Central bank's guarded annual report

Central bank's guarded annual report

After around nine months had passed since the end of the last fiscal year (FY21), Bangladesh Bank released the annual report for 2020-21 in the last week. This is a new record, indeed!

Usually, the central bank is used to publish the annual report within five to six months after the end of the fiscal year. For the last few years, the publication deadline extended by seven months. Now, what drives the central bank to release one of the flagship reports around nine months after the end of the year is difficult to comprehend. Although the official date of release is mentioned as January 20, 2022, in the 'letter of transmittal' to the finance secretary from the governor of the central bank, the report was uploaded in the Bangladesh Bank's website on March 28. By doing so, Bangladesh Bank has undermined the importance of the publication which was once considered an important national document to understand the country's economic trend and outlook.

Gone are the days, when releasing the annual report of the central bank was an important event for the national economy. Officials and staff of Bangladesh Bank spent a busy time dispatching the report to the press. Journalists also wait eagerly to have a copy of the report as early as possible. All the major national dailies publish the news the next day focusing on the central bank's observation on the near term outlook of the economy. On several occasions, even the then-governors met the members of the press to formally launch the report and replied to different questions raised by the latter. Thus, the dissemination of the review and overview of the country's economy was a hectic event.

Unlike the international agencies like the International Monetary Fund (IMF), World Bank and Asian Development Bank (ADB), the central bank of the country is not in a position to provide any forecast or outlook critically. It also does not analyse the economic performance of the country rigorously as done by local think tanks like the Centre for Policy Dialogue (CPD). The analyses, forecasts and observations of Bangladesh Bank are understandably flat, cautiously indicative and moderately conservative. These are due to various limitations of the central bank as it is still not adequately independent to provide an observation that may not tally with the government's view and stance.  

Nevertheless, the core messages of the central bank's analyses are always considered valuable presuming that these are backed by necessary research and understanding. Now it appears that releasing of the annual report has become a matter of compliance only. The central bank is no more comfortable about meeting the press in this connection. There is no explanation regarding the unwanted delay in releasing the annual report.  The central bank also did not issue any press statement on the publication of the flagship report. 

The structure of the central bank's annual report is almost unchanged for more than a decade. The cautious attitude of the central bank sometimes makes the messages it wants to convey ambiguous. For example, in the latest report, Bangladesh Bank said: "The recent sectoral trends suggest that the government's real GDP target for FY22 can be achieved subject to improving the COVID-19 situation with no major external or internal shocks." This is a flat statement regarding the near-term outlook of the economy. The government has set a target of 7.2 per cent growth for the gross domestic product (GDP) for the current fiscal year (FY22). There is a clear indication that the Covid-19 situation has improved significantly which is driving the economic activities at a full steam. So far, there is no internal shock in the economy as no natural or man-made disaster is there. On the external front, the Russia-Ukraine war and global price hikes have come as two shocks. These are now visible in domestic inflation.

In the annual report, some carefully crafted statements are there on the near-term inflation outlook. It said, for example, "Any further deterioration of the pandemic situation of Covid-19, global price hike, and unexpected crop losses due to natural calamities may cause upward inflationary spiral which has to be taken care of."

As the government has set the target of the average inflation rate for FY22 at 5.3 per cent, the central bank is conducting monetary policy to keep inflation at the targeted level. In this connection, the annual report also said: "... excess liquidity stemming from the stimulus packages may engender inflationary bubbles in the upcoming months where strong vigilance will be required." It means that the stimulus package of Tk 1.24 trillion, announced and disbursed through various phases, has increased the money supply and contributed to inflationary pressure. This is not an abnormal phenomenon. Nevertheless, in another place of the report, BB said: "Despite the implementation of handsome amount of stimulus packages, the money supply remained well contained and is anticipated to remain within the safe limit in FY22 and with the completion of some big infrastructure projects like Padma Multipurpose Bridge by 2020, the domestic supply chain may substantially improve in the coming months. These are considered to be favourable for lessening   inflationary pressure in the near, short and medium terms in Bangladesh." (P-24) It seems confusing because at one place, the central bank is linking a rise in inflation to the increase in money supply due to stimulus, while in another place it is asserting that the money supply is under control with almost no inflationary effect. Moreover, its annual monetary policy review report, released almost a month before the publication of the annual report, said that the annual average rate of inflation is likely to cross the 6.0 per cent level by the end of the current fiscal year (FY22). Referring to the central bank's inflation expectation survey, it added that the above 6.0 per cent means it may even reach as high as 8.5 per cent by the end of December. There was, however, no explanatory note which makes the report  somewhat ambiguous.

In the annual report, in a brief note on the inflation outlook for the current fiscal year, it was argued that the development related to inflation needs to be assessed in time to determine whether the headline inflation originates from the underlying inflationary pressure or the base effects. BB argued that the assessment may help in formulating prudent policies for effective inflation management. This is an important message for the policymakers where the significance of the central bank's annual report lies. Let the report be more communicative and critical with clarity and also be made available by December or earlier every year.

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