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State of the Bangladesh Economy 2006-07

2 June 2007
 

The spiralling price hike of essentials is currently the biggest pressure on the economy. The government should look into the matter immediately and maintain a generous import policy, particularly in food grain import for keeping the price under control. Debapriya Bhattacharya, Executive Director of the CPD observed this while presenting a study on the state of Bangladesh economy in fiscal 2007 and an outlook of the same for fiscal 2008 at a press briefing held at CIRDAP auditorium on 2 June 2007. CPD Research Director Mustafizur Rahman responding to a question said the deployment of paramilitary, BDR, to sell essential commodities would not bring any long-term benefits. "We see this as a temporary and cautious measure of the government. This is not a solution. Obviously not a permanent solution," he said.

According to CPD, the rate of inflation is not likely to fall below seven per cent in the near future. Lack of institutional monitoring mechanism, information gap among different stake holders, market concentration, increased production cost of domestic commodities, too many market intermediaries, dislocation in market structure due to anti-corruption drives and increased transportation costs are the major causes behind creeping price inflation -- particularly in the food sector, according to a CPD study. CPD observed that the economy of the country is passing through various challenges and the benefit of the current reform measures is unlikely to produce good results in the next couple of years. "We have to wait for having the benefit of the structural reforms which are being undertaken in various sectors like Biman, shipping and power. But these would definitely contribute in forming a strong base for the future economy," Mustafizur Rahman pointed out. He expressed doubt about the government's projection of achieving 7 percent growth in gross domestic product (GDP) in the next fiscal of 2008 and suggested lowering the target by at least a half percent to make it realistic. For achieving the growth target of 7 percent, the country would need huge investments -- at least 29 percent of the GDP. This would not be possible due to the existing socio economic conditions, Rahman observed. From the investment perspective, a target of 6 to 6.5 percent growth rate for fiscal 2008 seems rather more realistic, he added.

Presenting various significant features of the economy, Debapriya said while the total number of the poor in the country remained unchanged, the number of hardcore poor increased to 2.7 crore in 2005 -- up from 2.5 crore in 2000. He said despite an inspiring achievement in national poverty reduction, regional disparity is glaringly apparent. Barisal, Rajshahi and Khulna turned out to be the most poverty-prone areas in the country. "We are demanding a poverty-friendly growth," he said. The CPD Executive Director said it would be realistic to project and achieve a lower target. The projected GDP growth is unlikely to be achieved due to lower growth in agriculture, industry and construction sectors. The agriculture sector has been suffering mainly due to fuel price hike and fertiliser crisis. Low growth in the agriculture sector is holding the economy back from achieving the projected growth, observed Debapriya. Crisis of fertiliser and fuel (electricity and diesel) for irrigation as well as chita (unfilled grain) are the main reasons behind lower agricultural growth, according to CPD.

The CPD study suggested that at least 1 to 2 percent GDP growth can be achieved through reducing corruption and ensuring good governance. The CPD Executive Director said the government is going to declare the national budget without any midterm policy as the PRSP (poverty reduction strategy paper) has been delayed for one year without valid reasons. The country needs a mid-term policy as the economy is going through massive changes. The mega reform programmes in Biman, the ports and the power sector would help strengthen the core of the economy, CPD Executive Director said.

On the question of various challenges for the year 2008, CPD observed that stabilising market prices, especially the food prices, realistic growth projection, addressing inequality, investment augmentation, improving domestic savings are the major challenges for the economy. Bhattacharya said the growth in revenue collection and foreign direct investment was not satisfactory. Foreign aid was also lowest during the period in the recent times. Government investment was also poor. The recovery of money that was smuggled out of the country would contribute significantly in meeting the deficit in revenue earnings, he said.

Stressing the need for a statistics commission, the CPD observed that the policy makers of the country make policies while being in the dark due to absence of adequate information on various sectors. The balance of payment situation of the country is in a very good position and therefore there is no need to sign any fresh agreement with the International Monetary Fund (IMF) at the cost of sovereignty of framing independent policy, he said. Describing the investment scenario as miserable, the CPD Executive Director also put emphasis on quick decision making on mega investment proposals such as Tata and Asia Energy. He however pointed out that agreements with foreign companies for investments should be more transparent as a telephone company reportedly obtained licence of operation through bribery.

The CPD Executive Director was critical of demolition of illegal business structures in slum areas. The businesses, belonging to the poor, contributed to the economy in an informal way, he told the newsmen responding to a question. Replying to another question, he said banks in the country have a liquidity of around Tk 10,000 crore. So the banks can provide money as required.