Overall macroeconomic performance of the country is reeling under a 'temporary pressure' and will regain strength in a month or two as both government borrowings and cost of imports are on the decline, the central bank has observed.

Bangladesh Bank (BB) officials have said that the 'temporary pressure' was a result of large import cost against low export income, slow growth in remittances and foreign aid inflows that, together, resulted in acute liquidity crisis and volatility in the prices of foreign currencies in the local market.

However, they also said that the opening of LCs (letters of credit) for food grains and capital machinery had declined by 69.25 per cent and 33.89 per cent in July-October period of the current financial year (FY 2011-12), compared to the previous FY. Meanwhile, the government borrowings also came down to Tk. 18,000 crore in November from Tk. 21,00 crore  the previous month.

"Economy will gain strength again in a month or two, as we see a declining trend in import cost and borrowings by the government," said SK Sur Chowdhury, executive director of the central bank.

He said the challenges in the first half of the current FY were high import costs, huge borrowings by the government, underperformance in mobilising foreign aid, a sharp decline in remittance inflow and low export earnings.

Import cost crossed over US$13 billion during July-November of FY 2011-12, a 23.15 per cent growth over the actual import cost of the same period a year ago,  which was slightly above $10 billion, BB data showed.

In the same period in FY 12, export income registered $ 9.7 billion, a meagre 17.33 per cent growth (12 month average) over the previous FY, which was $8.2 billion. According to BB, the average growth in export income downturned to 17 per cent in FY 2011-12, with only 2.40 per cent growth in November, while the growth was over 40 per cent in the same period last year.

Till November, the net foreign aid mobilisation was only $4.57 million. The total foreign loans and grants the country received was $ 413.88 million. But the government paid off $409. 31 million as interest and principal credit return. In the same period last year, the net foreign aid and grants was $140.62 million.

Remittances declined to $915 million in November, compared to the actual inflow of $998 million in the same month a year earlier, said the official.

These issues were touched upon in the latest meeting of the Executive Management Team (EMT) of the central bank, held last week, with Governor Dr Atiur Rahman in the chair, said another top official of the central bank.

All four deputy governors and all executive directors were present as member of the team. Sources said it was observed at the meeting that the liquidity status in banks turned out to be an apparent deficiency as the rate of overnight borrowing (call money rate) was still at 20 per cent average, as banks had become desperate to mobilise foreign currency to meet the import cost against committed LCs.

The standard rate of overnight borrowing was relatively equal to the rate of inflation, when the financial sector was steady.
However, top central bank executives expressed concern over the country's poor macroeconomic performance in the last five months but observed that it was a 'temporary' phase and would go away by the end of January or February, he added.

"Such situation will be no more as a large number of manpower moved to overseas jobs and stock of food grains is adequate," said the source.

Sources said the central bank had been expecting the government to refrain from spending large volumes of foreign currency by importing wheat untimely, when stock of food grains was sufficient.

"But the execution of such an unwise wheat procurement plan may put additional pressure on the economy when the country has needed a strong reserve of foreign currency," he said, adding that "the government's recent move to import wheat from the Ukraine is not timely when majority of the export earnings and remittances are being spent to pay off the petroleum and industrial raw material import costs."

The Daily Independent/Bangladesh/ 21th Dec 2011