Raising GDP growth, reining in inflation to be tough

Policymakers will find it tough to bring some sort of a balance between targets to ensure economic growth while containing inflation in the next fiscal year, economist Zahid Hussain said yesterday.

Growth of the gross domestic product (GDP), the monetary measure of the market value of all final goods and services produced in a specific time period, stood at 7.3 per cent in fiscal year 2021-22, according to the Bangladesh Bureau of Statistics.

The consumer price index (CPI), the most widely used measure of inflation measuring the overall change in consumer prices over time based on a representative basket of goods and services, has gone up 6.3 per cent year-on-year as of April, said Hussain, a former lead economist at the World Bank's Dhaka office while addressing a workshop on the national budget organised by BRAC University Economics Club at its Mohakhali campus.

Citing data, he said private consumption has been a major driver of economic growth over the last couple of years. Private consumption grew 72.8 per cent of the GDP in fiscal year 2021-22 from 68.8 per cent the year before. Private investment grew during the current fiscal year. Public investment as a percentage of GDP also increased, he said.

Hussain said the current account imbalance as a percentage of the GDP rose from 0.9 per cent in fiscal year 2020-21 to 6.9 per cent in the current fiscal year, owing to increasing trade deficit and reduced flow of remittances, creating pressure on international payments of Bangladesh.

He said instead of addressing the core cause, Bangladesh Bank tried fixing the exchange rate, which nearly turned the interbank market dysfunctional over the past couple of weeks. The central bank also increased the margin for opening letters of credit to discourage imports but that only decreased local market supplies and raised prices, said the expert.

Although the government simultaneously raised regulatory duty on the import of goods such as flowers, fruits, furniture and cosmetics, this addressed the issue of external balance, not inflation, said the economist.

It remains to be seen whether two other government steps bring any fruitful result – a ban on visits abroad by government officials and going slow on the implementation of government projects, especially those taken on political consideration, he said.

The workshop also focused on other aspects of the national budget and its implications on the country's economic growth, both in the short and long run.

Hussain explained that all such efforts were to attain macroeconomic equilibrium, a condition in the economy in which the quantity of aggregate demand equals the quantity of aggregate supply.

Internal and external imbalances result from the system going into disequilibrium, with the adjusters being government intervention through tariffs and quotas, current account deficits and surpluses, inflation or deflation, changing foreign exchange reserves and interest rates and trade and price wars, he said.

Internal imbalance is a combination of recession, inflation and unemployment while external imbalance culminates from foreign exchange shortage and both external indebtedness as in the case of Sri Lanka or assets build up as in the case of China, said Hussain.