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Economists offer recipe to revamp economy, stocks

Star Business Report
Stock exchanges and regulators should strengthen monitoring and surveillance over banks, non-banks, brokers, merchant banks and other stakeholders to reinvigorate the capital market, said ?\B Mirza Azizul Islam, a former finance adviser to the caretaker government.
"Appropriate actions should be taken against violators of laws, rules and regulations, " Islam said at a discussion yesterday.
He presented a paper at the discussion on "fiscal policy and capital markets", organised as part of a two-day economic conference by Bangladesh Economists Forum at Radisson Hotel in Dhaka.
Islam, also a former chairman of Bangladesh Securities and Exchange Commission, said the number of listed securities on the stockmarket should he raised to increase market depth.
"There was an explosion of market capitalisation on the basis of price inflation of existing scrips. There were not many new issues of initial public offerings of significant size over the last few years from the private sector with the notable exception of Grameenphone."
The promised off-loading of shares of 26 state-owned enterprises has not materialised, he said at the discussion moderated by
M Syeduzzaman, a former finance minister.
A large number of shares issued by companies from different sectors would help bring about better balance between demand and supply and enable investors to pick and choose on the basis of fundamentals rather than zooming on a limited number of existing shares, Islam said.
The limited number of shares helps to excessively inflate prices and creates conditions for eventual downslide, according to the paper.
Bangladesh Bank and the stockmarket regulator should regularly exchange notes and adopt policies with due regard to interactions between money market and capital market.
Policies, once adopted on the basis of mutual consolations between the two regulatory authorities as well as between them and other stakeholders, should be implemented rigorously without being subservient to extraneous influences and should not be changed frequently, Islam said.
A perennial problem in Bangladesh is that wrong-doers in the capital market either go unpunished or there are long delays in disposal of cases, he said.
"It is important that there is close coordination among relevant agencies to ensure speedy legal action against manipulators. Otherwise it will be hard to restore investors'
confidence in the market."
Questions are often raised about the truthfulness, completeness and transparency of audited statements of corporate accounts, Islam said.
This is a vital prerequisite for stock investors to be able to make informed decisions. The establishment of the proposed Financial Reporting Council to exercise oversight over the auditors remains in a state of limbo, he said.
Ahsan H Mansur, executive director of Policy Research Institute, said the budget size would probably need to increase about 28 percent of GDP to face the enormous fiscal challenges by 2030.
Mansur presented a paper on "macro-fiscal management: role of fiscal policy beyond 2030" at the discussion.
The budget for the next fiscal year of 2014-15 is 15 percent of GDP. The increase in spending in terms of GDP would need to be about 0.5-0.65 percentage point per annum, hesaid.
Such an increase in the size of the budget would allow for raising the education budget by 2 percentage points to 4 percent of GDP, the public spending on health care by at least 2 percentage points to 3 percent of GDP, and spending on social welfare by 2 percentage points to 4 percent of GDP.
"Bangladesh has enormous fiscal chal-
lenges over the medium and long term. Demand for a rapidly growing middle income society for public social services, social protection, and the massive unmet and new demand for infrastructure will be enormous."
Citing a World Bank study, Mansur said Bangladesh needs about $9 billion (more than 5 percent of current GDP) in additional investment in major infrastructure projects per year to sustain growth at a higher level.
Although the government currently spends about 6 percent of GDP on its annual development programme, one third of the amount is allocated for communications and power, he said. This means current major infrastructure investment amounts to about $3-3.5 billion.
The government would need to start its public-private partnership initiative in full force to leverage public resources with private investment, Mansur said.
With proper blending, public sector resource use could be limited to about 7-8 percent of GDP and still contribute to significantly improving the quality of infrastructure.
The government's fiscal deficit level should still remain at about 5 percent of GDP so that with 6 percent or more GDP growth in the longer run there would be no question about debt sustainability, he said.