Contradicting Finance Minister AMA Muhith’s stance on new pay hike for government employees Bangladesh Bank on Monday said that the new pay scales would have ‘an upward pressure’.
The central bank has said, the reasons for inflationary pressure include the new pay scale, the possibility of oil price hike because of political tension in the middle east, and finally, the demand pull impact on the price level because of output growth.”
Bangladesh Bank made the forecast while making its own assessment about the whole economic performance of the country and also projecting the economic possibilities in new calendar year 2015.Earlier, while receiving the Pay Commission report, Finance Minister AMA Muhith had said: “It (new pay scale) will have (absolutely) no impact on inflation.”
About the inflationary concern, the central bank said it would keep these issues in mind and design the upcoming monetary policy accordingly so the targeted 6.5 percent inflation becomes achievable.
“If the stimulation in domestic demand that the economy experienced at the fag end of 2014 is continued, earning a growth rate of 6.5 percent or more will not be difficult in 2015.”
About the economy of outgoing year 2014, the BB said there remain some aspects of economic discomfort that include non-performing loans, excess liquidity, and some irregularities at branch level banking.
“While most of them surfaced as the staggered toll of political disturbances of 2013, Bangladesh Bank girded itself up to check the negative trend and undertook corrective measures”.
In the middle of 2014, the central bank said it witnessed a one-time jump of default loans, which happened because of various reasons including new best practice of classification and provisioning rules as well as political instability.
Bangladesh Bank claimed that it has brought down the net default loans to a moderate level. “Total default loans are on the wane as a result of improved supervision and close monitoring from the central bank leading to higher level of loan recovery”.
It said the economic developments of 2014 conveyed mixed signals. Most financial indicators displayed remarkable progress.
However, according to BB assessment, some opportunities for improving infrastructure and revenue mobilization still remained.
“We need to look at them in 2015. Political turbulence, hartal, and blockades that spanned through 2013 almost entirely took heavy toll on the economy of the country. As a result, investment stagnancy was a highly discussed topic in the whole year of 2014.”
The central observed that the aftermath of 2013’s instability created some degree of uncertainty in investment. Nevertheless, investment began to accelerate around the end of 2014. Excess liquidity of the dollar and taka in the local market began to evaporate, suggesting a revival of trade and commerce.
The BB said the last part of 2014 marked a new momentum in consumer and business confidence. Imports and exports reflected an upward trend.
“So did remittances, and importantly, foreign currency reserves registered a new record. The economy achieved a respectable 6.12 percent growth rate against all political odds. Per capita income rose from 1044 dollars in FY2013 to 1190 dollars in FY2014.”
The central bank found that the noticeable thing was inflation’s slow but steady descent, which helped expedite consumption and investment decisions.
A cautious stance of the central bank in money supply helped achieve these satisfactory numbers of growth and inflation, it said.
The Bangladesh Bank said imports in FY2014 rose to US$ 37 billion, which is expected to grow at around 12 percent in FY2015. Exports, however, waited until the very last part of the year to show that trend. Remittances, which amounted to US$ 14.2 billion in FY2014, are likely to grow at 10 percent in FY2015.
“Now foreign reserves amount to US$ 22.32 billion – enough to cover seven months’ imports,” said the central bank. “The recent composition of imports, where capital goods, machinery, and other production inputs dominate, signals the future empowerment of the economy.”
Since imports outstripped exports, the resulting current account deficit bodes well for future growth as long as the deficit is at a tolerable level, it hoped.
Bangladesh Bank said it has adopted some pragmatic steps in compliance with the inclusive development strategies of the government.
These included inclusive banking, SME loan, green banking, financial sector modernization, e-commerce, mobile banking, agri-credit expansion, export promotion, and liberalization in foreign exchange transactions. As a result, the growth base has been expanded and it is much needed for sustainable development.
Empowerment of the poor by including the masses is the main mantra of inclusive banking, whose benefits have already begun to manifest in the society, the BB said.
“Overall employment has also picked up. While poverty has slid down, indicators like life expectancy and real wage have shown a positive trend. In addition to achieving self-sufficiency in food production, Bangladesh has been able to export rice for the first time in history.”
The relative shares of industry and service in the composition of GDP are on the rise – an essential feature of the economy to promote Bangladesh to the bracket of the middle-income countries, said the Bangladesh Bank assessment. – UNB
