Inflation is a major worry for Muhith

December 20, 2011

Finance Minister AMA Muhith yesterday said high inflation has become a pressing problem for Bangladesh and containing it within a single digit has become a challenge.

The mounting pressure of subsidy has added to economic problems, Muhith said at the inauguration of a regional training workshop at Sonargaon Hotel.

Muhith’s remark came at a time when average inflation has crossed the government target of keeping it at 7.5 percent by the end of the current fiscal year.

In November, inflation rose 11.58 percent from 11.42 percent in October spurred by increased prices of non-food and foods.

“High inflation is not simply induced by global inflation but also because of certain domestic policies,” he said at the event titled ‘Beyond Inflation Targets: Policy Options and Instruments for Sustaining Growth and Equitable Development’.

Bangladesh Bank (BB), United Nations Department of Economic and Social Affairs (UNDESA) and United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) jointly organised the three-day event.

The minister cited government’s objective of keeping inflation within a single digit in fiscal 2011-12 and said it has become a challenge. “Somehow we have to keep that,” he said.

Apart from high inflation and increased pressure on the exchequer, subsidy is ballooning, particularly because of rising imports of fuel to speed up electricity generation under quick and rental power plants.

This fiscal year the government projected subsidy at 2.7 percent of gross domestic product. The amount of subsidy becomes higher amid an increase in petroleum and fertiliser prices on the international market and rise in oil imports.

Muhith said the subsidy as percentage of GDP becomes higher because of delayed decision in raising fuel prices locally.

“We have really been hurt by delayed decisions,” he said.

In the past three months, the government increased prices of petroleum twice to cut pressure on paying subsidy for fuel that is likely to be Tk 28,000 crore in fuel subsidies this fiscal year.

About criticisms against government policy to quicken power generation through establishing quick and rental power plants, he said the rise in electricity production has given incentive to boost domestic output and economic growth.

“It seems that policy of expanding power production with substantial cost was not right. But it is the growth in power that helped achieve growth in industrial production,” he said.

“I am not worried about subsidy on power,” said Muhith, but added that much more than anticipated spike in fertiliser prices has increased pressure on the exchequer.

“Unfortunately, fertiliser prices have gone up much more than we expected,” he said.

Noting the issue of ensuring inclusive economic growth and sustainable development, he said coordination between monetary and fiscal policies is important. And Bangladesh lacks coordination in this regard, the minister said.

Muhith also said bank branches — now at 7,000 for 15 crore population — are inadequate to ensure financial inclusion.

“We have to find ways to expand banking services,” he said.

Muhith said Bangladesh has been maintaining a good macroeconomic balance in the last 15 years although the country faces serious problems in economic management which has of critical importance in the face of low savings rate, very low foreign direct investment and low public expenditure.

Despite all these limitations, he hoped the economy will continue to be like the past.

Inflation is a major worry for Muhith

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