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Sunday, April 19, 2009

Package to prop up farm, power, exports

Finance minister AMA Muhith rolled out a Tk 3,424 crore support package on Sunday for the last quarter of the current fiscal year to shield farm, power and export sectors from the effects of the global recession.

Agriculture received the bear's share, with direct subsidies to the sector jumping to Tk 5,785 crore from Tk 4,285 and an extra Tk 500 crore in farm loans under the package.

The money will also go to increase subsidies in power and raise the rate of cash incentives for recession-hit exporters in the remaining few months of FY 2008-09.

The government has divided its recession package into two parts — an immediate allocation for the current year and one for 2009-10, said the minister.

"The package will be executed in two phases—an emergency step (FY 2008-09) and a medium to long term programme to be implemented in 2009-10."

The amended budget for FY 2008-09 will require the additional allocation of Tk 3,424 crore for the first-phase package, said Muhith.

The current budget for the power, agro and export sectors will be revised to Tk 14,554 crore from Tk 11,130 crore, he added.

"We have also adopted policy support along with incentives to keep the Bangladesh economy vibrant in the face of the global crisis."

The measures taken in the financial package for the current fiscal year will be carried into the next year as well and essential allocation will be ensured on regular evaluation, the minister said.

Under the changed global perspectives and on the basis of suggestions from the taskforce formed to recommend measures to offset the recession fallout on Bangladesh economy, measures will be taken in the coming budget, he added.

Although the package did not spoke of cash incentives for the FY2009-10, it promised policy support in export sector, remittance, investment boost, poverty reduction and social safety net.

The breakdown

Among other measures, agricultural subsidies will see a rise of Tk 1,500 crore and subsidies in the power sector will be doubled to Tk 1,200 crore from Tk 600 crore.

Agricultural loans will also be recapitalised to Tk 1,500 crore from Tk 1,000 crore and social safety net programmes (food) to Tk 4,569 crore from Tk 4,195 crore.

For the export sector, cash incentives for jute and jute goods will be raised to 10 percent from 7.5 percent, for leather and leather goods to 17.5 percent from 15 percent and for frozen fish to 12.5 percent from 10 percent. The total allocation for these sectors will rise to Tk 1,500 crore from Tk 1,050 crore with the new rates.

Incentives for export of locally-produced textiles, agricultural commodities (vegetables and fruits) and processed foods will also remain, said Muhith.

Policy support

The government will amend the regulations for export sectors to get the cash incentive without hassles. Thirty percent of the incentives will be released immediately after primary scrutiny and the remainder after final audit.

The finance minister said the foreign and overseas employment ministries have moved to find out new labour markets and step up diplomacy with the countries that have huge numbers of Bangladeshi workers.

Exporters and the spinning manufacturers will be able to reschedule bank loan on easy down payment conditions until Sept. this year.

In case of export credit, Bangladesh Bank will ask the commercial banks to refinance.

The central bank's export development fund has been increased to $150 million dollar, from which one can take loan of $1.5 million dollar, 0.5 million more than before.

Efforts are on to lower licence or licence renewal fee for captive power generator at a reasonable level.

Bangladesh Bank will ensure that any recession-hit industry gets different incentives from banks and financial institutions.

The government will give special stress on agriculture, rural development, fuel, industry and infrastructure sectors to boost investment, the package papers reads. The departments have especially been asked to attract foreign investment in fuel and infrastructure sectors.

Muhith said the Planning Commission and IMED have been asked to take administrative measure to fast-track the ADP implementation.

The package also named a number of measures, taken or would be taken, to offset the recession impacts on the economy.

The government will keep an eye on the foreign exchange rate so that the exporters do not lag behind in the global competition, banks do not suffer from liquidity crisis and internal credit flow is used in productive sectors.

The government will also re-fix the repo, reverse repo and SLR to lower the lending rates.

The prime minister's finance adviser Moshiur Rahman, Bangladesh Bank governor Salehuddin Ahmed, finance secretary Muhammad Tareq, commerce secretary Feroz Ahmed, NBR acting chairman Nasiruddin Chowdhury and ERD secretary Mosharraf Hossain Bhuiyan were also present for the announcement of the package at the finance ministry.

Mixed reaction

The apex business body said the financial package will upset readymade garment exporters. The FBCCI president, Annisul Huq, himself an RMG exporter, told it would have been better if the package raised cash incentives for the export-focused sector.

But a senior economist said the package aims to boost domestic spending to tackle the effects of global recession on Sunday.

"The government's aim is to heighten internal demand through a huge increase in agriculture subsidies," said Zaid Bakht, senior research director of Bangladesh Institute of Development Studies.



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