The Executive Times (ET): First the corruption drive, which slowed many businesses, then the floods and now the cyclone-how will the economy perform in 2008?

Salehuddin Ahmed (SA): The country's macro-economic performance is now largely stable and more or less consistent with the midterm economic framework during the first quarter of 2007-08 despite internal and external adversities. The economy experienced a little stagnation for some reasons, but now factors have started emerging in a coordinated manner.

Bangladesh Bank (BB) is optimistic about achieving a moderate GDP growth rate between 6.2 and 6.5 percentage for the 2007-08 fiscal. The forecast came against the GDP growth target of 7 per cent, set in the budget for fiscal 2007-08. We will be able to attain the projected GDP growth easing the current temporary pressure on economy through a successful integration of the monetary and revenue policies in a planned, transparent and accountable manner. Enhancement of credit flow to small and medium enterprises (SMEs), the central bank's intervention in the currency market through release of dollar and its transparent and accountable monetary policy and disbursement of soft term credit in the Sidr-affected areas to keep macro-economic stability after the recurrent floods and cyclone would help gain such growth. The foreign assistance being provided by the development partners and friendly countries needs to be disbursed timely.

I believe the first quarter of 2007-08 fiscal (July-September) is a new moon and the second quarter (October-December) is a period of stabilization setting ground for the economy taking a supersonic speed to boost the economy to achieve 6.2 to 6.5 per cent growth during the rest of the year.

BB revised the projection, as the country's economy was severely hurt by twin spells of flooding, the November 15 Sidr and the increasing oil prices on the global market. Apart from these factors, steps for various reforms have added to the crisis. It seems that the crisis won't be over so soon. But it will fade in phases as the central bank and the government have taken some positive steps. Any reform measures create some trouble initially but everything takes shape in the long run.

ET: What steps has BB taken to help the Sidr-affected people-especially in ensuring agro-credit?

SA: The central bank gave the directives to the public and private commercial banks, NGOs and other non-banking financial institutions (NBFIs) operating in the Sidr-affected areas to expand their credit disbursement activities in the grass-roots level by re-scheduling their loans and providing new loans to the farmers.

ET: Briefly, what measures has the central bank taken to avert the looming food crisis?

SA: The central bank is extra-cautious to avoid any food crisis in the country and released an adequate flow of money from its reserve. About $18.4 crore has already been released. If necessary more will follow.

ET: Are we likely to see further increase in import in 2008?

SA: The import cost in the 2007-08 fiscal year increased by 18.1 percent from its previous 17.8 percent due to higher import of food and capital machinery during this period. Import of capital machinery and petroleum items declined by 16.7% and 8.32% during the period compared. Bangladesh Bank is encouraging the Commercial Banks to give easy loan facilities to the importers especially to the food items importers. But observing the international economic situation we can predict that prices of goods that Bangladesh import will not be tone-downed by 2008.

ET: What about Government borrowing?

SA: Government borrowing increased a bit due to the adverse situation. The borrowing increased to Tk 9,325 crore as on December 10, including BPC issued bonds of Tk 3,000 crore, as compared to Tk 5,000 crore of the same period last year.

ET: The Current inflation rate is pretty high. What is your expectation for 2008?

SA: Bangladesh Bank's Policy Analysis Unit (PAU) projected that the average inflation rate in the 2007-08 fiscal year will remain between 8.1 and 8.5%, although the average inflation rate was 8.25% and point-to-point inflation rate was 10.06% in October on higher import costs of food products and fuel oil from the international markets.

The first quarter of 2007-08 fiscal year witnessed a galloping inflation, decline in imports-related to production as well as exports, rise in default loans and less than expected industrial credit flow. Import of food items and intermediary goods increased during the first quarter in terms of value and not volume.

The impact of policy measures taken to control the inflation through stabilizing the supply situation might not be visible in the short period of time despite the adversities like floods, cyclone, price hike of fuel oil, food and essential items in the international market.

ET: The SME sector is not getting the required support from PCBs.

SA: The commercial banks need to follow the BB guidelines in providing enhanced amounts of loans to the agriculture sector and small and medium enterprises (SME), women entrepreneurs, and small investors.

ET: What is the status of the foreign currency reserve and what about remittance earning?

SA: The foreign currency reserve in October increased by 5.7% and currency supply by 14.2% compared with the corresponding period of the last fiscal year. During the period, the domestic lending rate and contribution of private banks in providing loans increased by 13.4 % and 16.3 % respectively.

Up to December 18, boosted by inward remittance, the amount of foreign currency reserve stood at $5,396.3 million compared with the $3,762.5 million reserve in the corresponding period of the last year.

There has been a remarkable progress in remittance earning. The remittance was $618.6 million as of November, which was $598.73 million in the corresponding period of the last year.

ET: Some quarters question the government's keeping such a large foreign reserve.

SA: A $5.4 billion reserve is not huge at all, considering the size of the country's economy and it has been kept to manage any crisis. Now it's working. The reserve position of Indian central bank is above $220 billion.

The amount of excess liquidity in the banking system declined to Tk 11,000 crore from Tk 14,000 crore due to borrowing money by the private sector investors over the last few months. But again it increased to the level of around Tk 14,000 crore at present.

The central bank has released an amount of 184 million US dollars in the last few months to ease the domestic currency market.