KHAWAZA MAIN UDDIN
In the year before general elections, the government is poised to go for higher discretionary spending of public money amid declining flow of foreign aid for meeting budgetary expenditure, says the Centre for Policy Dialogue, a local think-tank.
 

Also, it adds, the finance minister’s hands are tied by the lender-dictated fiscal and monetary policies as he can neither avoid the prescriptions he has already swallowed nor fulfil the conditionalities such as addressing corruption and governance issue in order to get further aid.
 

‘Foreign financing has become the Achilles’ heel of our economy. Having failed to get foreign aid, the government has to resort to domestic bank borrowings, which has negative impacts on the private sector,’ said the executive director of the centre, Debapriya Bhattacharya, while presenting its half-yearly economic outlook on Saturday.
 

‘By fulfilling the pre-conditions for access to loan programmes of the World Bank and the IMF, the finance minister has lost policy autonomy and his own authority because he failed to meet conditionalities such as combating corruption and improving governance,’ he said, describing the foreign financing as the weakest area of the economy at the moment.
 

In the ‘State of the Bangladesh Economy in FY ‘06: Early Signals and Immediate Outlook’, the centre projected a four-prong economic scenario, even if this ‘approach runs the risk of precipitating fiscal instability and increase in the inflation rate’.
 

The four components of the expected scenario are: (i) acceleration of government spending in the coming months; (ii) slow-down in private investment; (iii) compulsion to cut price levels; and (iv) arrangement of a sizable package of foreign financing.
 

If the current rate of spending money on the development programme continues, Debapriya explained, the government would have to slash down the programme to Tk 20,000 crore from Tk 24,500 crore and such a situation would be alarming for the country.
 

He felt that the country deserved economic stability, which is also the requirement of the coming Caretaker Government which cannot take major decisions because of its constitutional limitations.
 

Referring to the contractionary monetary policy vis-à-vis expansionary fiscal policy, the economist said the government is likely to give benefits to the private sector from budgetary sources instead of traditional banking sources in view of the impending elections.
 

Questioning the data of the official sources, he criticised the ‘growth hype’ and forecast that the country is certain to achieve 4-5 per cent growth in gross domestic product even without any growth in productive sectors like agriculture and industry because of the incremental growth in the service sector.
 

He, however, questioned the method of calculation of the growth, given that the lender-driven Poverty Reduction Strategy Paper is in the process of implementation, and said the finance minister has to point out at the end of the fiscal year ‘how much profit the poor received from it’.
 

‘It is not clear what changes have been brought about in the macro-economic framework to improve its “pro-poor” features. On the contrary, there is a fixation to “produce” higher GDP growth while remaining insensitive to income distribution consequences,’ the economic outlook read.
 

In reply to a question on the finance minister’s forecast of 7 per cent growth, Debapriya said that Saifur Rahman has no grounds to make such a projection. ‘He has no Aladdin’s lamp in his hands to bring about the magic 7 per cent growth...’
 

The outlook mentioned that inflation rate at the national level continued to show a rising trend during fiscal year 2005-06 and that the highest inflation rate on a point-to-point basis for the last 77 months was recorded at 7.95 per cent in November 2005.
 

Pointing at the feeble foreign exchange reserves, the outlook suggested that the government might pursue faster disbursement of project aid and reform-related budgetary supports from lenders, and persuade friendly Middle East countries to keep a couple of billion dollars in the Bangladesh Bank.