Atiur Rahman (L)The central bank yesterday expressed concerns over loss-making state enterprises' heavy borrowing from local banks and advised them to raise funds from the international market.
Borrowing by non-financial state enterprises escalated in recent years, which grew 32 percent in fiscal 2010-2011, according to Bangladesh Bank data.
“Many loss-making SoEs closed down earlier at considerable cost in severance payments and loan liabilities are being reopened with newly borrowed funds,” the central bank said in its Monetary Policy Statement for July-December.
“It is unclear whether the reopening decisions were based on proper viability appraisals or the performance of these reopened SoEs is being monitored closely,” Bangladesh Bank said. It must be an area of “priority attention”, the central bank suggested.
Governor Atiur Rahman announced the policy statement at a press conference at his office in Dhaka yesterday.
In the statement, the central bank said it may be timely to initiate steps to raise external financing by longer-term bond issues on international markets for the larger public sector infrastructure projects.
“It will generate income streams for debt servicing as the processes require several months of preparatory work,” it said.
The policy statement presented a pattern of the government's borrowing from the banking system originating in BB's books, which are subsequently offloaded to banks in T bill/bond auctions.
“This is why reserve money spikes steeply every June as government departments and offices rush for full withdrawal of their annual budgetary allocations, often depositing the funds drawn in accounts with scheduled banks.”
“When market liquidity swells from such end-FY spurt in reserve money growth, BB steps in to mop up excess liquidity and restore normal liquidity conditions.”
According to the central bank, the government's target of 7 percent GDP growth would not be difficult to achieve, but reaching the goal of containing targeted inflation would be a challenge.
“Attaining or exceeding the 7 percent real output growth for FY12 targeted in the national budget wouldn't seem too difficult,” BB said.
It linked economic growth to benign climatic conditions, rapid easing of power and gas shortages, timely and adequate availability of financing and physical inputs, and stable social and political environment.
On inflation, the central bank said: “Even as the BB remains proactive in curtailing excess demand from undue monetary expansion, attaining the targeted decline of inflation rate to 7.5 percent, which was 8.8 percent in the last fiscal year, may prove challenging.”
“Food inflation may fall slightly but non-food inflation may have some increase if the subsidised user price of gas, electricity and petroleum are revised upward to relieve the government's mounting budgetary burden.”
In its policy statement, the central bank said exchange rate of Taka is likely to continue to be under some pressure in FY12, as reserves are projected to decline slightly by close of the financial year.
It said the projected balance of payments outcomes for the current fiscal year are trend-based, with scope for improvement with appropriate policy efforts successfully promoting exports and attracting capital and workers' remittance inflows.
BB projected that in the current fiscal year the overall deficit in BoP would be $439 million, which was estimated at $38 million in the last fiscal year against their initial projection of a surplus of $358 million.
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