Lower private sector credit leaves growth potentials unattended

BANGLADESH Bank (BB) in its six monthly monetary policy from July 1, as reported by national dailies on Friday, has advanced a ‘restrained but explicitly pro-growth monetary policy’ for private sector to support the government 7 percent growth target at 6.2 percent inflation in fiscal 2015-16. Under the new policy private sector credit may grow 14.3 percent for the first half and 15 percent for the entire fiscal year. The new target is 0.5 percentage points lower than the one in the previous monetary policy but 1.4 percentage points higher than the last six months actual figure, the central bank Governor Dr Atiur Rahman said tabling the policy to newsmen at BB headquarters. .
The private sector credit growth stood at 13.6 percent from January to June which was lower than the last six months 15.5 percent target. The governor has however justified the lower private sector credit target blaming the shortage of infrastructure facilities including lack of adequate power and energy supply to the industry. He said higher flow of credit to private sector without matching capacity to use them in productive investment may only promote misuse of funds and inflation.
As it appears many business people sounded critical of lower private sector credit target saying it should have been between 17 and 18 percent to boost the confidence of the businessmen as the industrial sector is now passing through a stagnant situation. Some others say it would not bring about any positive or negative impact to the business sector as infrastructure crisis and political uncertainty are the main problems in stimulating the private sector growth.
Needless to say both the Governor and the private sector leaders are quite rights in the light of their own view points. The Governor is right when he said the investment absorption capacity of the private sector remained constraints by lack of adequate infrastructure facilities. The new private sector credit will be enough to support the growth potentials of the economy that it now possessed. Any ‘pushed in’ to credit supply would only make borrowing easier to add to spill over of classified loans to bad loans in the banking sector. So the new monetary policy appears to be quite appreciable.
But the political issues that some business leaders have taken up are also quite valid if the Bangladesh Bank wants to accelerate the private sector growth to take the overall growth level closer to 7 percent. It depends on the capacity of the political leadership to give the nation a stable political situation. So long it will be absent, using the full potentials of the economic growth and the financial resources of the nation to achieve it will only remain a far cry. The new credit policy to private sector indicated the lower level of political space to bring about higher economic growth.