BANGLADESH will take up the opportunity of low fuel oil prices in international markets to adjust prices at home, said Finance Minister AMA Muhith without giving details yesterday.
Addressing a discussion on the budget, to be announced next month, in the capital’s Sonargaon Hotel, he also said savings interest rates would be cut to make funds inexpensive for the private sector.
“The issue has been reviewed, and a decision to this effect will come on Sunday,” he told the programme jointly organised by NTV and the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI). The comments came in response to the business community’s strong demand on cutting bank lending rates which, they said, were major obstacles to raising the investment rate.
Interest rates of savings certificate are high, said Muhith, adding, “We raised the rates in the current fiscal to instil life into the savings instruments, but it was a mistake.” He also said the government plans to use at least 20 percent of the expected foreign aid stuck in the pipeline in the next fiscal year. “It will allow the government to borrow less from domestic sources which will ultimately contribute to the reduction of banks’ lending rates,” he said. He also said the government may further extend the tax-holiday facility for the ICT sector.
It is about time that the government adjust fuel prices to keep it line with the international market rates. Giving subsidies when prices are too high and earning extra revenue when prices are too low do nothing but distort the inherent efficiency of the market and are hence a bad idea as market prices bring about a natural equilibrium. Oil is a very essential product and while it is being used for power generation its prices should reflect international prices so as to make electricity generation less costly.
Cutting interest rates to make funds inexpensive is a much needed gesture to jump-start private sector investment. Lower interest rates reduce the opportunity cost for investment and thus theoretically have the capability to increase the demand for more investment. Whether more investment will actually occur will depend upon the private sector as other factors beside the interest determine the demand for investment – the most prominent one being a sound political and social climate and good governance, both of which our country desperately needs.
Ultimately both decisions, along with others discussed at the meeting, are decisions which bring into prominence the needs of the free market to express itself, and show a desire for lower levels of government involvement in our economy. It is time that the government paid attention to the ability of the markets to regulate themselves and not intervene so needlessly.
