Dhaka, Bangladesh (BBN)- A non-government research organisation has said the falling private sector credit growth will continue to suppress investment demand, resulting in a decline in the growth rate of gross domestic product (GDP).
“Recent declining trend in private sector credit growth, which has factually been causing the growth of the economy to decline in the last three years in a row, can be restrained through a harmonisation of fiscal and monetary policies,” the Unnayan Onneshan (UO) said in its current issue of the Bangladesh Economic Update on Monetary Policy Statement (MPS), released on Saturday.
Earlier on January 27 last, the Bangladesh Bank (BB) unveiled an ‘investment-friendly, cautious’ monetary policy with an aim to achieve maximum economic growth by curbing inflationary pressure on the economy.
The UO also observed that the slow demand for investment has been reflected in the credit-deposit ratio. The overall credit-deposit ratio in the banking sector decreased to 70.80 per cent in December 2013 from 71.91 per cent in November 2013. The credit-deposit ratio was 76.59 per cent in December 2012 and 80.33 per cent in June 2012.
The rate of growth of actual disbursement of credit to the private sector in July to September of fiscal year (FY) 2013-14 over July to September of FY 2012-13 were 10.18 per cent, representing a 5.32 percentage points gap, according to the Update.
During July-December, 2013 inflation increased to 7.35 per cent while the target was 7.0 per cent, it said, adding that private sector credit growth has remained stagnant at 11.1 per cent during the months of September, October and November of 2013 against the target of 15.5 per cent.
“The current inflationary pressure can be checked by the policy harmonisation since increased private investment and employment creation will ensure the use of money in productive sectors and cause both the money and fiscal multiplier effects to work in the economy,” the UO noted.
The central bank forecasted that the growth rate might be within the range of 5.8 – 6.1 per cent, while the government has already decided to revise down the growth target to 6.3 per cent for the ongoing FY, 2013-14, from 7.2 per cent.
The UO anticipated that the real GDP growth rate in FY 2013-14 might decline to 5.65 per cent. In FY 2010-11, the GDP growth rate was 6.71 per cent, which declined to 6.23 per cent in FY 2011-12, and further fell to 6.03 per cent in FY 2012-13.
The independent multidisciplinary think-tank also said that the growth in GDP may fall below the decadal average of 6.0 per cent due to fiscal and monetary management trap, functioned by lack of policy farsightedness and political contestations.
BBN/SSR/AD-01Feb14-8:59 pm (BST)
