The New Nation - Internet Edition

Pulack Ghatack

Taming inflation and maintaining macroeconomic stability appear to be major challenges before the country as it entered into a new financial year Tuesday accompanying with grave economic and political uncertainties, analysts say.

Heavy borrowing from the banking system to cover the budget deficit of the fiscal year will be a major risk for the government which may lead the nation towards fiscal indiscipline.

The New Year dawned with a bad news for farmers, poor and middle-income groups due to escalated fuel prices, which is sure to provoke inflation further.

The Government said it had no other option but to increase oil prices, as the prices have been doubled in the international market in less than one year. But this has been fuelling anger of the people who are already overstretched by soaring prices of essentials.

While talking to The New Nation, senior economists Dr Quazi Kholiquzzaman Ahmad and Dr Atiur Rahman were at one in saying that taming inflation would be the main challenge before the government failing of which would increase the number of poor people.

They said the global surge of fuel oil prices and the resulting domestic hike could be catastrophic for millions in the country. It will plunge millions of people into poverty. Inflation will jump by many percentage point immediately.

According to a report of the Centre for Policy Dialogue (CPD) between January 2007 and March 2008, the gross income of poor people has decreased by 36.7 per cent, mainly due to price hike of food and inflationary pressure.

Fiscal 2007-08 was a bad year for the economy, which had suffered serious setbacks from the shocks of two successive floods and the cyclone Sidr as well as high global prices of fuels, food, capital machinery and raw materials.

The inflation rate soared over double digit across the year, with food inflation reaching a staggering 14.5 per cent in December.

With falling economic growth, the number of people below poverty line has been increasing. Most of the major economic indicators show signs of downtrend.

Both local and foreign investment has been declining since 2006-2007 due to failure in implementing the annual development programme (ADP) and political uncertainty.

The total investment in the last fiscal year was 24.2 per cent of the gross domestic product (GDP) which was 24.5 per cent in the preceding financial year. The investment was 24.7 per cent of the GDP in 2005-2006.

Public investment was only 5 per cent of the GDP in the last fiscal, while it was 5.5 per cent in 2006-2007.

Only 52.83 per cent of the development budget was utilised in the first 11 months of the last fiscal year which is the lowest in the past ten years. It has negative implications for employment creation.

Around Tk 14,000 crore of the already downsized ADP allocations was spent up to May. The Tk 26,500 crore ADP of 2007-08 fiscal was reduced by Tk 4,000 crore to Tk 22,500 crore.

Private investment in the last fiscal has been calculated to be 19.2 per cent of the GDP, while it was 19 per cent in the previous financial year.

However, figure of the first 10 months of financial year 2007-2008 of the capital machinery import, which is the indicator to ascertain the status of investment, shows that the import reduced by 10 per cent.

According to draft economic review of the finance ministry, the net foreign direct investment (FDI) in 2007-2008 would be US $604 million. It was US $760 million in the previous financial year.

Only a positive growth in remittance by the expatriates will not be able to cover trade deficit which is widening day by day.

When economic challenges before the government are mounting, the Government also has some political challenges to face, to materialise its reform agenda, said the experts.

If the Caretaker Government relinquishes in December, the second half of the fiscal year will be ruled by a political government, which will have to shoulder the economic risks and challenges.

The maximum task of the budget implementation will be assigned to a political party of which many front ranking leaders are in jail and who were not in anyway involved in the fiscal policymaking.

Dr Quazi Kholiquzzaman said the present uncertainty in the political arena may affect budget implementation.

Similar view was expressed by World Bank vice president Praful C Patel, when he said during his last visit in Dhaka, the present political crisis was a big challenge for Bangladesh.

Patel cautioned that Bangladesh's state of governance, investment climate and economic development would continue to be affected if the elections were not held in a manner acceptable to all concerned.

Wahiduddin Mahmud in his budget reaction said, "it is a situation of widespread food insecurity and an environment of political and economic uncertainty."