The new financial year begins today with macroeconomic stability under severe strain because of high inflation, liquidity crisis, dwindling balance of payment, and looming political uncertainty.
Economists and lending agencies have already identified the new financial year, especially implementation of the huge budget for the year, as a daunting challenge due to global price hike of commodities, declining remittance inflow, and looming political uncertainty over the caretaker government issue.
The budget for the fiscal year will be implemented from today as the treasury bench of the parliament on Wednesday passed the national budget for the fiscal 2011-2012.
Although the Tk 1,63,589 crore budget with a huge deficit of Tk 45,204 crore aims at containing the inflation within 7.5 per cent, economists apprehend that the inflation which was 10.20 per cent in May might not come down to the level targeted in the budget.
'I don't think the inflation would be eased soon as the commodity prices on international market are high. We had a favourable weather in the last two/three years, resulting in good harvest of grains. But this year, there are signs of early flooding. If the flood really hits, it will also affect aman cultivation and aggravate the inflation situation,' Zaid Bakht, research director at the Bangladesh Institute of Development Studies, told New Age on Thursday.
He also said the country's balance of payment was also not in a good position because of high import cost due to increased commodity prices on the international market.
As per the latest data of Bangladesh Bank, as of April 2011 the country has a BOP deficit of $0.5 billion while the current account balance had nosedived in the first 10 months of the just-concluded fiscal year to $641 million from $2,653 million in the corresponding period of the previous fiscal year.
Besides, the continued depreciation of the taka against the US dollar has made import of all items, from essential to luxury, expensive over the last six months, fuelling inflation.
The weak taka has also put the BOP under stress and widened the trade deficit.
The value of taka has depreciated by more than 5 per cent against the dollar since January this year because of increased number of letters of credit opened for imports.
Although the country's export earnings have increased by more than 40 per cent in the first 10 months of the just-concluded fiscal year, on the other hand, the trade deficit also widened to $6.43 billion from $4.5 billion in the same period of FY2009-10. The total trade deficit in the just-concluded year would cross $8 billion mark, if the accounts of the last two months are added.
Zaid Bakht said the decelerated growth in remittance inflow was increasing pressure on the BOP.
Economists and business leaders have also expressed concern over the government's projected bank borrowing for this fiscal year as the banks are struggling to provide loans to private sector because of liquidity crisis.
The government in the budget targets to borrow Tk 18,957 crore from the banking system to meet a part of the yawning budget deficit.
The amount of government borrowing from the banking system in the July-April period of FY2010-11 was Tk 11,380 crore against the targeted Tk 15,000 crore.
Zaid Bakht also pointed out that the looming political unrest over the caretaker government issue might affect the economy in the new fiscal year.
The treasury bench of the parliament on Thursday passed the 15th constitution amendment bill, scrapping the caretaker government system.
The opposition parties led by the Bangladesh Nationalist Party, which already enforced a number of general strikes against the government move to scrap the caretaker government system, are likely to launch tougher movements after the passage of the bill.
'We are not seeing any middle ground between the feuding parties. Any election without the participation of all the major parties will not be an acceptable one. So, it is the ruling parties' responsibility to create an environment that facilitates all political parties to participate in the elections,' said Zaid.
For the sake of the country and its economy, all parties should reach a consensus, he said.
Mostafizur Rahman, executive director of the Centre for Policy Dialogue, told New Age on Thursday that they had already highlighted the challenges of fund mobilisation for implementing the budget and the risks, like inflation, the economy would face in the new financial year.
'There is a huge investment and expenditure plan in the budget for the fiscal 2011-2012. To accumulate funds and implement the development budget, the political environment should be conducive to growth of export, order placement, and foreign direct investment,' he said.
He said they hoped there would be discussion and compromise among the political parties over the issue for the sake of economy.
Source : New Age