Emphasis on encouraging credit to private sector

BP Report

Describing Bangladesh Bank (BB)’s Monetary Policy Statement (MPS) for the FY 2019 expansionary, financial sector think-tank BUILD opined that private sector credit should be encouraged in line with the government’s policy.

Identifying public sector credit growth a major cause for steady fall in credit to the private sector, it said, private sector credit is expected to grow slower than that of public sector, attributed to the larger size of the former.

The public sector credit growth is also due to the mega projects, resulting in crowding out of private credit, said BUILD in a statement issued on Thursday.

BB’s monetary policy eyes 12.5 percent growth in Broad Money (M2), 0.5 percent higher than previous MPS but the decision of yearly MPS may not be rational as it is declared on the basis of the pulses of current situation of indicators which fluctuate frequently, it added.

The current account deficit for FY 2018-19 was $5.28 billion, while it was $ 1.3b in 2016-17. The trade deficit has been reduced over last fiscal due to export growth (7.9 percent), but import increased to $59b (2018-19) from $ 47b of 2017-18.

At the same time service trade was negative. Though the government has announced incentive to remittance senders, rules have not been prepared yet. There are reasons for capital account negative balance, MPS could have some directives in that respect, the statement read.

The inflation is apparently at a tolerable level, 5.47 percent, which was 5.54 percent in December, 2019, but still higher than the emerging economies, 4.6 percent. There exists no supply shock, demand-pull factor for the existing higher inflation in the economy. The present level of inflation is caused by the indigenous market forces disruption.

However, government has focused on more foreign aid to avoid crowding out domestic private sector credit. MPS could have some direction in having more private sector investment towards employment creation and GDP contribution.

The capital market is showing vulnerability in the recent time,  in July, 2019, on the basis of falling index point of first two weeks of July, 2019 around $3 billion dollar has been drained from the market.

The instruments of money market and capital market would need to be controlled and maintained on the basis of concurrent pulse and organs of the economy. MPS could give some directives, it opined.