The New Nation - Internet Edition

SOME steps to contain inflation that the Bangladesh Bank Governor announced about a month ago needs to be followed up in time with appropriate policies. The tasks of the central bank is a delicate one in controlling inflation as it essentially involves money supply. Limiting money supply in a bid to contain inflation can turn out to be as undesirable as inflation itself. With credit squeeze as the most used weapon to reduce money supply, the credit needs of businesses suffer and lead to economic stagnation. Therefore, the Bangladesh Bank will have to weigh and apply policies exceptionally carefully. The central bank will be expected to play the role of a balancer between the needs of the economy and the unproductive spending for meeting both ends without allowing inflation to take wings.

Already the government's borrowing from the financial system has reached a record level. Therefore, the challenge for the caretaker government is to put on a leash government's spending so that the borrowing can decrease. The relevant ministries will have to plan promptly how government's spending can be pruned without hurting spending on essentials and for election preparations. A plan should be prepared swiftly for implementation. This would be an important step towards controlling money supply for creating a damper on inflation. But while doing this, every effort should be made to meet well the genuine credit needs of the private sector. Even policies can be tried to encourage borrowing by the private sector through lowering the lending rate and other measures. Credit expansion to the private sector that leads to production of goods and services do not so much add to inflation because the money supply expansion is matched by greater output of goods and services. Inflation becomes a formidable problem when non-productive expenditures start shooting up which have no direct relation to productivity. Government needs to limit such spending on the one hand while ensuring adequate credit flow to the private sector on the other, to get the best results.

The rate of inflation is rising higher and higher. Inflation is putting on a reverse the gains that were made in the struggle against poverty in the decades of the eighties and nineties. Poverty alleviation in large measure boils down to people having more disposable incomes in their hands after buying the basic necessities for survival. But that disposable income for the greatest number in the population who have an existence below the poverty line or close to it, has been dwindling down progressively. All-out efforts should be made by the government to increase revenue collection. If this succeeds, then the need for the government to borrow from the financial system will decline and the private sector can have greater access to funds from shrinking demand of the same from the government. The appropriate squeeze on money supply to tame inflation can also be achieved in large measure by withholding disbursement of funds to projects that do not call for early implementation.