Exports, imports show good signs |
CPD review says slow ADP progress, pressure on BoP problematic
Key variables influencing macro-economic performance have started off on a relatively strong footing during the first leg of the current fiscal year with a stable export growth and a record import of capital machinery and industrial raw material.
However, the implementation of the Annual Development Programme (ADP) remains sluggish, inflation is high, privatisation process is paralysed and pressure is on the balance of payment (BoP), according to the first interim report prepared by the Centre for Policy Dialogue (CPD), an independent think-tank.
Presenting the 'Independent Review of Bangladesh's Development (IRBD)', CPD Executive Director Dr Debapriya Bhattacharya said the main challenge of the government for the next six months will be how it handles the macro-economy, as its management is currently going through an interesting period.
It is the non-economic factors relating to poor governance, high degree of corruption and weak law and order that are creating serious drawbacks for investment, he said. These are the factors which can largely explain the mismatch between the strong macro-economic fundamentals of Bangladesh and low confidence of investors.
Debapriya wondered, "The trigger to alleviating such a situation lies more within the domain of politics rather than in economics. Will the underlying political economy of Bangladesh continue to arrest its development prospects and to perpetuate poverty and inequality?"
The IRBD reported a 9.74 percent revenue growth during the July-November period, resulting in almost the full realisation of the temporal target. But, in the backdrop of high import growth in recent months, non-fulfillment of targets (around 4.00 percent shortfall) for collection of import duty comes as a surprise, it noted.
The government paid back more to the banking system than it had borrowed in the four months from July to October, the CPD executive director noted. "The net government borrowing during the period declined by 5.8 per cent, notwithstanding a 9.8 percent net increase in non-bank borrowing."
Domestic credit recorded a net increase of 3.54 percent during the same period, compared to 2.93 percent during the corresponding period in the previous year, he added. "This increase is largely attributable to the higher inflow to the private sector."
In the backdrop of the slowdown in growth of industrial term loans in the recent years, Debapriya said the disbursement record for July-September 2003 was quite impressive -- Tk 1,423 crores, which shows more than a 106 percent growth against a net outflow during the corresponding period of FY03.
Compared to only 4.5 percent growth in FY03, capital machinery import has exhibited a robust rise of about 49 percent and industrial raw materials went up by 27 percent during the first quarter of FY04, he mentioned.
On the other hand, food grain imports by the private sector was 71 percent higher than the previous year, he said. "The agricultural production cost in Bangladesh is high due to higher fuel price. The government should increase subsidy for agriculture and it should be given for fuel instead of fertiliser."
Exports grew at a rate of 9.94 percent in the first quarter of the FY04 and the growth was achieved through a more than 12.6 percent increase in export volume in the face of about 2.7 percent decline in the price index.
"Such an extensive method of export expansion is not sustainable over the medium term," he added.
Debapriya noted early information on the ADP implementation suggests that an amount of Tk 214 crore or 10.6 percent of the total budget was spent during the first quarter of FY04. The overall utilisation of the ADP budget up to October 2003 was 15 percent, compared to 16.5 percent in the corresponding period of the last fiscal.
The ADP budget for FY03 was Tk 19,000 crore, of which 80 percent was implemented after the slashing of size. The ADP target for FY04 has been fixed at Tk 20,300 crore, which is Tk 5,000 crore more than last year's actual implementation of Tk 15,297 crore, he added.
"It is thus not the overall size but the quality of the projects included in the ADP which matters most. Furthermore, the capacity of the line ministries to absorb such incremental allocation of resources is open to doubt," Debapriya said.
This approach to project management directly contributes to the process of waste and corruption in the public expenditure process. There is a concern that the ADP management quality has further deteriorated, which might increase the frequency of waste of resources, he said.
He also observed that the success of macro-economic management depends on the ADP implementation.
"The inflation rate for non-food prices has been higher than for food prices. However, very surprisingly, one finds that both food and non-food price increase had been higher in the rural areas than in the urban ones."
The recent price hike will hit the poor more, particularly those living in the rural areas, he said, adding that the need is to monitor the inflation closely in the coming months, particularly when the government is pursuing a moderate expansionary policy.
The current account balance registered a smaller surplus due to the lower level of current transfer including foreign remittances coupled with larger trade deficit, the CPD executive director added.
The slight weakening of the balance of payment during the early months of FY04 may not raise immediate concern, however this will definitely be an issue to be monitored closely in the coming months, Debapriya mentioned.
The privatisation process remains paralysed due to the lack of a coherent policy within the government, he said, adding around 10 state-owned enterprises (SOEs) have been closed down during the last two years while only three were privatised.
Several SOEs under different ministries were shut down but now the ministries are backtracking from their earlier decision, thinking of reopening some of these units, Debapriya said.