Nazmul Ahsan

The International Monetary Fund (IMF) has sought to know from the government the reasons for decline in private sector credit in recent period and the possible impact of the proposed hike in wages in the public sector on the private sector wage structure, sources said.

The queries have recently been made by the multilateral lender to the Ministry of Finance (MoF) and the Bangladesh Bank ahead of the planned visit of the Fund's Article-4 mission from October 19 to October 29, 2009, they added.

The IMF has also some queries about real sector, public enterprises, monetary and financial issues and external sector.

The government agencies concerned are now busy preparing the answers of IMF's queries, while officials are updating themselves on various macro-economic issues that may come up during the visit of Article-4 mission, sources said.

Under Article IV of the IMF's Articles of agreement, the IMF holds bilateral discussions with member countries, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials of the country's economic developments and policies. On return to IMF headquarters it prepares a report, which forms the basis for discussion by the executive board. At the conclusion of the discussion, the IMF Managing Director, as Chairman of the Board, summarises the views of the Executives Directors, and the summary is transmitted to the authorities of the country concerned.

According to the latest data of the BB, the credit flow to the private sector recorded a negative growth of 14.62 per cent to Tk 277.91 billion in June 2009 on a year-on-year basis from that of 24.94 per cent or Tk 379.58 billion of the previous year.

The growth came down to 24.72 per cent in October 2008 from 26.55 per cent in September 2008.

Furthermore, the overall excess liquidity with the commercial banks stood at Tk 347 billion in June 2009, registering a 165 per cent growth over that of the same period of the previous calendar year.

Import orders for capital machinery plummeted by nearly 30 per cent in the fiscal year ended on June 30, 2009 as the global economic crisis created a climate of uncertainty in the country's industrial expansion, officials said.

Letters of credit worth US$1.23 billion were opened to import machinery for factories in the 2008-09 financial year against $1.753 billion in the previous fiscal, according the central bank statistics.

Actual import of capital machinery --- equipment needed for industrial production --- dropped by a meagre 0.78 per cent to $1.403 billion in FY09, boosted by the previous orders executed last year, the Bangladesh Bank said.

The primary reason for the decline has been attributed to the cautious attitude of businessmen in making new investments against the backdrop of global economic recession.

Besides, erratic supply of gas, power and water is yet another reason for the decline in credit flow during the period under review, officials and bankers said.

They, however, expressed the hope that the private sector credit flow would pick up from the second quarter of this financial year if the government is able to solve gas and electricity problems.

The bankers said the demand for bank loans has declined strikingly in recent period despite a cut in interest rates, mainly due to lack of confidence amid a sluggish economy.

They said the situation might improve if the rate of implementation of the annual development program picks soon.

Besides, the growth of readymade garment industry, one of the major clients of banks, has almost halted due to lower demand from buyers of the US and the European countries.

"Things are still in bad shape. We are expecting a turnaround in industrial activities from November or December,' Nurul Amin, Managing Director, NCCBL, told the FE.

"The infrastructures such as supply of gas, power and roads are pre-requisite for any investment."

As far as upcoming pay scale is concerned, bureaucrats said the government has to spend at least Tk 32 billion to Tk 34 billion more in the current fiscal year due to the enhanced payment to be made due to the proposed pay scale.

Finance Minister AMA Muhith on Sunday said the government would need one more month to announce the pay scale for public servants.

However, a top executive in the private sector said the next pay commission would have some impact on their wage structure, but not by any significant level.

"Actually, the pay structure of private sector is much more lucrative than that of public sector,' a top executive of a private business firm said.

"We have to hike the salary of our staff considering their market demand and our business growth.'

Another top executive said they have to review their salary structure after the government announces the pay commission for public servants.