The Asian Development Bank (ADB) has said rising inflation, inadequate power generation, lower than expected domestic revenue and foreign aid, global economic slowdown and political instability are major challenges for Bangladesh's economic growth this fiscal.
"Continuation of the high petroleum and power subsidies also implies lower allocations for priority social and physical infrastructure, affecting the country's long-term growth prospects," the latest Quarterly Economic Update (QEU) of ADB said Friday.
The Manila-based multilateral capital lender said under pricing in power and energy products inhibits sector development and exerts pressures on the government budget through larger subsidy.
ADB's report has also said the estimated budget deficit at five per cent of gross domestic product (GDP) could cross the limit this fiscal due to higher subsidy allocations.
It said: "Larger borrowing from the banking system could stoke inflation, crowd out private investment and undermine fiscal sector discipline in the current year.
On the other hand, meeting the deficit target by trimming annual development programme (ADP) will affect construction of essential infrastructure."
The ADB cautioned Bangladesh's energy supply shortage saying growing power supply and energy shortages are the binding constrains to achieving the growth, job, and poverty reduction targets in the sixth five year plan (FYP).
The government aims to generate 2,157-megawatt (mw) of electricity by 2012, but if gas availability is not improved, higher generation targets may be difficult to meet, it added.
Greater attention is needed for making investment in renewable and clean energy, finalising the coal policy, importing power and liquefied natural gas, attracting private investment, and improving capacity and governance in the power and energy sectors, it suggested.
The Manila-based lender praised the government's initiatives on building larger infrastructure like Padma Bridge and Dhaka Elevated Expressway.
It, however, expressed the view that the budget allocation in road and railway has increased significantly but ensuring efficient use of such allocations as well as monitoring the cost and quality of work, are critical.
The economic update said growth in agriculture is likely slow to 4.6 per cent in 2011-12 fiscal from 5.0 per cent in FY2011, because of the high base in two successive years.
ADB has suggested for continuous support by the government to expand irrigation facilities for bringing new areas under cultivation, to raise cropping intensity through the spread of hybrid crop cultivation, and to create an incentive regime to enhance the commercial viability of agriculture for sustaining high agriculture growth.
It said Bangladesh's major challenges to macroeconomic stability in FY2011 were the rapidly rising inflation and the growing imbalance in external trade.
The government adopted an expansionary stance for the FY2012 budget to help attain a 7.0 per cent growth rate, while aiming to contain inflation within 7.5 per cent.
To balance higher economic growth with macroeconomic stability, close coordination between monetary and fiscal policies will be necessary to control credit expansion, contain inflation and ease balance of payments pressures, while a steady flow of credit to the private sector has to be ensured, it said.
The economic update said: "Budget finance from the banking system should be closely monitored. To achieve targets for growth, jobs, and poverty reduction under the sixth FYP, large investments are needed for power, transport, human capital, and technological improvements."
Policy and institutional reforms will need to be accelerated and capacity issues in line agencies will have to be quickly addressed to create conditions that support better growth outcomes, it noted.
ADB said industrial sector growth is expected to edge up to 8.8 per cent in
FY2012, with exports maintaining healthy performance, thrust sectors responding positively to government incentives provided in fiscal year (FY) 2012 budget, small and medium-sized enterprises (SMEs) and agro-based industries performing better due to buoyant domestic demand and easier access to credit, and continued growth in housing and construction activities.
To maintain strong sector performance, gas and electricity should be made available, port services, improved, and costs of doing business, reduced, the Bank suggested.
ADB' economic update said the half-yearly (July-December 2011) monetary policy aims to continue the central bank's tighter monetary policy stance to rein in credit expansion to control inflation and preserve external sector balance.
The monetary policy pins the hope on the possibility of controlling credit flows to wasteful, unproductive, and high-risk sectors, while ensuring adequate credit flows to productive sectors in manufacturing, agriculture, trade, and other services, it added.
ADB said: "Widening credit access for the underserved productive sectors will be one of the major priorities under the current monetary policy statement.
Regulating credit flows to unproductive sectors, and redirecting them to the more productive ones will be a major challenge, requiring close monitoring by the central bank of commercial banks' credit operations."
The Asia-Pacific regional lender said the major stock market indicators remained subdued following a sharp fall in prices in early December 2010. "Dhaka Stock Exchange (DSE) general index declined by 26.2 per cent in end June 2011 from the level of end-December 2010."
"The government announced ad hoc measures to stabilize the market and improve investor confidence, including advising commercial and merchant banks to reinvest their profits, instructing merchant banks to stop the practice of forcing clients to sell shares, and removing index circuit breakers. The government has set up the Bangladesh Fund, aimed at stabilizing the stock market," the economic update added.
Source: thefinancialexpress-bd.com
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