Pre-election budget worries

Private sector dynamism is a welcome development. But Bangladesh Bank's attempt to raise interest rate on private sector borrowing can only lead to a dampening of the new-found buoyancy in the sector such as is based on credit expansion. Furthermore, revenue shortfall and reductions in GDP growth, employment creation and investment are likely to be encountered.

It is thus necessary for the central bank that they encourage private sector lending by scaling down the interest rate instead of raising it further to precipitate a credit squeeze. In neighbouring India and Pakistan the rates on borrowing are half of those in Bangladesh.

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Of course, inflation is a concern. But its current rather high rate is not the outcome of the upward credit trend; the increase in inflation is actually the upshot of higher commodity prices. The salary increase in the government sector which was an imperative necessity might well add to the inflationary pressure but the staggered payment approach is likely to keep it reasonably in check.

This being the penultimate pre-election budget, set against the backdrop of increased inflationary pressure to top it off, the government needs to be extra-cautious in maintaining financial discipline. This would require extensive expenditure control measures. Elections have a way of tempting the ruling party to go for mega-projects, constituency-nurturing ventures and a degree of unproductive grandstanding in terms of development expenditure, albeit with scopes for corruption, misuse of funds and pay offs dovetailed to the approach. Let's not forget, the last two elected governments had stepped up development spending at the fag end of their tenure thereby fuelling corruption and feeding the spoil system.

Election expediency should not be allowed to upset the macro-economic stability which has earned the finance minister plaudits and provided the base for a five percent plus GDP growth rate.