Bangladesh macroeconomy under severe pressure: CPD

Staff Correspondent | Published: 00:00, Nov 04,2019 | Updated: 18:52, Nov 04,2019


Centre for Policy Dialogue distinguished fellow Debapriya Bhattacharya speaks at a press briefing on CPD’s latest report on the state of the Bangladesh economy in the fiscal year 2019-2020 at the CIRDAP auditorium in Dhaka on Sunday. CPD senior research fellow Towfiqul Islam Khan was present, among others. — New Age photo

The macroeconomic stability in the country has now become weaker and performance of economic indicators is under mounting pressure that may lead to a structural slowdown in the economy, according to the Centre for Policy Dialogue.

The independent think-tank also raised red flag in four areas of the economy — revenue mobilisation, banking sector, capital market and balance of payment — where immediate attention was required.

‘This is a growing stress on the macroeconomic stability and overall situation aggravated as very little structural and institutional reforms are undertaken in the economy,’ the CPD made the observation in its latest report on the state of the Bangladesh economy in the fiscal year 2019-2020 (first reading) released at a press briefing held at the CIRDAP auditorium in Dhaka on Sunday.

CPD distinguished fellow Debapriya Bhattacharya said that the problems in the sectors would further increase stress on macroeconomic stability and cause slow gross domestic product (GDP) growth if the problems were not addressed.

‘Macroeconomy is now under severe pressure and we did not see such pressure in last 10 years,’ he said, adding that weakness was also appearing in the external sector which was the strongest side of the economy over the last few years.

According to the CPD, lack of reforms is holding back private investment, affecting mid-term drivers of growth and inclusivity of economic growth.

‘All these may lead to structural slowdown which will undermine the sustainability of the economic growth,’ the report said.

Revenue collection scenario in the first quarter (July-September) of the fiscal year 2019-2020 did not appear too promising, banking sector is stuck in a quagmire of woes, capital market is in crisis and cloud is gathering over the performance of the external sector, the report said.

Debapriya said that there were also symptoms of structural slowdown in the global economy.

The government should review the existing economic policies and undertake required reform initiatives to keep out the country from the impact of global economic slowdown, he said.

Regarding the GDP growth rate in the country, Debapriya raised questions about how the country achieved so higher growth without increased private investment and with slower private sector credit growth and capital machinery import, rising non-performing loans in banking sector and vulnerable capital market.

Private investment has been hovering at 23 per cent of GDP while the GDP growth increased to over 8 per cent from 5 per cent in last few years and there was no clear explanation about from where the extra growth came, he said.

‘The GDP growth estimate is like a kite having no tie with its string,’ he said.

Growth estimate does not have connection with economic data and reality, he said.

Debapriya also said that growth-centric development narrative became the enemy of inclusive economic growth.

Tax evasion, money laundering, loan defaulting, excessive price escalation of development projects became rampant, he said.

CPD executive director Fahmida Khatun, in her presentation on the banking sector, said that all major parameters of the banking sector indicated its persistent fragility with no signs of revival on the horizon.

In the recent past, the difficulties of the sector have been exacerbated by the symptoms like drop in private sector credit growth, mounting liquidity stress, unsuccessful cap on interest rates, unabated non-performing loans, massive loan rescheduling and writing-off, worrying capital inadequacy in certain banks and futile recapitalisation of banks, she said.

If liquidity crisis persists, the private sector credit growth would further slow down and the economy would run the risk of a downturn, she said.

She said that total volume of NPLs increased to Tk 1,12,430 crore in June, 2019 and the amount would have been Tk 2.40 lakh crore if loan rescheduling and writing-off were taken into consideration.

The amount of NPLs is 4.43 per cent of GDP and greater than the annual budget allocation for education and health combined, she said.

‘The opportunity cost of NPLs is outrageous as the government could build three road bridges like Padma bridge or five metro rails like Dhaka metro rail,’ she said.

The malaise of the banking sector is due to lack of governance and accountability of Bangladesh Bank, finance ministry, commercial banks and judicial process, she said.

Regarding capital market crisis, CPD research director Khondaker Golam Moazzem said that weak institutions and weak governance were the major weakness of the market.

CPD identified five institutional and governance related weakness — poor quality IPOs, anomalies in financial reporting, lack of transparency in BO accounts, suspicious trading at secondary market and questionable role of institutional investors — concerning the market.

Distinguished fellow Mustafizur Rahman said that the government was trying to address the external pressure through giving cash incentives to exporters instead of addressing the underlying factors of competitiveness.

Incentive alone would not serve the purpose, he said.

The government should pursue a policy of gradual depreciation of the taka against the US dollar keeping the local currency rate consistent with the competitive countries.

He also stressed the need for taking measures to improve balance of payment position by particularly focusing on improving current and financial account balances.

CPD senior research fellow Towfiqul Islam Khan said that there was no major breakthrough in revenue mobilisation, which could not keep pace with GDP growth.

The pace of revenue mobilisation by the National Board of Revenue declined to 1.1 per cent in FY15-FY19 from that of 1.3 per cent in FY10-FY14 for 1 per cent GDP growth, he said.

The NBR also faced huge shortfall worth Tk 14,907 crore in the first quarter (July-September) of FY20, he added.

The NBR’s revenue collection grew only by 2.6 per cent in July-September, one of the lowest in the decade, than that of the same period of FY19.

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