Express (July 25, 2011)
The finance minister Sunday said the government has planned a raft of austerity measures to cut bloating public expenditure in an effort to absorb external shock, but it won't back away from its decision to allow new private banks.
AMA Muhith said issuing licenses for new banks is a "political decision" of the government, brushing off concerns of the Bangladesh Bank that the move is unnecessary as the banking sector is already "over-saturated".
"It is our political decision to issue licenses for new banks in the country despite reservation made by the BB," Muhith told economic reporters in Dhaka during a post-budget talk on challenges of the new fiscal year.
"The BB has told us that the banking sector is already oversaturated as far as issuing licenses for new banks is concerned after the Ministry of Finance sought the central bank's opinion," the finance minister said.
Asked whether the decision aimed at favoring political leaders, the minister said "it might be". He said it could be the last time the government was influencing the BB for issuance of new bank licenses.
He, however, justified the government's move, saying entry of new banks won't over-crowd the market and the economy was now in better shape and is "growing fantastically" to make room for new financial institutions.
"The existing banks are not adequate for our population," he said, and added that new banks would bring in better competition in the financial sector.
The Finance Minister emphasised increased supervision in the banking system, and suggested that the BB should separate its Supervision and Inspection Division and Monetary and Management Division for better results.
In his budget speech in June, Muhith spelled out the government's decision to invite applications from entrepreneurs to set up new banks and life insurance companies in the country.
At present, 47 commercial banks and 18 life insurance companies operate in the country. Experts have said the move would impose extra burden on the central bank without bringing any meaningful benefit to the banking sector.
On challenges of the budget for the 2011-12 fiscal year, the finance minister said the government has planned to unveil a set of austerity measures in an effort to cut bloating public expenditure and trim down heavy bank borrowing.
The planned austerity measures include restricting foreign tours of government officials, limiting pompous decoration of public offices and reducing the allocation for entertainment, the minister elaborated.
"We are planning spending cut of official travels, entertainment and decoration of government offices to build up good savings so as to meet future need and give the economy an additional shock-absorber," Muhith said.
He said the country's balance of payment (BoP) has faced severe strains in recent months due to spike in import cost and "some mistakes" in determining the exchange rate against dollar.
Lower-than-expected disbursement of foreign aid in recent period has also piled up extra pressures on the BoP, the minister said, adding "The pressure is now lessening."
He said inflation remains a key area of concern although the economy has been growing at a steady pace as the government had implemented measures to boost domestic demand over the past two years.
"The recent high trend in inflation, driven by external causes, prompted us to think about observing austerity in some areas to ensure better use of our resources," Muhith said.
Citing the soaring prices as a "matter of concern", Muhith said sometimes the consumers should avoid buying essential items to help calm the market.
He said food prices are still lower in this country compared to the global market; and the government has scaled up OMS (open market sale) and VGF (vulnerable group feeding) programmes to cushion poor from soaring prices.
The minister, however, blamed "unholy alliances" in the market for creating artificial crisis and price spike of essential food items ahead of the Ramadan.
He said after independence inflation was high in 1972 and 1973, before a drastic slide into deflation of minus six per cent during 1974 and 1975. The current inflationary trend is higher, having already crossed 8.5 percent, he added.
According to the Bangladesh Bureau of Statistics, the overall inflation rate rose to 8.80 percent in fiscal 2010-11 from 7.31 percent a year ago, while food inflation soared to 11.34 percent from 8.53 percent.
The minister said the Securities and Exchange Commission (SEC) is working on to streamline the capital market regulation, updating book building method and amending some securities laws to ensure stability on the stock market.
Muhith, however, termed December-January's stock crash as a "so-called collapse in share market" and said it was nothing but major price correction.
Coming down heavily on chief executives of state-owned enterprises, the minister said they should rise above their "usual character" and have to offload the SOEs' stakes in "the stipulated time" or face severe consequences.
Muhith is upbeat about attaining the revenue target of the budget and said the target could be revised upward as the trend of tax income in the new fiscal year is encouraging.
"We are optimistic of achieving our revenue goal. So, there is no cause to worry on this particular issue," Muhith said.
The minister stressed accuracy in census reports, saying that the country might face problem in preparing and implementing the budget if "correct picture of population" is not revealed by the latest enumeration.
He said that the difference between the enumerated figure and the final figure in the two previous censuses was between four and five per cent.
"I guess, the total population of the country will be around at 165 million in the final estimate which is being conducted by Bangladesh Institute of Development Studies," the finance minister said.
He blasted the past four-part alliance government for deliberately crippling the capacity of the state-run Bangladesh Bureau of Statistics (BBS), which now lacks required manpower and expertise to carry out its jobs perfectly.
On the planned transit to India, Muhith said the government would sign agreements on 'a couple of protocol routes' during the visit of Indian premier Manmohan Singh to Dhaka in September.
Responding to a question, the minister said the routes to be included in the transit agreement between Bangladesh and India could be as much as 15, but not all would be used by the Indians right now.
"A number of certain routes could be opened for transit purposes soon after an agreement is signed between the two nations," Muhith said.
The minister said the paid-up capital of non-banking financial institutions (leasing companies), which has been increased to Tk 1.0 billion and those of insurance companies are less than the standard amount to meet international criteria.
He said it would be possible to achieve 14 per cent export growth target in the current fiscal following the 42 per cent increase last year. The exchange rate with the dollar will be between Tk 74-75, he added.
He observed that some regulating agencies in the country, including in the insurance sector, should be more strengthened. On a separate pay-scale for the Bangladesh Bank, he said a decision is yet to be taken.
On the political situation, he said the economy could suffer due to frequent hartals.
Top officials of finance ministry and the National Board of Revenue were present at the meeting. Economic Reporters Forum President Monwar Hossain presided over the meeting. Abu Kawser, ERF General Secretary, gave vote of thanks.
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