*MONETARY POLICY: The central bank considers the fears of political instability and uncertainty ahead of the general

elections as the biggest challenge for the economy. Top officials of Bangladesh Bank made the observation while announcing the new monetary policy for the first half of the 2013-14 financial year at a press conference on Thursday. Governor Atiur Rahman said: We have to consider the reality... We must acknowledge that there is a political challenge in the country. Everything will go well if the challenge can be tackled effectively. Otherwise risk will remain. Announcing the new monetary policy, he said it would be balanced like in the last half year considering the issues of inflation control and attainment of expected economic growth. The central bank warned that GDP growth targeted for the year will remain out of reach unless there was growth in investment, including in the infrastructure sector. Keeping inflation within the expected level is a big challenge. The policy has fixed a target of 15.5 percent growth in credit flow to the private sector in the July-Dec period against 18.5 percent for the previous six months. However, the achieved growth in the Jan-May period was 11.4 percent. The bank admitted there was little hope of clocking the expected 7.2 percent growth this fiscal year due to uncertainties. In the policy, Bangladesh Bank has kept unchanged the Repo rate at 7.5-basis point. Governor Rahman said: Considering the recent trend, rate of interest and Statutory Reserve Ratio have been kept unchanged in the policy. But its difficult to bring down the inflation rate to 7 percent. He described pressure for salary and wage hike in the public and private sectors, political instability, supply constraints of commodities and anticipated rise in money flow ahead of the national elections as the challenges for controlling inflation. At the press conference, the Governor spoke of the central bank measures taken about state-owned BASIC Bank following a loan scam. He said a memorandum of understanding has been signed with the Board of Directors of the commercial bank under which it would submit reports regularly to the central bank on several matters. Deputy Governor Shitangshu Kumar Sur Chowdhury said the MoU was signed following detection of irregularities in loan disbursements in its several branches. Asked if the MoU is advance self-defence against any future loan scam, he said: Bangladesh Bank has done whatever it thinks is necessary. Everybody should be informed about it. Its no self-defence.

*FISCAL POLICY: Fiscal policy of Bangladesh basically comprises activities to ensure macroeconomic stability of the country. Fiscal policy of Bangladesh is expansionary that causes large budget deficit. As a result, government of Bangladesh follows reflationary fiscal stance- borrows money to overcome the budget deficit. In the fiscal year 2009-2010, Bangladesh government estimated the budget deficit of Tk. 343.58 billion of which Tk. 137.14 will come from domestic sources and Tk. 173.25 will come from foreign sources. The main reasons of budget deficit are tax avoidance of public and corruption in government sector. However, present government is trying to increase both the government and public investment. As a result, government should improve the environment of investment by ensuring available supply of energy, gas, transportation and implementing law and order system. Another negative side of Bangladesh economy is high inflation rate. So, government should take all the necessary steps to reduce the inflation. Otherwise, people have to suffer a lot. So, the overall circumstance of Bangladesh economy is not so good.

1.2 Classification of fiscal policy: Fiscal policy has got two forms and by the forms the government regulates the fiscal activity in an economy.

help of those

. 1.2.1 Expansionary fiscal policy: A form of fiscal policy in which an increase in government purchases, a decrease in taxes, and an increase in transfer payments are used to correct the problems of a business cycle contraction. The goal of expansionary fiscal policy is to close a recessionary gap, stimulate the economy, and decrease the unemployment rate. Expansionary fiscal policy is designed to stimulate the economy during or anticipation of a business-cycle contraction. This is accomplished by increasing aggregate expenditures and aggregate demand through an increase in government spending or a decrease in taxes. Expansionary fiscal policy leads to a larger government budget deficit or a smaller budget surplus. Expansionary fiscal policy is usually associated with a budget deficit. 1.2.2 Contradictory fiscal policy: A form of fiscal policy in which a decrease in government purchases, an increase in taxes, and a decrease in transfer payments are used to correct the inflationary problems of a business-cycle expansion. The goal of contradictory fiscal policy is to close an inflationary gap, restrain the economy, and decrease the inflation rate. Contradictory fiscal policy is designed to restrain the economy during or anticipation of an inflation-inducing business-cycle expansion. This is accomplished by decreasing aggregate expenditures and aggregate demand through a decrease in government spending or an increase in taxes. Contradictory fiscal policy leads to a smaller government budget deficit or a larger budget surplus.

Fiscal policy in Bangladesh: Fiscal policy in Bangladesh basically comprises activities, which the country carries out to obtain and use resources to provide services while ensuring optimum efficiency of the economic units. The policy influences the behavior of economic forces through public finance. Major objectives of the fiscal policy of Bangladesh are to ensure macroeconomic stability of the country, promote economic growth, and develop a mechanism for equitable distribution of income. The main tools to achieve these objectives are variation in public revenue, variation in public expenditure, and management of public debt. These are reflected in the budgetary operations of the government, prepared and implemented on year-on-year basis.