Economy braces for rough patch

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Offline fatema nusrat chowdhury

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Economy braces for rough patch
« on: February 25, 2015, 03:20:08 PM »
The economy is showing considerable signs of stress because of high inflation, abnormally high credit growth, rising need for subsidy, and depreciating value of taka, and those need to be addressed with harsh and unpopular decisions right now, top economists of the country said yesterday.

They said high oil import obligation because of the fuel requirement of rental power plants is posing a big challenge for the economy as this is drawing down the foreign exchange reserves very swiftly.

The economists also said there are distinct flaws in the application of monetary and fiscal policies, and political interventions render those even more useless.

They were speaking at a dialogue titled "Challenges facing the economy and the tasks ahead" organised by The Daily Star at its office. Former finance adviser to a caretaker government, AB Mirza Azizul Islam, moderated the discussion.

"The challenges are serious. If those are not managed, there might be a short-term crisis," said Sadiq Ahmed, vice-chairman of Policy Research Institute.

"I am not panicked but worried by the situation," said Dr Mustafizur Rahman, executive director of the Centre for Policy Dialogue.

Zaid Bakht, research director of Bangladesh Institute of Development Studies (BIDS), said, "The short-term outlook of the economy looks very bleak."

Prof Wahiduddin Mahmud, who sent a written statement to the roundtable, said Bangladesh has performed better than many countries in coping with several adversities in the global economy including recession and price hike.

"However, the macroeconomy is showing some strains that may further deepen in the coming months," said the noted economist citing examples of creeping inflation, tightening of the foreign exchange market, and rapid increase in the government's domestic borrowing.

According to the experts, rising inflation is posing a great threat to the economy at present.

Sadiq Ahmed, a former top World Bank official, said inflation is the number one problem, and it can create social and political instability. He also disagreed with those who say the inflation is imported.

"If it is imported it must be in other countries," said the economist adding, "Excess demand pressure also fuels inflation here."

Prof Wahiduddin said, "Inflation is approaching a danger zone where it becomes self-propelling and increasingly difficult to contain." He said it can no more be attributed to global inflation or to the market situation of specific items like food grains.

Dr Mohammed Farashuddin, a former central bank governor, said high inflation and future energy security are of great concern for the economy now.

"Inflation has put an unbearable burden on the middle class," he said, suggesting efforts to strengthen the Trading Corporation of Bangladesh (TCB) to intervene in the market to stabilise prices of essentials.

“But the economy is not in crisis,” Farashuddin said. “It is facing challenges. The overall outlook is not bleak at all.”

However, there are “several malaises and few of them are severe,” he said.

“The savings rate in Bangladesh is now 29 percent of GDP and investment is 25 percent. We have higher savings than investment. So there are problems in the economy,” he said. “Also, savings includes remittance and a lot of which goes to consumption.”

The economists also cautioned about the rising bank borrowing by the government and abnormally high credit growth.