Bangladesh banking sector condition worsens: IMF team

The delegation projects FY20 GDP growth at above 7.5pc

Staff Correspondent | Published: 00:00, Jun 28,2019

 
 

A file photo shows the Bangladesh Bank headquarters at Motijheel in Dhaka. Financial situation in the country’s banking sector has deteriorated further along with high vulnerabilities, observed an International Monetary Fund team. — New Age photo

Financial situation in the country’s banking sector has deteriorated further along with high vulnerabilities, observed an International Monetary Fund team.

The delegation ended its 12-day visit in the country on Thursday.

The team of the Washington-based global lender differed with the government’s GDP growth target (8.2 per cent) for the fiscal year 2019-20, stating that the country’s economic growth would be above 7.5 per cent in FY20.

The team led by Daisaku Kihara made the observations at a press briefing held at the Bangladesh Bank headquarters in Dhaka on Thursday.

The delegation recommended limiting use of rescheduling or restructuring of defaulted loans for resolutely addressing the high level of non-performing loans, and addressing financial stability and associated fiscal risks.

Appreciating the government move to implement new VAT law, the delegation mentioned the multiple rates and implementation as major challenges.

At the briefing, IMF Bangladesh mission resident representative Ragnar Gudundsson and its economist Muhammad Imam Hussain were present, among others.

Mentioning that the country’s economic growth continued to be strong, Kihara said, ‘Important challenges remain to realise the authorities’ aspiration to reach upper middle-income status and preserve the resilience and sustainability of growth.’

The IMF team leader recommended three types of reforms for overcoming the challenges in achieving the goals.

Citing that the growing volume of NPLs would decrease available resources for the banks as well as for the government, Kihara suggested reducing elevated banking sector vulnerabilities.

Secondly, he recommended that the government should create fiscal space to address social needs, infrastructure requirements, and climate change vulnerabilities.

The IMF team head thirdly suggested diversification of the country’s economy by strengthening business environment through improved governance.

Speaking about the country’s banking sector, Kihara said, ‘The financial situation in the banking sector continues to deteriorate despite strong growth.’

‘Resolutely addressing the high level of non-performing loans in the banking sector is essential to address financial stability risks and associated fiscal risks,’ he said.

Kihara recommended a comprehensive, credible, and time-bound six-step action plan for addressing the banking sector vulnerabilities.

Strengthening banking sector supervision and avoiding regulatory forbearance were the top priority recommendations made by the IMF team.

It also recommended focusing on a close assessment of banking sector assets, tighter criteria and limited use of rescheduling or restructuring of loans.

Improving corporate governance, reforming legal system to strengthen creditor rights, redefining role and mandate of state-owned commercial banks and developing bank crisis management and resolution mechanisms were the other financial sector-related proposals.

Asked, whether Bangladesh would get benefit out of the ongoing US-China trade war, the IMF team leader said that there could be slowdown in the world economy and there could be an increase in demand for Bangladeshi RMG products.

He, however, said that what would be the net impact of the trade war on Bangladesh was yet to be clear.

Appreciating the government’s move to implement new VAT law in FY20, Kihara, however, observed that the revenue impact was uncertain because of multiple rates and implementation challenges.

The organisational structure of the National Board of Revenue needs to be modernised to improve its coordination and efficiency, he said.

On the expenditure side, a priority remains to improve public investment management through better project appraisal and selection and alignment of public investment priorities with national and sectoral plans, Kihara said.

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