Fall in investment seen as major factor
The Centre for Policy Dialogue (CPD) said Monday a drastic fall in private investment remains a key factor behind the estimated 1.0 per cent decline in Gross Domestic Product (GDP) growth during the outgoing fiscal (2012-13).
The growth of private investment is estimated at 19 per cent in the fiscal 2012-13 against 20 per cent in the previous fiscal.
It is 3.7 percentage point lower than the target set for the year in the Sixth Five-Year Plan, the CPD noted.
"Private investment would now move back to the level of FY 2007," Dr Mustafizur Rahman, executive director of the CPD said.
The think-tank said this while unveiling its analytical review of Bangladesh's macroeconomic performance for the fiscal year 2013. The CPD organized a press briefing at its city office on the issue.
Dr Rahman said there are many reasons behind the slow investment in the country.
"We may include, among others, ongoing political turmoil, scams afflicting the banking sector and developments in the readymade garment (RMG) sector and frequent labor unrest as reasons for the slow investment," Dr Rahman added.
The CPD noted that ensuring stability of taka has emerged as a new challenge for the macroeconomic management.
The CPD executive director said there is a need for consolidation of public expenditure to the extent possible in the next FY 2014.
He stressed the need for putting greater emphasis on revenue mobilization.
He said the presence of high non-performing loan (NPL) has pushed the interest rates of banks upward as they by raising the rates are trying to make up for their losses from bad loans.
"Reasons for high NPLs are linked to lax monitoring and supervision," Dr Rahman added.
The CPD, however, suggested privatization of the state-owned commercial banks excepting one which will perform the treasury activities.
The CPD said import of capital machinery declined by 10.6 per cent during July-March period.
It also said the private sector credit growth plunged to 12.7 per cent as of March. "It is much lower than the monetary policy target of 18.5 per cent," Dr Rahman added.
He said this has created excess liquidity worth Tk 660 billion.
"Growth of excess liquidity has influenced the money market by bringing down the call money rate significantly from 19.66 per cent to 8.95 per cent in February last," he added.
He also said credit-deposit ratio has now reached 72 per cent against that of 85 per cent a year back.
The CPD noted that the government's bank borrowing is expected to increase Tk 55 billion more the projected amount of Tk 230 billion during the outgoing fiscal to fund the deficit.
It said shortfall in the revenue collection can lead to higher bank borrowing.
The CPD executive director said there has been a significant erosion in the purchasing power of the people.
"More than 38 per cent purchasing power had been eroded over the last four years following rise in prices of commodities and non-food items," Dr Rahman added.
The CPD, however, said rise in the incident of violence and damage caused to transport and public property have both short as well as medium to long-term adverse implications for the economy, undermining both current performance and growth potentials of the economy.
"The violence and damage of property following herbal (shutdown) are affecting the economy adversely and it undermines the country's growth potential," Dr Rahman added.
The CPD, however, pleaded for efforts to reach consensus with due urgency to avoid hartal and violence in the country.
It said the desired goal of attaining 8.0 per cent growth in 2015 has now become uncertain as the economy is set to grow by at least 1.0 per cent less than that of the target for the outgoing fiscal year, 2012-13.
It also said the aspiration for turning Bangladesh into a middle-income country has also become uncertain as the growth pace has not been proceeding in consonance with the target set in the Sixth Five-Year Plan.
"It seems to us that attaining a middle-income country status has now become uncertain," Dr Mustafizur Rahman said.
The CPD said subsidy burden per unit of generation of electricity has increased from Tk 1.8 million per megawatt in 2009 to Tk 4.45 million in January in 2013.
"Fiscal burden will continue in the coming years," it noted.
It said the government should put more emphasis on South-South trade to provide greater opportunity for market and product diversification.
The CPD said funding for the Padma bridge project with the government's own fund will squeeze funds for education, health and social safety net programmers.
CPD's distinguished fellow Dr Debapriya Bhattacharya said the government must look for option of non-expensive funds.
He said: "We believe that the Parma bridge will not be constructed under the year-on-year fund basis."
He said no renowned construction firm will come under such type of funding.
