Europe is cautiously welcoming the return of inflation after a worrying period where interest rates veered to below zero, essentially meaning it would cost to maintain deposits. Rising prices pre-suppose increased demand and that's good news for the manufacturing sector that had been quietly forced to restrain output for fear of burgeoning inventories. In a quixotic way, the monster that is inflation, control of which has been passionately argued by development partners for less well-off economies, isn't necessarily bad. Deflation cuts huge chunks out if value of assets and works against investments simply because returns aren't viable. And it exposes an inherent weakness of financial planning, whereby growing profits are seen as the only way to satiate shareholders. That it can go south is understood by seasoned executives who prefer to hold back a little from real stretch achievements and boardroom debates often become lively in trying to reach a common number of acceptable bottom-line numbers.
With the tendency to move to value-added tax as replacement for import and export duties to allow for smoother movement of international trade, consumption becomes more and more important, especially in developed economies. Tax-gross domestic product (GDP) ratios are looked at carefully essentially to achieve a balance, hence the striving for reducing leakage and tackling the root cause behind it - corruption. But changes are afoot. The new US administration and the Brexit fallout will almost certainly transform the horizon. How the UK and the US will create more jobs and shy away from lower cost production hubs is what everyone is waiting for.
The World Bank has largely translated this by revising 2017 GDP (gross domestic product) growth downwards for Bangladesh. The basic assumptions of lower consumption affecting exports, Gulf counties' slowdown leading to lower remittances and a rebound in oil prices leading to higher subsidies and increased public sector wages leading to a subsidy hole of sorts are interesting. But it also raises questions.
Analysts were found to be sadly wanting in predicting the outcome of the US Presidential elections and the Brexit referendum. And the assumptions look a little stale. Public sector salaries haven't moved for quite some time and while questions involving bureaucratic efficiency have come up, no one seems to have noticed that even after the increases, inflationary adjustments aren't complete. What they have done is reduced the corner cutting of public sector employee families. Until now, exports haven't fallen backwards, though growth year-on year isn't up to expectations. And with the renewed push towards renewable energy sources, oil prices aren't expected to rise a time soon to the dizzying heights of the recent past. Moreover, the Bangladesh government's reluctance to cut consumer prices of fuel has meant it has recovered all the subsidy paid through the years and there's a healthy buffer of profit stashed away.
Our economy has outperformed forecasts and there's little to suggest it won't do so again. Revenue generation is up against ambitious targets, development expenditure is likely to be down triggered by the usual inability to utilise funds in the mega projects and even the white elephants aren't bleeding the economy to levels of alarm. On the contrary, the ability to proceed with the Padma bridge without development partner assistance, may have piqued sensibilities but re-established what resilience can achieve. The Prime Minister has used this exemplary example to urge exporters to be innovative both in terms of products and destinations and fish where the fishes are. The World Bank President chose Bangladesh as one of his first destinations to visit sending a clear signal that isn't being echoed by his country office here. Unless something is terribly wrong between vision and forecasts, someone, somewhere is not telling it as it is.
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