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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?        

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