Editorial
Message from ADB report
Second half of the fiscal crucial for recovery
The Asian Development Bank (ADB) in its December economic update report sees the expected GDP growth rate for 2008 at below 6 percent, half a percent lower than in the previous year. In the same breath, the ADB expresses an optimism for recovery in the second half of fiscal 2007-08. In other words, we would like to hope that the economic downturn will be reversed in the remainder of the year and that the GDP growth rate will more or less be comparable with that of the recent years. But this will take a lot of doing.
The back-pulling factors for the economy in the earlier quarters had been the erosion of business confidence, extensive flooding and cyclonic damages and sluggish external demands for garments. These negatives are being somewhat reversed or overcome. Signs of recovery are palpable in terms of export earning and growth in private sector credit. With the functioning of the Regulatory Reforms Commission and Better Business Forum, some deregulatory measures are expected to be put in place and clouds of uncertainty among the business and investor community are fast disappearing as the private sector policy and operationalisation inputs are weighing with the government through periodic dialogues. While this process needs to be taken forward to further boost business confidence and thereby investment in the economy, energetic efforts must be made simultaneously to restore the flood and cyclone affected infrastructure and livelihoods to their pre-disaster levels.
The government is faced with two major challenges: first, containing the high inflation; and secondly, stemming the increase in fiscal deficit. A bumper Boro crop can offset the inflationary pressures brought on by the cyclone and flood-induced Aman crop losses. With weather remaining favourable for the rest of the fiscal and adequate inputs ensured to the farmers, there is so reason why we could not have a good Boro harvest. But there is a caveat. Despite fertiliser subsidisation by the government the farmers are having to pay higher prices to procure it so that the distribution system has to be streamlined.
The rise in subsidies in the wake of increases in oil and fertiliser prices is attributed to the fiscal imbalance but since we cannot do without subsidisation altogether, our primary focus ought to be on improvement in revenue earnings, keeping government borrowing from banking and non-banking sources in check, increasing efficiency in public sector to curb wastage and bettering the quality of public spending through the ADP.
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