The New Nation - Internet Edition

UNB, Dhaka

Finance Adviser Dr Mirza Azizul Islam Sunday came down heavily on the affluent society in the capital for casting dark clouds over the economy although it has been doing reasonably well compared to neighbouring countries.

"Those of us living in the capital city always see dark clouds all over, there's no silver lining. We say the economy tumbled," he told a meeting of foreign investors, operating in Bangladesh, at Hotel Sheraton.

Foreign Investors' Chamber of Commerce and Industry (FICCI) president Wali Bhuiyan welcomed the guests at their monthly luncheon meeting, pointing out downside risks of budget related to deficit, bank borrowing, lending rate hike and budget implementation.

"The heat of inflation is definitely a dark cloud, which we've not been able to avoid. Though we're not engulfed, the poor people were really hit," the Finance Adviser said about the lone challenge of the economy.

He, however, said Bangladesh was not doing so bad as compared to food surplus countries like India and Vietnam who were respectively suffering from 11.9 and 25 percent inflation.

Dr Aziz encountered criticisms over rising inflation, falling investment, budget deficit, external debt servicing, bank borrowing, deposit as well as lending rate hike, and crowding out private sector credit.

He dubbed the "cloud" as contradictory to resilient and hard working people of the country who despite facing so many challenges were contributing to an estimated economic growth of 6.21 per cent in 2007-08.

The Adviser said the slightly lower GDP growth than previous fiscal year's 6.43 per cent would be achieved, although the economy is confronted with so many challenges both from internal (two successive floods followed by devastating cyclone) and external (food, fuel and fertilizer price) shocks.

"Despite the challenges, the economy has been doing reasonably well," he said, appreciating the contributions of the people while the government was by their side.

Compared with regional economic growth, he said, the economy "certainly is not dismal, even we can say satisfactory." He added that the growth of Chinese and Indian economy would at least be one percent lower than their earlier estimates.

Dr Aziz said one would see a little decline in investment as the just out fiscal year registered investment at 24.2 percent of GDP as compared to 24.46 per cent of the previous fiscal year. "This is by no means alarming."

About the criticism that the government has mortgaged the country's future to external debt, he argued that the debt service as proportionate to exports rather declined to 5.1 per cent in 2007-08 from 5.5 per cent in the previous fiscal year.

The Finance Adviser dismissed the allegation that the banking system was suffering from the liquidity crisis to dry up private sector lending.

He said he carried out an investigation in a bank that had claimed liquidity problem and found an additional fund of Tk 166 crore. He pointed out that the deposit growth registered 12 per cent during the July-April period of the last fiscal year as compared to 16 per cent in the same period of previous fiscal year.

But, what is interesting was that the banks received higher time deposit than demand deposit, getting greater access to long term fund, said the Adviser.

He added that agriculture credit increased by 61 percent and industrial credit rose by 66 percent (July-March) during the last fiscal year while the industrialists did not keep the borrowed money under mattress.

"The overall private sector credit grew 19.5 per cent during July-April period of the last fiscal year," he said, adding that the credit growth was by no means lower.

During July-April period of the last fiscal year, capital machinery imports fell by US$ 126 million, in terms of L/C settlement, than the same period previous fiscal year.

But, in terms of L/C opening, the figure was US$ 218 million plus, indicating increased confidence on business climate. The Finance Adviser said that with the L/Cs settled, the capital machinery imports would cross the figure of previous fiscal year by US$ 204 million.

"Clearly, therefore, despite the challenges the economy is doing reasonably well… despite all odds, I've no reason to think the economy is in doldrums," he reiterated, expecting that the growth would be even faster unless there is any big disaster.

He called upon the business community to drive the economy for its accelerated growth.

Turning to global economic slowdown, Dr Aziz pointed his finger to the "ice of recession, fire of inflation" phenomenon and said Bangladesh was also hovering at an inflation of around 10 percent.

But, he said, the poor are hit hard by the inflation having no savings to draw down. To mitigate their sufferings, the current budget went for massive social protection measures to increase the purchasing power of the poor and to increase food production, he said.

Replying to a question, the Finance Adviser said the bank deposit rate increased due to rise in inflation. "Banks are offering a minimum positive rate of return to the savers… even it will not entail a significant rise in lending rate."