published in The Financial Express
Early trends suggest GDP growth to take a hit: CPD
Centre for Policy Dialogue (CPD) Distinguished Fellow Dr. Debapriya Bhattacharya speaking at a media briefing on a study report titled “Bangladesh Economy in FY 2014: Three months after the budget and three months before the election” in the city Tuesday.
FE Report
The Centre for Policy Dialogue (CPD) said Tuesday dull private investment, low revenue generation and slow development project implementation would finally hamper the election year gross domestic product (GDP) growth.
The CPD made the election year economic predictions based on the first quarter indicators in the current fiscal year (FY 2013-14).
The local think-tank has found that during an election year the budget deficit widens and public expenditure increases.
“The early trends of FY 14 suggest that while the economy managed to take a significant shift towards a higher growth trajectory, the economic stability in at least one area (i.e. inflation) has deteriorated,” said Dr. Debapriya Bhattacharya, Distinguished Fellow of the CPD while presenting the summary note of the study report on ‘Bangladesh Economy in FY 2014: Three months after the budget and three months before the election.’
The CPD held a media briefing in its conference room to make the economic predictions and also present the election year economic trends.
The CPD prepared the study report under the Independent Review of Bangladesh Development (IRBD) programme.
“The economic performance during the current fiscal year will critically hinge on an early consensus between the two political camps in the country,” Mr Debapriya Bhattacharya said.
“There is little indication that the investment demand picked up in the early months of FY ’14. Perhaps the investors are taking a cautionary approach, given the political uncertainty looming,” Mr Debapriya Bhattacharya said.
The rate of inflation went up by 0.6 percentage points to 7.4 in September 2013, the report said adding that the food inflation increased by 1.5 percentage points to 6.7 at the same time.
Mr. Bhattacharya said the growth in revenue collection had been 16.2 per cent during the July-August period of the current fiscal against the annual target of 25.3 per cent.
“The growth in revenue collection started slowing down from the last quarter of FY ’13 with only 13 per cent growth recorded. The Large Taxpayers Unit (LTU) has also missed its first quarter target for income tax and VAT collection,” he said.
About the Annual Development Programme (ADP) implementation, the report said during the first two months of the FY14, only 6.2 per cent of allocation had been spent, whereas the corresponding figure in the FY 13 was 8.3 per cent.
When it comes to aid utilisation, the CPD study shows that only 4.2 per cent of the aid component was utilised during the period under review while the comparable figure of the preceding year was 6.6 per cent.
The CPD predicted that a number of factors, however, might impact Bangladesh’s competitiveness and export performance during the next few months. They include the impact of the Rana Plaza collapse on export orders, the sharp depreciation of Indian rupee and the higher production cost arising from new minimum wages.
It suggested putting renewed emphasis on measures to raise both labour and capital productivity through technological and skill upgradation, move up the value chain and go for market diversification.
Besides, the CPD report said some macroeconomic developments during the early months of the current fiscal indicated strong areas like bullish export earnings, good foreign direct investment and balance of payment (BoP).
The leading think-tank called upon the major political parties to reach a consensus for not indulging in any confrontational political activities which may hamper economic interest of the country.
Published in New Age
FY13 worst year for banking sector: CPD
Election-centric political business cycle to cut GDP growth below 6pc
Staff Correspondent
CPD distinguished fellow Debapriya Bhattacharya makes a point while executive director Mustafizur Rahman looks on at a news conference in Dhaka on Tuesday.
The growth of gross domestic product will fall below 6 per cent in the current fiscal year as the country has entered into political business cycle in election year when economic activities become stagnant, said Centre for Policy Dialogue on Tuesday.
The private think-tank also observed that the country’s banking sector marked its worst year in the last fiscal year 2012-2013.
The country loses 0.67 percentage point of GDP growth on an average in an election year and the loss continues for the next few years, it said.
‘We think that the country’s GDP growth will fall below 6 per cent this fiscal year as the country has entered into political business cycle because of stagnancy in economy centring the election,’ said CPD distinguished fellow Debapriya Bhattacharya at a news conference in Dhaka while presenting a research titled ‘Bangladesh Economy in FY14 — three months after budget, three months before elections.’
Political business cycle is a notion which suggests that a business cycle is caused by elected government leaders who manipulate the economy to achieve personal goals like to remain in the office, explained CPD.
The prominent factors that determine the political business cycle — increased budget deficit in election year, increased public expenditure in pre-election year, increased public consumption in election year and increased tax collection effort after election — are present in the Bangladesh economy, it said.
‘The FY 2013 should be marked as the worst one for the banking sector. The government had a surreal budget for which banking sector had to bear the brunt,’ said Debapriya.
He also said the banks had nearly Tk 80,000 crore in liquid money but they could not lend the cash.
‘Despite that we did not see the decrease in rates. The people who had said new banks would help reduce the rates proved incorrect,’ he said.
The CPD research paper said the private sector credit growth was 11 per cent compared to the target of 18.5 per cent in the FY13 when capital machinery import fell by 8.5 per cent.
‘It is a sign of stagnancy. And although many businesses took bank loan and bought capital machinery, they could not start production because of power shortage,’ said Debapriya.
‘Without political stability the local and foreign investors will not come up with big investment proposals,’ he said.
The CPD said the revenue collection by the National Board of Revenue in the FY13 fell short by Tk 3,644 crore than the target and the government borrowing from banking channel was Tk 3.852 crore higher than estimated in the budget.
‘The trends of declining GDP growth will continue and whoever comes to power will have to bear that. So the politicians should consider economic stability as priority,’ said Debapriya.
He said the overall economic performance of the FY13 already indicated stagnancy highlighting many problems in the financial sector and major indicators did not reach the expected benchmark.
The share of classified loan in the total outstanding loan rose to 11.9 per cent in the FY13 compared to 7.2 per cent in the FY12, he added.
The ruling class people, engaged in power politics, use economy for their gain and to increase their chances to get reelected, said the think-tank.
The political parties should consider the country’s economic stability as priority in order to avoid declining economic growth in their upcoming term, it said.
According to the CPD data, which quoted government sources, the real GDP growth fell to 4.6 per cent in the election year of 1996 from 4.9 per cent in 1995.
It showed that the real GDP growth fell significantly in election year of 2001 to 4.4 per cent from previous year’s 5.2 per cent and it fell to 5.7 per cent in 2009 from the previous year’s 6 per cent.
The CPD predicted that the real GDP growth would
be less than 6 per cent in the coming year as it already dropped to 6 per cent in the FY13 from 6.2 per cent in the FY12.
The CPD data also showed that the rice production declined by 0.02 per cent in the FY13 when the cultivable land for paddy reduced by 1.2 per cent. It, however, said the growth sectors of the FY13 were mainly linked to external issues.
Net foreign aid disbursement increased to $1.9 billion in the FY13 compared to $1.2 billion in the previous year.
The remittance inflow increased by 0.9 per cent only as the number of workers going abroad declined by 36.2 per cent. ‘Although the foreign exchange reserve rose significantly, it is mainly due to stagnancy in the economic front,’ said Debapriya.
‘So the political parties should give priority to the economic stability and avoid conflicting situation in order to ensure safety of the people and brighten the country’s international image,’ he said.
CPD executive director Mustafizur Rahman, research director Fahmida Akter Khatun and additional research director Khondaker Golam Moazzem were present.
Published in The Daily Sun
Pre-poll political harmony must for saving economy: CPD
Staff Correspondent
Political consensus would be the key to safeguarding country’s economy ahead of the general election and maintaining economic stability even after the polls, said independent think tank Centre for Policy Dialogue (CPD) Tuesday, at a time when the politicians are in serious disagreements over the way of holding the vote.
CPD said the contesting political elites have a common interest of maintaining economic stability and main focus of political activities ahead of the elections should not harm lives and livelihoods of people.
“Political agitations should not harm lives and livelihoods, destroy property and dent international image of the country,” said Debapriya Bhattacharya, distinguished fellow of CPD, during a press conference in the city.
The think tank organised the press briefing to make a presentation on economic impacts of negative political activities that usually take place in the election years in Bangladesh.
Because of special characteristics of local politics, CPD said, the scope of fiscal management is squeezing day by day, which is destroying the country’s economic stability.
“Gradually, the scope of fiscal management is shrinking in Bangladesh. Economic tools are no more active in economic management as those have lost their power because of politics,” remarked Debapriya.
“To efficiently continue the economic management the main help should come from within the politics,” he added.
Besides, CPD observed that political parties in power tend to spend more on non-development sectors in the election years, which also put long-term strains on national economy as fiscal deficits widens almost one percent of GDP in election years.
The think tank termed the process as political business cycle, a theory which states that politicians have the ability to modify an economy for their person.
“The impact of political business cycle not only exists in election years, but also continues after the elections,” said Debapriya.
“And we think that it takes two to three years to reinstate the economy to its original state once we derailed from the growth path,” he said, adding “Whether we will be able to keep Bangladesh on the present fiscal management track would a major challenge in the coming days.”
Analyzing the year closing data of FY13 and early signals of FY14, CPD sees both the upside opportunities and downside risks for the country’s economy in the democratic transitional period.
CPD forecasts the economic growth prospect of the country remains restricted due to depressed private investment demand and the growth prospect for FY14 also runs the risk of low delivery of public investments.
The incumbent policymakers would need to redefine the fiscal goal posts, promote credit expansion in private sector, maintain support to the crop sector and contain potential inflationary pressure, CPD suggested.
In the context of declining remittances and foreign aids it would be important to consolidate the resilience of the export sector in the face of all odds, it added.
Published in Dhaka Tribune
Economic growth hinges on polls consensus: CPD
Tribune Report
The country’s economic growth hinges on an early consensus over electoral modalities between the two political camps, Centre for Policy Dialogue has observed.
“To shield the economy from the negative spillovers of electoral transition, political parties should avoid the path of violence,” said Debapriya Bhattacharya, distinguished fellow of the CPD. Electoral transition means no economic activities and livelihood concerns, however large and small, should be held hostage to our unique democratic practices, he said at a press conference at the CPD office yesterday.
“Working out this package of economic safeguards is, in our view, no less important than generating a consensus on electoral modalities.”
History showed that Bangladesh witnessed a fall in real GDP growth during election years because it tended to experience violence during periods of political transition, noted the think tank.
Data covering from fiscal year 1991 to 2013 reveal that during election years, real GDP growth consistently declined for each of the previous five election years. This has happened in 1991, 1996, 2002 and 2009. Political business cycles were notions which suggested that a business cycle was caused by elected government leaders who manipulate the economy to gain personal political goals.
This type of business cycle results primarily from the manipulation of policy tools by incumbent politicians hoping to stimulate the economy just prior to an election and thereby improve their reelection chances. Debapriya said the incumbent policymakers would need to redefine the fiscal goalposts, promote credit expansion in private sector, maintain support to the crop sector and contain potential inflationary pressure.
The CPD also criticised the International Monetary Fund’s role in the banking sector reforms. “Deterioration of the performance of the banking sector took place at a time when the economy remained under the disciplines imposed by the IMF-ECF programme,” said Debapriya.
He said 2013 was the year of disaster for the banking sector as it was enmeshed with lot of financial scam. Some analysts predicted that rolling out of new banks in the banking industry would promote competition, which would help reduce the spread – the gap between deposit and lending rates — but it had not happened yet.
Published in The Independent
CPD fears fall in real GDP growth
Special Correspondent
The Centre for Policy Dialogue (CPD) apprehends a fall in real GDP growth in the current fiscal (2013-14) due to political unrest.
While presenting a document on the state of the country’s economy in FY 2014, CPD’s distinguished fellow Dr Debapriya Bhattacharya said Bangladesh’s economy entered into a “political business cycle” and is likely to be dictated by the evolving electoral dynamics in most part of the ongoing fiscal, which he apprehends might have an adverse impact on the overall economy.
Citing examples of a large number of countries around the world experiencing impact of political business cycle, Debapriya said that real GDP growth in Bangladesh in election years has also consistently declined in all the previous five elections.
The economic growth decelerated to 6 per cent in the last fiscal from 6.2 per cent of the 2011-12 fiscal, and was off-track compared to the ambitious target of 7.2 per cent.
“This is because Bangladesh tends to experience significant violence during periods of political transition,” said Debapriya.
To overcome the crisis, the CPD distinguished fellow urged leaders of both the ruling and the opposition political parties to deal with the issues more prudently and carefully so that the economy does not experience any setback.
The adverse impact of political business cycle, where government leaders manipulate the economy to achieve personal political gains, in critical areas including revenue collection and public expenditure may even run much beyond the current fiscal, said Debapriya adding that reverting back to benchmark growth path may need a couple of years.
The CPD assessment report titled “Bangladesh Economy in FY 2014: Three Months after the Budget, Three Months before the Elections” focused in details on features concerning the country’s macroeconomic performance in the current fiscal and tried to forecast an outlook for rest of the year. It also focused on the last fiscal’s macroeconomic performance and trend.
The CPD said the overall economic situation is taking a bad shape as investment, private sector credit, crops production, revenue collection, remittance, manpower export have been showing declining trend while non-development revenue expenditure, borrowing from banking system and inflation are showing increasing trend.
Stagnation in private investment and weakening economic growth was reflected in last fiscal with a slowdown in revenue collection and decline in overall import payment. However, export receipt and remittance inflow remained quite robust in the last fiscal.
Steady flow of foreign direct investment and buoyant net flow of foreign aid contributed to a substantial surplus in the balance of payment.
The tax revenue falls during all the election years in Bangladesh and revenue expenditure rises significantly. Debpriya apprehends a similar rise in expenditure this year because of deceleration of 20 per cent dearness allowance, creation of new jobs, recapitalisation of state owned banks and larger allocations, transfers and subsidies.
The economic growth prospect remains circumscribed because of depressed private investment demand and the economic growth in current fiscal runs the risk of low delivery of public investment programme.
To overcome the crisis, the CPD suggested the policymakers to redefine the fiscal goal posts, promote credit expansion in private sector, maintain support to the crop sector and contain potential inflationary pressure. As the remittance flow declines and the foreign aid flow falters, it would be important to consolidate the resilience of the export sector in the face of all odds, said the CPD study.
CPD suggested for safeguard approaches and measures for shielding the economy from the negative spillovers of election transitions.
According to Debapriya, the economic policy instruments will increasingly have limited value in counteracting the impact of emerging political situation in the country and the political elites will have to provide the resources to protect the real achievements and potential prospect of the country’s economy.
Held at the CPD’s head office in the capital, the conference was also addressed, among others, by CPD Executive Director Dr Mustafizur Rahman.
Replying to a question regarding siphoning off money from the country during election period, Mustafizur Rahman said a large sum of money is laundered almost every year. He mentioned that every year about US$ 1.5 billion is being laundered from Bangladesh and the trend is on the rise.
When his attention was drawn to the sudden increase of import of capital machinery which does not match with the present trend of economy, the CPD executive director said that the central bank would inquire about the matter.
“The other economic indicators do not support the trend of increasing capital machinery import when banks face excess liquidity and private investment decline,” he said suggesting Bangladesh Bank to have a strong monitoring if money laundering is taking place through over invoicing in import of capital machinery.