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A theory is appropriate as long as it fits into the fact; when a theory doesn't fit in the fact, it's wise to walk with the fact.

Wednesday, June 12, 2013

Stagnant private investment !

The 6th Five Year Plan (SFYP) rightly drew attention to stagnant private investment situation while reasoning issues related to investment climate and infrastructure for such trend (Page 54, Part 2). The SFYP envisaged reducing the investment gap through basically acceleration of public investments in major infrastructure projects (e.g. Padma Bridge, Elevated Expressway) and implementation of PPP projects (Page 55, Part 2). To achieve the target GDP growth rate of 8.0% by the end of SFYP (FY15), it targeted to achieve the rate of gross domestic investment equivalent to about 32.5% of GDP. In which, the target private investment for FY15 is 25.0% of GDP (Page 74, Part 1).  

In reality, private investment (as a share of GDP) remains stagnant around 19.0%-20.0% during the last half decade (FY07 - FY13). And gross domestic investment reached to 26.8% of GDP in FY13.

Certainly, the government couldn’t realize the envisaged large public investment projects. But some criticism must go to the policymakers who were involved in SFYP formulation. Others have the right to know, what sort of policy prescriptions those policymakers provided to the government to boost up private investment. In reality, private investment didn’t boost up at all; rather it was quite stagnant throughout their policy implementation period. The government should be also responsible for not providing enough credit flows to the private sector because a large portion of bank credit was taken by it to spend for its annual expenditure. The relevant question would be: whether the restrictive policies for restraining private sector credit growth taken by Bangladesh Bank have been reasonable over the last few years, while at the same time, BB’s support has been quite impressive for the fiscal authority.   

Sunday, June 9, 2013

Questions on targets in the budget announced !

Growth (whether the target of 7.2% in FY14 is feasible to achieve?)
  • More political violence is expected in coming days, and if the policymakers do not want to count the impact of hartal in its forecast, then the opposition can justify its hartal type movements. Or, allowing black money into real sector would overcome the impact of hartal?
  • Bangladesh’s export-based industries are largely depended on import-based capital goods. Import growth of capital goods is negative (-5.1% during July-March FY13) based on the latest information, then how come policymakers expect more export growth, and consequently higher GDP growth? The share of both export and imports in GDP declined in FY2013 as compared to FY12.
  • It’s a common knowledge that private investment is the main instrument of growth (please see the documents of 6th Five Year Plan). Unrestrained bank borrowing by the government will surely leave lesser options for private investors to borrow from the banking system. Even if they do so, the borrowing would be costly, which may discourage them to borrow for investment, and in some cases, they will borrow with high costs, and ultimately the consumer will face the burden. The government may argue that there is already a huge excess liquidity in the banking system, so its borrowing won’t hurt private sector investment. Then question is: why private investors are not borrowing from the banking system despite huge excess liquidity? Does it mean that a preferable investment environment doesn’t exist, right now? In reality, private investment as percent of GDP declined to 19.0% in FY13, down from 20.0% in FY12, although public investment as a share of GDP rose. But, the quality of public investment is still in serious question, so how it may boost up the overall growth, it remains as another question.
  • What about another source of growth – domestic consumption demand? Consumption demand as percent of GDP remains flat at 80.8% in FY13 (80.7% in FY12). What does one expect for FY14 in this area when more political violence is expected (people will consume more at home?)?           
Inflation (whether the target of 7.0% is feasible to achieve?)
  • Whatever the policymakers shout on, increased bank borrowing remains as a major concern, which has a direct linkage to the inflation hike.  
  • During the last couple of years (if one carefully reads BB’s Monetary Policy Statement), to check inflation, BB was utterly vocal for bringing down the impact of asset market bubble through discouraging loans for land and housing markets, and directing banks not to involve in stock market transactions. Now, in the budget, the government made a U-turn as it made a few measures such as welcoming black money into stock market and housing sector, and injecting government-sponsored money into the stock market. Then where does the monetary policy stand now? Won’t these steps hurt price level in the coming year?        

Friday, June 7, 2013

IMF Country Report (June 2013)

International Monetary Fund publishes its Bangladesh Country Report (June 2013) with several documents such as Staff Report and Joint Debt Sustainability Analysis Update.

Link for the Report

Thursday, June 6, 2013

Budget FY14 Documents!

One can find all budget FY14 related documents in the following link.

Budget Documents 2013-14

Budget related articles!

There are lots of good articles published in different newspapers on the occasion of budget announcement. In a true sense, policymakers may like to read these articles while setting their priorities. Because these articles portray true concerns, explains logical analysis and provide appropriate directions for the next urgent steps.

1. Investment and Growth by Professor Taslim
2. Falling investment: a big worry
3. Growth concern
4. Bank borrowing in last four years leaves fiscal discipline in tatters

Tuesday, June 4, 2013

Macroeconomic Review, CPD

The Centre for Policy Dialogue (CPD) comes with an analytical review of Bangladesh macroeconomic performance in FY13. This review covers interesting issues like why growth target slips in FY13, banking sector performance, a review of power sector, why Padma bridge financing is not feasible decision, and economic implications of hartal.

Link of the report.

Sunday, June 2, 2013

Time series data since 1972!

Researchers often struggle while collecting time series macro data on the Bangladesh economy. Bangladesh Bank (BB) recently took an excellent initiative while compiling its data base and making it public. The following link will provide the data based on indicators set in the Monthly Economic Trends, a BB monthly publication. Cheers!

Link for the data.