Bangladesh News

High inflation rate, low agricultural production, slow growth of investment and sluggish export trends are the major challenges confronting the caretaker government, Centre for Policy Dialogue (CPD) yesterday said.

These would be serious obstacles to achieving the key macroeconomic targets set in the budget for fiscal year 2007-08, Mustafizur Rahman, executive director of CPD, said speaking at a press briefing on ‘State of Bangladesh Economy in FY 2008′.

As the caretaker government sets its sight for a free and fair national election in 2008, performance of the economy would be crucial in implementing its election plus agenda as well as creating an environment conducive for the new government to getting on with moving the economy forward in 2009, he added.

According to CPD, the next six months will be a critical period for Bangladesh as its economy is coming under rising pressure in the form of higher domestic prices, higher import payments, sluggish export performance, stalled investment growth and pressure on the balance of trade and payments.

The country’s premier think-tank, however, lauded the government for successful handling of relief operations after floods and Sidr last year, good currency reserve and flow of remittance.

It also hailed the institutional reforms including establishment of a regulatory reform commission, separation of the judiciary and the proposed coal policy and consumer protection acts.

While foreign currency reserves, remittance inflow, revenue collection and stock market performance give some hope, alarming developments in the area of prices, export, and investment are undermining the prospect of achieving the GDP target for the FY2008, the CPD analysis said.

It noted that due to the depressed domestic investment, foreign direct investment (FDI) declined by 4 percent to $236 million in the July-October period of FY 2007-08 against $274 million in the previous fiscal.

“Uncertainty about future, political development, weak infrastructure, particularly disquieting energy situation, inflation trends, hesitant mood of domestic investors, indecision about a number of big proposals are possible reasons for this,” the CPD report added.

Referring to shutdown of four state-run jute mills in the first half of this fiscal, CPD said it was a wrong decision especially when the importance of jute and jute goods took an upturn, reported UNB.

Four out of 22 state-run jute mills have been closed down and 84 out of 142 jute procurement centres wound up, throwing some 14,000 workers out of job.

“The decision was inhumane. We don’t know whether there was a study before closing these mills or not. The government shut down the mills before paying the arrears to the workers. It wasn’t a justified decision,” observed the CPD executive director.

He stressed the need for measures to reopen the mills in the interests of the country’s economy as the apparel sector’s income is showing some stagnant figures in recent days.

Responding to a question, Mustafizur Rahman said the inflation goes up to 50-80 percent if the rice prices are taken into account.

To get out of the trap of high inflation rate of rice, he said, there is no alternative to increasing the domestic production at lower cost.

CPD cautioned the government against signing any new loan agreement with the International Monetary Fund (IMF).

It suggested that the government use block allocation in financing the rehabilitation programmes for those affected by floods and cyclone.

Mentioning the food grains in stock and in the pipeline of import, Mustafizur said the amount is satisfactory and sufficient to tackle the present food demand.

About the proposed import of 5 lakh metric tons of rice from India, he said the government, if required, should contact the Indian high-ups to ensure the rice is bought at that country’s domestic market price.

About a possible way out of inflation in a short time, he said, “We don’t have any magic wand to control the inflation right away.”

He, however, discouraged using contractionary monetary policy to curb the higher inflation rate.

CPD is also against any readjustment of fuel prices now. “The readjustment might be needed in the near future,” said its executive director.