UNB, Dhaka :
The Unnayan Onneshan (UO) has cautioned that inflationary pressure together with higher target of credit growth in absence of business enabling environment is likely to challenge the effectiveness of the new monetary policy.
Theindependent multidisciplinary think-tank came up with the observationon Wednesdayinits rapid assessment of recently announced monetary policy statement for the second half of the FY 2017-2018.
The UO in its January issue of Bangladesh Economic Update 2018 fears that without increasing quality and regulatory oversight, mere increasing target of growth in private sector credit – 16.3 percent for the first half and 16.8 percent for the second half of FY 2017-18 – may prove ineffective in facilitating investment-led employment generation and economic expansion. The think tank points out private investment as percentage of gross domestic product (GDP) has increased by less than one percent on average during the period between FY 2010-11 and FY 2016-17. Private investment as percentage of GDP stood at 22.50, 21.75, 22.03, 22.07, 22.99, and 23.01 percent in FY 2011-12, 2012-13, 2013-14, 2014-15, 2015-16, and 2016-17 respectively.
Questioning the target relating to private sector credit growth in facilitating private investment in the country, the research organization comments that increase in private sector credit growth from 15.7 percent in June 2017 to 18.1 percent in December 2017 could not expedite the productive sectors in real terms since inflation is on the rise during the same period of time.
The UO notes that food inflation increased from 5.38 percent in December 2016 to 7.1 percent in December 2017 on point-to-point basis. In absence of effective measures, such an increasing trend in food inflation may further deteriorate the living standard of the poor against the backdrop of rising income inequality and decreasing per capita calorie intake in the country. The research organization expresses concern over the dependence on import in dealing with food inflation pressure and cautions that higher imports are likely to further disrupt the already deteriorated current account balance. Rising inflation coupled with dismal external sector will drive down growth in net foreign assets, resulting in depletion of forex reserve and depreciation of taka making the target of real growth in GDP hard to achieve, fears the UO. The think tank evinces that the current account balance recorded a deficit of $ 4432 million during July-November 2017 compared to that of $ 683 million during July-November 2016. As a consequence, the balance of payment experiencing a surplus of $ 1911 million in July-November 2016 marks a deficit of $ 479 million in the corresponding period of 2017.
In regard to increased non-performing loan (NPL) vis-a-vis the total loan in the banking system, the think tank reiterates its concern about inefficiency in the banking sector and finds that the ratio of gross NPL to the total outstanding loans further increased from 10.1 percent in the last quarter of FY 2016-17 to 10.7 percent in the first quarter of FY 2017-18.
Referring to persistent deterioration in the financial portfolio of the state-owned banks due to monumental growth in writing off of loans, meteoric rise in the default loans and nosedive in risk and capital adequacy ratio, the research organization cautions that the public in general has to pump their tax money to rescue the stripped nationalized commercial banks through recapitalization.
Calling for a prudent harmonization of monetary and fiscal policies that would make both the money and fiscal multipliers work in the economy, the UO urged for facilitating market development through preventing crowding out of market-based monetary management instruments and channeling adequate resources for the expansion of productive capacities.
The Unnayan Onneshan (UO) has cautioned that inflationary pressure together with higher target of credit growth in absence of business enabling environment is likely to challenge the effectiveness of the new monetary policy.
Theindependent multidisciplinary think-tank came up with the observationon Wednesdayinits rapid assessment of recently announced monetary policy statement for the second half of the FY 2017-2018.
The UO in its January issue of Bangladesh Economic Update 2018 fears that without increasing quality and regulatory oversight, mere increasing target of growth in private sector credit – 16.3 percent for the first half and 16.8 percent for the second half of FY 2017-18 – may prove ineffective in facilitating investment-led employment generation and economic expansion. The think tank points out private investment as percentage of gross domestic product (GDP) has increased by less than one percent on average during the period between FY 2010-11 and FY 2016-17. Private investment as percentage of GDP stood at 22.50, 21.75, 22.03, 22.07, 22.99, and 23.01 percent in FY 2011-12, 2012-13, 2013-14, 2014-15, 2015-16, and 2016-17 respectively.
Questioning the target relating to private sector credit growth in facilitating private investment in the country, the research organization comments that increase in private sector credit growth from 15.7 percent in June 2017 to 18.1 percent in December 2017 could not expedite the productive sectors in real terms since inflation is on the rise during the same period of time.
The UO notes that food inflation increased from 5.38 percent in December 2016 to 7.1 percent in December 2017 on point-to-point basis. In absence of effective measures, such an increasing trend in food inflation may further deteriorate the living standard of the poor against the backdrop of rising income inequality and decreasing per capita calorie intake in the country. The research organization expresses concern over the dependence on import in dealing with food inflation pressure and cautions that higher imports are likely to further disrupt the already deteriorated current account balance. Rising inflation coupled with dismal external sector will drive down growth in net foreign assets, resulting in depletion of forex reserve and depreciation of taka making the target of real growth in GDP hard to achieve, fears the UO. The think tank evinces that the current account balance recorded a deficit of $ 4432 million during July-November 2017 compared to that of $ 683 million during July-November 2016. As a consequence, the balance of payment experiencing a surplus of $ 1911 million in July-November 2016 marks a deficit of $ 479 million in the corresponding period of 2017.
In regard to increased non-performing loan (NPL) vis-a-vis the total loan in the banking system, the think tank reiterates its concern about inefficiency in the banking sector and finds that the ratio of gross NPL to the total outstanding loans further increased from 10.1 percent in the last quarter of FY 2016-17 to 10.7 percent in the first quarter of FY 2017-18.
Referring to persistent deterioration in the financial portfolio of the state-owned banks due to monumental growth in writing off of loans, meteoric rise in the default loans and nosedive in risk and capital adequacy ratio, the research organization cautions that the public in general has to pump their tax money to rescue the stripped nationalized commercial banks through recapitalization.
Calling for a prudent harmonization of monetary and fiscal policies that would make both the money and fiscal multipliers work in the economy, the UO urged for facilitating market development through preventing crowding out of market-based monetary management instruments and channeling adequate resources for the expansion of productive capacities.
