Editorial
Credit squeeze on private sector?
Economy will be the loser for it
The first-ever mid-year Monetary Policy Statement (MPS) of the Bangladesh Bank has hinted at going for a tighter monetary policy. Stakeholders in the private sector have not been consulted, although they will have to bear a sizable brunt of the credit contraction that a stringent monetary policy would entail.Bangladesh Bank aims at cutting back on inflation through the credit squeeze policy. The public sector, and by implication, the government, is by far the bigger borrower of the banks' money. It is widely believed that improved efficiency, waste control and belt tightening by them would have been a better option than limiting the public sector's credit access. Hard-headed economists might say, well, it is nothing but wishful thinking to expect of the losing public sector concerns to change their ways overnight. But, of course, the government needs to exercise expenditure control, especially in an election year, when the pressure grows for overspending. The central bank intends to curb 'the excess demand arising from inflationary expectations' through credit shrinkage. We wonder though, why the government is not taking recourse to the standard method of checkmating inflationary pressures which is to strengthen the supply side through steadied and rent-free distribution of commodities to the marketplace. This is also a plausible route to take against inflation because of the good agricultural output recovery we have made since the floods, food basket being key to price stability. Furthermore, another spate of rise in the fuel prices is round the corner with its portents for increasing inflation. Production will cost more, so will the transportation of goods with the end-price of industrial and agricultural goods rising. At a time like this, therefore, nothing could be more unwise than squeezing credit flow to the private sector which will have a multiplier negative effect with the fuel price rise. Industrialisation which has picked up pace will lose some of the momentum through lack of working capital and higher cost of funds. With the production costs going up, competitiveness will dwindle. In all, it is a lose-lose situation that lies ahead of us if there were to be a credit crisis in the private sector. We urge the government to sit down with the stakeholding private sector leaders and operators in a bid to jointly evolve a stratagem for keeping inflation in check without affecting the levels of productivity and growth.
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