Thursday 19, May 2022
BN

Inflationary pressure major challenge for economy

Business leaders and bankers yesterday said the economy was facing various challenges, including inflationary pressure, which may weaken the ongoing recovery.

The possibility of an increase in default loans, higher cost of doing business, lack of export diversification and skill shortages will be major impediments toward ensuring inclusive growth of the economy, said analysts.

They were addressing a webinar on "Bi-annual Economic State and Future outlook of Bangladesh Economy: Private Sector Perspective" organised by the Dhaka Chamber of Commerce & Industry (DCCI).

"The economy is yet to recover fully," said Md Jashim Uddin, president of the Federation of Bangladesh Chambers of Commerce & Industry (FBCCI).

"Businesses are still facing hardship despite the rebounding of export earnings and revenue mobilisation by the government," he said.

He said prices of various essential commodities soared, resulting from higher prices in the international market and import tariffs and taxes imposed by the revenue authority.

"Prices will escalate in upcoming Ramadan, the month of fasting, if the authority concerned does not take measures required," he said.

The global commodity market now faces volatility due to the supply chain disruption, he said.

Jashim recommended redesigning tax and customs duties to control inflation.

Inflation in Bangladesh fell to 5.86 per cent in January, the first decline in six months, in contrast to 6.05 per cent the month before.

Food inflation rose to 5.6 per cent last month, an increase of 14 basis points from 5.46 per cent a month ago.

Jashim said an energy price hike would further fuel inflation.

Fazle Kabir, governor of Bangladesh Bank, said the central bank was closely monitoring the inflationary situation.

"The economy has fallen into challenges due to the pandemic, but it is performing relatively well owing to resilience of the private sector," he said.

"Our GDP and total size of the economy have increased which is a good sign and reflects that we are on the right course," said Fazle, who was the chief guest at the webinar.

Light engineering, jute, leather, information and communication technology and pharmaceutical sectors are doing better alongside the RMG sector. There is a need to nurture them for better export diversification, he said.

He urged enhancing soft and hard skills of human resources to overcome challenges stemming from making the graduation from a least developed to a developing country.

Naser Ezaz Bijoy, president of the Foreign Investors' Chamber of Commerce & Industry, said banks would face the pressure of default loans and provisions need to be kept to cope with the loan classification relaxation policy coming to an end.

Banks, which are not preserving extra provisions compared to their existing requirement, will feel the pinch from the increase in non-performing loans, he said.

Naser, also the chief executive officer at Standard Chartered Bangladesh, requested the central bank to bring the SME loans, which were not covered by the stimulus packages, under its credit guarantee scheme.

Rizwan Rahman, president of the DCCI, said Bangladesh's exports have increased 28.4 per cent in the first half of this fiscal year in spite of the global supply chain disruptions.

He suggested full automation of tax, VAT, customs assessment, returns and credit to increase revenue collection and improve services to taxpayers.

Citing that there are 78 lakh cottage, micro, small and medium entrepreneurs in Bangladesh, he said these firms constitute over 97 per cent of the total industrial units.

For this sector, collateral-free, cash flow-based loans are needed, said Rizwan, recommending the establishment of a dedicated SME bank.

For increasing local and foreign investment, he suggested reducing the cost of doing business and removing discriminatory policies between local and foreign investors.

Md Saiful Islam, president of the Metropolitan Chamber of Commerce & Industry, said the economy was still at the recovery stage and now gas and energy price hikes would hamper lives and livelihoods.

Zaidi Sattar, chairman of the Policy Research Institute of Bangladesh, said the economy was growing and the size of the GDP was quite big.

He stressed on the export of services, having an effective exchange rate and diversification of products.   

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