Bangladesh News

Between January 2007 and March 2008, the gross income of poor people decreased by 36.7 percent, mainly due to price hike of food and inflationary pressure, Centre for Policy Dialogue (CPD) observed yesterday.

Due to income erosion, an additional 8.5 percent people have fallen below the poverty line during this 15-month period, putting 25 lakh households below the poverty line, according to a CPD estimate.

“We took gross national income (GNI) into the calculation so that the remittance incomes are included and we found that the price hike and the weighted inflationary impact on prices of rice have brought additional 8.5 percent people below the poverty level,” said CPD Executive Director Mustafizur Rahman at a press conference organised for the release of a paper on “State of the Bangladesh Economy in Fiscal Year 2008 and Outlook for Fiscal Year 2009″.

Mustafizur said the people below the poverty line spend 45.6 percent of their incomes on rice. The 66.9 percent hike in rice prices in the 15 months alone contributes to 30.5 percent income erosion of the segment below the poverty line.

Another 6.2 percent income erosion happened due to inflation, the paper added.

Due to this income erosion, the real income of a garment worker for example is Tk 1,295, even though his or her monthly income is fixed at Tk 2,046, the paper said.

Considering the situation, the think tank suggested that the government distribute rice and wheat to the tune of 30 lakh tonnes through the social sector and social safety-net programmes in the next fiscal year.

To achieve this aim, the government would have to stockpile 12-15 lakh tonnes of food grains and also enhance its capabilities in smoothly distributing food grains among the target groups.

About the macro-economic performance, the CPD executive director said even though the government has set seven targets for the budget of this fiscal year, there looms some challenges such as subsidy burden, threatened food security, acute power and energy deficit and other issues that may hinder the government in achieving its goals.

He, however, found robust export performance, higher revenue collection, bumper Boro production, and a rejuvenated capital market as some positive developments of this year’s fiscal performance.

On the state of the economy, the conference was told that the expenditure on subsidies during the July-March period of the current fiscal year posted a rise of 192 percent creating a huge burden on the government’s budget. The rise is substantial considering the percentage of the same period in the previous fiscal year.

The paper said the budget for the current fiscal year kept around Tk 6,000 crore as subsidies but it may go over Tk 16,000 crore due to fuel, food and fertiliser price hike.

As the prices of fuels have increased significantly in the global market, it suggested that the government re-fixes fuel prices to keep a balance in revenue expenditure.

“The prices of fuels were last re-fixed in April 2007 considering the market situation of that particular time. After that global fuel prices have increased a lot and so the government has to re-fix the prices soon to cope with the situation,” the CPD executive director said.

The import prices of crude petroleum and diesel have gone up to $130 and $169 per barrel. However, these were $67 and $85 per barrel when the current budget was prepared, the paper mentioned.

“The government may have to increase fuel prices soon, but while doing so, it will have to consider the purchasing capability of the general public as poor people use kerosene and the farmers use diesel for irrigation…The government should keep that in mind,” Mustafizur Rahman said.

He felt that fuel prices should be adjusted in phases so that it does not mount too much pressure on the common people all on a sudden.

He also cautioned the government of high deficit of the budget of fiscal year 2008. He said high deficit sustained for a long period of time may create a vicious circle of borrowing and higher revenue expenditure through debt servicing liabilities.

Citing example of India, he said the neighbouring country continued a deficit of over six percent of GDP through the 1990s and the early years of this decade resulting in an expenditure of over 25 percent of the total budget for interest payment.

Bangladesh now spends around 13 percent of its expenditure budget on interest payment.

Mustafizur Rahman said the country’s industrial sector is not performing up to its potential due to the volatile situation in the power sector and foreign investors are also uninterested in coming here due to this problem.

“If we select two most prioritised sectors, these are food and power,” he added.

About power, he further told the conference that a total of 12 power plants were planned to be set up in the country during 2008 with a production capacity of 694 megawatts. However, only one plant has been put into service so far.