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Budget to get half-year review

Falling investment threatens growth target, say economists at CPD discussion

Star Business Report
The government will go for a half-yearly review of the national budget in December to assess the implementation progress of development programmes for the current fiscal year, Finance Minister AMA Muhith said yesterday.
“Based on the review, we will decide allocation and reallocation of funds for development projects to attain targeted objectives," he said at a dialogue on implementation issues of fiscal 2009-10 budget, organised by Centre for Policy Dialogue (CPD) in Dhaka.
“By this time we should also be able to measure the impact of global recession on our economy and understand what we need to do,” he said.
Chaired by CPD Chairman Rehman Sobhan, the discussion was addressed, among others, by former finance adviser Mirza Azizul Islam and former finance secretary Siddiqur Rahman Choudhury.
CPD Distinguished Fellow Debapriya Bhattacharya presented a paper.
The economists at the discussion expressed fear that weak investment would be a major challenge for the economy to achieve the targeted growth between 5.5 percent and 6 percent.
They observed that the sluggish investment threatens government revenue collection and proper implementation of the current budget, which will also make it difficult to generate employment and reduce poverty.
“Propping up investment will be a major challenge,” said Debapriya Bhattacharya.
Revenue collection, employment generation and poverty reduction targets will be difficult to meet unless the overall investment situation improves, he said.
To overcome the challenge, the speakers laid emphasis on boosting public investment through faster implementation of annual development programme (ADP) for stimulating private investment. Private investment situation remained almost dull in the last couple of years. Initial slackness in investment is blamed for fear among businesses during the immediate past caretaker government. However analysts expected that the situation might improve after the general election.
But consistent power crisis and the fear of negative impact of global recession are dampening investment sentiment, although banks now have adequate funds for lending.
“There is a serous problem in private sector investment demand," said Mirza Azizul Islam.
Aware of the situation, Muhith said there are some impediments, over which the government has
no control.
“We know we have no control on some impediments. But I don't think the 'fear climate' is at all there,” he said.
Power shortage, fear of the impact of global recession and problems in administrative process hurt investment, he added.
Muhith said the government would go for massive investments in energy, water resources and ICT sectors within a coUple of months to attract private sector investment.
But given the targeted budget deficit at about 5 percent of GDP (gross domestic product), the government depends much on financing from domes-tic sources, mainly banks, to implement its programmes.
The economists said ensuring finance from the banks would not be a problem amid the liquidity glut in the banking sector. But unrealised foreign financing targets will put additional burden on bank borrowing, they said.
The CPD predicted that investment might pick up in the second half of the current fiscal year and it could lead to higher credit demand from private sector.
Noting unrealised foreign financing goals, the private think tank warned that the situation would aggravate the concern of a crowding out effect or create resource gap for ADP financing.
I he former finance adviser however said the govern -ment borrowing would not hurt credit flow to the private sector. "Earlier it had not affected, and I hope it will not this year given excess funds in the banks,” he said.
"But it is understandable that no new electricity connection would be given and power supply from industrial units will be shifted to serve prayer needs of the Muslim devotees during Ramadan,” said the § former adviser to the immediate past caretaker government.
"So there will be less investment,” he said, "It is unlikely to achieve a 6 percent GDP growth for the current fiscal year.”
About poor ADP implementation, Azizul blamed delay in revision of projects due to faulty preparation. Problems in acquiring land by the government especially by ministries concerned also hamper timely implementation of ADP, he said.
He also expressed doubt over the expected outcome through the planned Public-Private Partnership (PPP) programmes to draw investment.
Citing the deadlock in shifting the tannery units from Hazaribagh to Savar, Azizul said the tannery operators were reluctant to accept a 20-year loan with 5 percent interest rate for establishing an effluent treatment plant.
"I hope the PPP won't become publicly funded private projects.”