BORROW, BORROW AND BORROW
The government is on a borrowing spree, inflation spirals up, fuel oil prices have increased – all is not well on the economic front
That the country's economy is not in a good shape is an oft-repeated assessment made by independent economic experts lately.The economic policymakers, including the incumbent finance minister, who are more prone to trashing most criticisms against the incumbent government's economic management until recently, are, seemingly, ducking out of opposing such an assessment.
However, the finance minister has frankly admitted on a number of occasions that the main challenge before him is mounting inflationary pressure on the economy. None would disagree with him. Rather, the common people being happy with the minister's admission had expected that he would do something to contain high inflation and offer some respite.
However, their hope has been largely dashed as the government's latest actions, instead of containing inflation, are providing fodder to it. The point-to-point inflation had reached nearly 12 per cent in September. It has all the potential to rise further because of the government's heavy borrowing from the banking system and the latest increase in the prices of fuel oil prices. If the proposals to increase the tariffs of compressed natural gas (CNG) and power are implemented, the price situation would become even worse.
The government's senseless borrowing from the banking system has emerged as a major distortion in the country's economic management. The government reportedly borrowed nearly 80 per cent of the borrowing target it had set in the budget for the current fiscal year in last four months (July to October). Most part of the borrowed amount is being diverted to foot the subsidy bills on account of fuel oils consumed by the rental power plants.
The energy adviser has chosen the rental power plants as part of his quick-fix formula to address the ongoing power crisis. But these plants while failing to provide the expected level of relief to the power subscribers have given rise to lots of problems in the government's fiscal management.
The high government borrowing has created an obvious crowding out effect on lending to the private sector. The rate of private sector credit growth, which was 24.35 per cent last July, came down to 21.98 per cent last September.
Moreover, the fiscal measures being pursued by the government are running counter to the central bank's monetary policy that is more or less restrictive in nature.
There is no denying that the government has been spending a substantial amount of fund on fuel subsidy. Without the rental power plants in place the government could have avoided the latest hike in fuel price. But the timing of the decision to increase fuel price was not right particularly when the rate of inflation is high. A joint meeting attended by government honchos and leaders of the road transport owners and workers last week postponed a decision on transport fare hike. Possibly, they are waiting for yet another hike in the CNG tariff. The government does not want to offer shock to the people twice in quick succession. The decision on transport fare hike is likely to be taken after the proposed increase in CNG price.
The oil price in the international market has been stable in recent months. In such a situation, any hike in fuel price locally is not at all justified. A case in point is India. The neighbouring country, which is also experiencing high inflation, last Tuesday brought down the fuel price by over Rs. 2.0 per litre to provide relief to the people. But here the government is doing just the opposite.
The government's heavy borrowing, in fact, is a strong distress signal for the country's economy. Some people in the government circles tend to cite the examples of Greece, Italy and Spain. But there exist lots of dissimilarities in the economic woes of Bangladesh and that of those countries. No doubt, bad economic management is the root cause of the problems of these Euro zone countries. But their problems are more linked to external factors. In the case of Bangladesh, domestic mismanagement has a very loud role in its current economic woes.
More importantly, the Euro zone countries have saviours. Relatively affluent EU countries have extended bailout plans for their fellow members. Bangladesh has none to come to the rescue.
Going by the latest developments in the external and domestic sectors, one does have valid reasons to be worried about the near-term prospects of the economy. There prevails a widespread uneasiness about the economic prospects, at least in the near term. The stock market situation has turned out to be a real problem, no doubt.
But other indicators such as foreign exchange reserve, remittance flow, export and import growth, rate of implementation of the Annual Development Programme (ADP) in the first quarter of the current calendar year, inflow of foreign aid and foreign direct investment and corruption allegation in the bidding of the much-hyped Padma Multipurpose Bridge do give otherwise unhealthy signs for the economy.
The balance of payments has been under pressure in recent months mainly because of higher imports of capital machinery and fuel oils, leading to a negative effect on the reserves. The foreign exchange reserve after staying slightly above $10 billion mark for some months has reached a level that is not enough to meet country's import bills for, at least, three months, which is considered a minimum safe limit in the case of forex holding.
There should be no reason to expect any tangible reversal in the situation soon for the growth of both export earning. The remittance flow has slowed down and disbursement of foreign aid has been one of the lowest in the first quarter of the current financial year. The ongoing crisis in the Euro zone that has all the potential of triggering yet another full-blown global financial crisis is acting as a real damper on exports. The remittance inflow is likely to fluctuate and the possibility of its reaching the level seen a year back is highly unlikely.
The taka vis-à-vis US dollar has depreciated by nearly 7.0 per cent during last one year, making the imports costlier than before. In fact, the rate of depreciation would have been far greater had not the central bank intervened from time to time. However, many economists are opposed to any move to keep the exchange rate at an artificial level for it creates distortions in other areas of the economy.
There are other disconcerting developments in some other areas of the economy. But the question is: Does the government see what others are seeing? If yes, it is high time it took remedial actions, preferably by initiating austerity measures in areas that would not in any way hurt the common man.
http://www.probenewsmagazine.com/index.php?index=2&contentId=7554
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