Economists, politicians and academics yesterday voiced concern over the huge government purchases in the unproductive sectors, saying the purchases are taking a toll on the country's foreign exchange reserves.

They were also critical of the increased domestic borrowing by the government and said it will affect the domestic industrial sector.

The views came at the policy briefs on "Macroeconomic Policies" of CPD Task Force Report titled "Election 2001: National Policy Forum" in the CIRDAP auditorium in the city. Former Finance Minister M. Syeduzzaman Chaired the session.

President of Bangladesh Economic Association (BEA) Professor Moinul Islam said that the increased domestic borrowing is affecting the interest rate of the banks.

He also said the high return on the government saving instruments is responsible for higher lending rate, casting an adverse impact on the domestic industries.

Criticising the big purchases in unproductive sectors, he said such spending will increase expenditure for the productive sectors.

He suggested defence policy be discussed on the floor of the parliament and called for decrease in defence expenditures.

"The foreign exchange reserve is under pressure and the situation may worsen once the power companies start putting pressure on the government to get their due shares. This may put us in a grave situation," Islam said.

He said remittances through unofficial channel, smuggling, capital flights and widespread over-invoice used as a tool by the money launders may also take toll on the reserve situation.

"Instead of rectifying the import policies the government is considering recruiting about 20,000 to 22,000 Bangladesh Rifles (BDR) personnel to contain smuggling. But what we need is change in policies. There should also be monitoring on the Indian policies in this regard."

There should also be a cell in the Ministry of Finance and in Tariff Commission so that tariff is placed on economic rationale.

Former Chairman of Parliamentary Standing Committee on Public Accounts SM Akram said there should be a political consensus between the two major political parties. "This is the time to initiate such a move as the political parties are now busy making pledges."

He also criticised the frequent devaluation and said although the country is an import-oriented, it was confusing to judge as to why devaluation was made. "We are also confused as to what point such devaluation will stop."

He said the National Board of Revenue did a remarkable job in collecting revenues showing that people are paying more and more taxes, but the interest is going up due to spending in non-productive sector and people are not getting benefits.

"So the interest rate should be cut. But everyone talks about it, but no one does much regarding this," Akram said.

He said that the much needed reforms must be done in the early years of a government as it later gets busy in polls preparation and refrains from taking any harsh measures.

Former lawmaker of BNP Maj (Rtd) Akhteruzzaman said usually it takes long time to get any papers signed in any ministries, but in one instance he found that all the government organs had okayed the Mig fighter purchase deal in the same day and signed the relevant documents.

"The central bank and all the ministries concerned signed the papers the same day," Akhteruzzaman said. "It was probably as I was preparing to file a case to stop the payments against the purchase."

He also said that a huge amount of foreign exchange was going out of the country as a result of increased import.

Abu Ahmed said there was increased growth in the broad money supply that reached 20 per cent in recent years that could create problem for the economy.

Prior to the discussion, the Centre for Policy Dialogue (CPD) presented its task force report which said public expenditure had increased from Tk. 13431.2 crore in 1990-91 to Tk. 38862 crore in 2000-01. The revenue expenditure accounts for the larger portion of 53 per cent of the public expenditure.

"Reversing this trend in government spending in favour of development expenditure constitutes one of the major challenges of public finance in Bangladesh," the paper said.

It also said during the 1990s two major shifts were observed in financing the budget deficit. First, the share of foreign financing has declined in the early 1990s from 80 per cent of the total deficit to 50 per cent in FY01. Second, the incremental growth in domestic financing of the overall budget deficit in the recent years (FY99 to FY01) was largely underwritten by loans from the banking sector.

"In FY2001, more than 42 per cent of the domestic resources deployed to finance the overall budget deficit come from the banking sector," the paper said.

"Thus, there is an urgent need to review the fiscal scenario with a view to assess the sustainability and implications of the yawning budget deficit. Such a review would also entail ensuring greater use of foreign sources in financing the budget deficit and to establish prudent limits on government borrowing", the Task Force report said.

Commenting on the Task Force report, Finance Secretary Zakir Ahmed Khan said he personally thinks that the current rate of deficit financing was sustainable, but it should be looked into carefully.

Regarding a comment of the report of increased expenditure of the state-owned enterprises (SOEs), Khan said the matter should be taken up seriously by the next government to make best use of resources.

Communist Party of Bangladesh (CPB) General Secretary Mojahidul Islam Selim suggested loan defaulters be barred from contesting the upcoming polls.

He also suggested maximisation of resources and said indiscriminate liberalisation should not be allowed and domestic industries should be given support.

Abdul Hamid of CDF, a micro-financing institute, sharply reacted to a press report that the microcredit sector will be taxed. Now we are heading towards financing micro enterprises from the microcredit and any such move will stall the development progress made so far.

Former member of Planning Commission Dr Golam Rabbani, Dr Nasrin Khandoker of Dhaka University, and IBA Professor Shamsul Huq also spoke on the occasion.