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CPD suggests quick steps to arrest falling investment, growth

Mustafizur Rahman of CPD stresses importance of participatory political and electoral process

Star Business Report
The Centre for Policy Dialogue yesterday called for an action plan to boost the declining investment and economic growth.
The plan should look to restore investor confidence, undertake and enforce regulatory reforms, enhance service delivery capacity of institutions, take advantage of global market integration and address the ever-increasing infrastructure demands and political uncertainties.
The observations were disclosed yesterday at a press briefing on the think-tank's analytical review of Bangladesh's macroeconomic performance for the outgoing fiscal year.
The analysis focused on five broad issues: overall macroeconomic scenario, public expenditure and its financing issues, power sector development and exports.
During the first half of the fiscal year, the economy was confronted with severe disruptions in production, transport and service delivery
that afflicted both domestic and export-oriented activities, CPD said.
In the second half, in the backdrop of the political uncertainties, a deceleration in the investment growth, particularly that of private sector investment, constrained efforts to translate the relative macroeconomic stability into higher economic growth.
"In the context of these twin developments, reinvigorating the investment environment to regain the lost momentum of accelerated GDP growth has emerged as a major concern from the perspective of macro-economic management in fiscal 2013-14 and particularly in view of the upcoming budget." Mustafizur Rahman, executive director of CPD, who presented the analysis, said political uncertainties continue to dampen investor confidence.
Rahman stressed the importance of participatory political and electoral process; otherwise, the country would not get rid of the prevailing economic concerns, which have forced investors to shelve their big investment plans.
Private investment's share in the GDP saw a "distinctive" fall this fiscal year: 21.4 percent compared to 21.7 percent in fiscal 2012-13.
GPD said the government's provisional GDP growth estimate of 6.1 percent for fiscal 2013-14 is optimistic and expects it be revised down.
"As can be recalled, final GDP growth estimates were lower than provisional estimates six times in the last ten years."
The growth rate of the industry sector is estimated to come down to 8.4 percent from 9.6 percent in fiscal 2012-13, while the agriculture sector is projected to achieve a much improved performance (3.4 percent growth in fiscal 2013-14).
The government expects the service sector growth to be 5.8 percent, up from previous fiscal year's 5.5 percent.
"It comes as a surprise that each of the nine sub-sectors under the services sector is expected to attain higher growth amidst political turmoil."
On the fiscal front, the think-tank said it has become important to readjust the parameters in line with the resource mobilisation and expenditure.
The National Board of Revenue continues to struggle for the second consecutive year in fiscal 2013-14, Rahman said.
In the first ten months of the fiscal year, NBR attained 9.2 percent year-on-year growth against the annual target of 25.3 percent. The report said the NBR collections will need to grow at 34.4 percent in the last two months to attain the target.
Domestic interest payment accounted for a significant incremental share of net nondevelopment revenue expenditure, which increased by 10.1 percent in the first three quarters of the fiscal year.
"Out of every Tk 100 in budget deficit, Tk 91 is being financed from domestic sources," Rahman said, while advising keeping the high-cost domesticborrowing within the manageable limit."
The fact that about 49.8 percent of the annual development programme budget was spent during the July-April period of the fiscal year is another cause for concern.
Average annual inflation stands at 7.5 percent as of April, while the target for June is 7.0 percent. Of the 7.5 percent inflation in April, 5.3 percent was contributed by food inflation and 2.2 percent by non-food inflation.
Private sector credit growth nosedived to slightly over 11 percent in March this year, down from the monetary policy target of 16.5 percent. On the other hand, banks are sitting on huge idle funds, which, according to GPD, isTk 135,000 crore at the moment.
The think-tank said the export sector is witnessing extreme volatility, though the country registered over 13 percent growth during the first ten months of the current year.
Exporters are facing setbacks in doing business with the LIS, it said, adding that the country needs to focus more on south-south exports.
The GPD also questioned the rapid rise of imports in the last couple of months. Imports were negative during the first half but it rose by over 11 percent afterwards. "Was there any flight of capital in the name of imports?"
The slowdown in inflow of remittances and manpower export has also become a concern, as more jobs have to be created within the market.
GPD said balance of payments, exchange rate, healthy foreign exchange reserve, declining inflation and recovery in global economy are some good sides of the domestic economy.
Fahmida Khatun, research director of GPD, and Khondaker Golam Moazzem, additional research director of GPD, also spoke.