The New Nation - Internet Edition

Pulack Ghatack

The country is witnessing a huge monetary expansion with ballooning credits both in public and private sectors that lead rate of annual inflation to soar above double digits.

People may be feeling the immediate pinch of higher inflation at markets, but long-term prospect of economic growth is not bleak, officials of the Bangladesh Bank (BB) said.

According to the latest figures provided by the central bank, net credit to the public sector increased to about Tk 47,000 crore at the end of June this year from Tk 36,000 crore at the end of June last year.

The government in this years fiscal budget has set a target to borrow Tk 13,498 crore from the banking system-an 86 per cent jump from the last fiscal year's bank borrowing. In the 2007-08 fiscal budget, bank borrowing target was Tk 7,253 crore, which was later revised at Tk 10,398 crore.

However, the increased borrowing by the government is not crowding out the private sector from credit facilities as the central bank has been pursuing an expansionary monetary policy.

Private sector credit increased 25 per cent during the last fiscal year compared to a 15 per cent growth in 2006-07. Total domestic credit registered a faster growth at 21 per cent in 2007-08, compared with about 15 per cent in the previous fiscal.

But, remarkably, the increased credit flow to the private sector is not going for long-term productive investment substantially, as import payments for oil, rice and some other consumer goods are eating up the bulk share, bank sources said.

The long-term industrial credit was not dissatisfactory in the last fiscal year also. But, very recently the figure is not so encouraging, though the prospect of industrial growth is not bad as the central bank has the policy to encourage credit growth, a BB official told The New Nation.

He said imports increased heavily this time to recover the losses by natural disasters and price hike of oil and commodities in the global market.

Bangladesh's overall imports grew by 27.56 per cent with heavy food grains import in fiscal 2007-08 over that of the previous fiscal.

Meanwhile, annual consumer price inflation rose to 10.04 per cent in June from 9.99 per cent in May due to soaring food prices.

Inflation was driven by a 14.1 per cent rise in food prices, while prices of non-food items rose 3.54 per cent from a year earlier, official at the Bangladesh Bureau of Statistics (BBS) said.

The 12-month average inflation rate in June stood at 9.93 per cent, above the target of 8.5 per cent for the 2007-08 financial year. In May, it was 7.44 per cent.

BB on July 17 unveiled its half-yearly monetary policy aiming to achieve maximum economic growth through credit expansion to productive sectors during the current fiscal while keeping inflationary pressures under control.

The central bank recently decided to monitor the quality of loans extended by commercial banks to ensure that the productive sectors are financed properly to achieve maximum economic growth in line with the monetary policy.

The industrial credit disbursement recorded a hefty 66 per cent growth last fiscal year (2007-08) over that of 2006-07 fiscal year.

According to the provisional statistics of the central bank, disbursement of industrial term loans in the country stood at Tk 20,610 crore in 2007-08 fiscal year, while a total of Tk 12,381 crore was disbursed as industrial term loan in 2006-07 fiscal year.