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Download PDF The government yesterday came down heavily on the Centre for Policy Dialogue’s (CPD) observation on the central bank’s monetary policy and said price hike of power, gas, fuel and fertiliser is essential for the economy.
Finance Adviser Mirza Azizul Islam, Energy Adviser Tapan Chowdhury and Bangladesh Bank (BB) Governor Salehuddin Ahmed denied any influence of the International Monetary Fund (IMF) in the recently released money policy and the government’s plan to hike prices of power, gas, fuel and fertiliser.
On Saturday, Debapriya Bhattacharya, executive director of the CPD, said it would be a wrong to hike the prices of gas, power, fuel and fertiliser and the government is going to appease the IMF and the World Bank. The CPD also criticised the monetary policy saying it would slowdown private sector credit, affecting economic growth.
“This is not correct… We did not make any policy under pressures from the IMF,” Finance Adviser Mirza Azizul Islam told reporters when asked about the reported pressures from the IMF. “We did not have any meeting with the IMF recently,” he added.
“We are formulating policies on our own. The central bank prepared the monetary policy independently and even the finance ministry did not interfere,” he said.
“Everyone has the right to comment. But all aspects of a problem should be taken into account before making any comment,” he added.
He said the move to raise the prices of power, gas, fuel and fertiliser is essential for the economy. The adviser referred to the current international market prices of fuel and fertiliser and said the government is giving huge subsidies to make up for the losses due to low prices of fuel and fertiliser in domestic market.
The adviser, however, claimed price hike of fuel and other utilities would not affect prices of food items and therefore the inflation rate. “Food items mainly determine inflation rate in Bangladesh and as there is no impact on the food prices due to price hike of fuel and other things, I do not see any increase of inflation rate,” he said. “There may be a primary shock, but no adverse effect on the economy,” he claimed.
Azizul Islam said the BB would study any possible effects of the policy on the country’s economy case by case before implementation.
Explaining the reasons behind the government plan to increase prices of gas, fuel, fertiliser and power, the finance adviser said the government is already burdened with Tk 7,500 crore liabilities of the Bangladesh Petroleum Corporation (BPC) and it may increase.
“How can the government bear such huge liabilities?” he posed a question.
He said increased prices of fuel have impact on power prices. Production costs of locally produced fertiliser and import costs of it are also high due to upward trend in prices on the international market.
“We will have to adjust such additional costs somehow,” said the finance adviser adding that deficit financing may be an alternative.
“But we already have 5.6 percent budget deficit in the current fiscal and the government does not want to increase it more,” he said.
Explaining the problems of deficit financing, the adviser said private sector credit flow would be hampered due to budget deficit, as it would increase interest rate.
Energy Adviser Tapan Chowdhury termed the CPD observation “baseless comment” and said it was very unexpected.
Regarding the prices of fuel and gas, Tapan said the government is still considering the matter and yet to make any decision. The government will discuss the matter with experts before making any decision.
“Decision to increase prices is one of the toughest jobs for the government as it affects the livelihood of the common people,” he added.
On CPD’s comment that the government made the decision following World Bank and IMF’s prescription, the energy adviser said, “The government makes decisions taking national interest into account.”
Bangladesh Bank Governor Salehuddin Ahmed also denied any pressure from the IMF in formulating the monetary policy.
“What the CPD is saying is not our concern. The major targets of our monetary policy are to achieve faster growth and creating more employment as well as keeping inflation under control,” the governor replied when asked about the CPD’s observation.
The governor said the central bank has not decided yet to increase the commercial banks’ reserve requirements with the central bank. He said it is a policy stance that might be made, if necessary.
Replying to another question, Salehuddin said the policy stance would push up the lending rate to some extent, but it would not affect credit flow to the private sector.
“The impact is not likely to be too much,” he said projecting that the interest rate may increase by 0.5 percent. It would also not affect economic growth and employment, the governor hoped.
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