Economic woes grow as private sector credit growth hits fresh 9-yr low

HM Murtuza | Published: 00:00, Dec 02,2019


The private sector credit growth hit a fresh nine-year low of 10.04 per cent in October this fiscal year (2019-2020), reflecting a gloomy state of the country’s economy.

Besides, a sharp rise in the government’s borrowing from the banking system and sluggish business activities in the country were other reasons for the plunge in credit flow to the private sector.

The private sector credit growth in October was the lowest since the 6.09-per cent growth in September of the fiscal year of 2010-2011.

As per the Bangladesh Bank data, the amount of credit to the private sector stood at Tk 10,25,958.4 crore in October this year against Tk 9,32,345 crore in October last year.

‘Like the other indicators, the private sector credit growth is showing the same downward trend, and it only reconfirms that the economy has weakened and continues weakening,’ Policy Research Institute executive director Ahsan H Mansur told New Age on Sunday.

The country’s export earnings in the first four months (July-October) of FY20 posted a negative growth, while import payments also dipped in the first quarter (July-September) while tax revenue collection also languished in the first quarter.

‘As of now, there is no sign of reversal,’ Mansur said, adding that the economy still continued declining in terms of private sector credit growth and the situation could not be good for investment, private sector development and employment generation.

‘As the government continues borrowing from the banking system, the outlook for the private sector credit appears grim,’ said Mansur, also the chairman of BRAC Bank.

He also mentioned that the country’s economy had already entered into a dull state.

In reply to a question on how the situation can be tackled, Mansur said that obviously there was solution and this time it would be costly.

‘Firstly, the government will have to admit the ongoing problem and then we will have to find way out but the government still hasn’t admitted having the problem,’ he said.

In line with the stagnancy in private sector credit in FY19, the growth fell constantly in the four months of FY20. The growth rate was 11.26 per cent year-on-year in July, 10.68 per cent in August and 10.66 per cent in September.

Mansur also cautioned that the government’s borrowing could reach up to Tk 1.2 lakh crore in FY20, whereas its total borrowing from the banking sector in last 48 year since its independence was below Tk 1 lakh crore.

Slow revenue collection, fall in NSC sales and inadequate foreign loans and grants left no option for the government but to borrow from the banking system, he said.

The credit demand from the private sector was lower in recent times but it was higher than the actual disbursement.

Banks failed to supply the fund due to the high bank borrowing by the government, Mansur said.

In the first four months (July-October) of FY20, the private sector credit growth rate remained far below the central bank’s curtailed estimation — 14.8 per cent — for the current fiscal year.

Economists and bankers said that the government had been sucking bank funds and thus squeezing the scope for availing funds from the banks by the businesses.

In the first four and a half months of FY20, the government borrowed Tk 43,411 crore from the banking system to meet deficit financing amid dismal revenue collection and sales of national savings certificates.

The latest data showed the NBR had a shortfall of Tk 14,907 crore in revenue collection in the first quarter of FY20.

The board’s revenue collection grew by only 2.6 per cent in July-September, one of the lowest in decade.

The net sales of NSCs plunged for the fourth consecutive month in October, pulling down the net sales by 69.08 per cent to Tk 5,512.02 crore in July-October of FY20 against Tk 17,828.73 crore in the same period of FY19.

Credit disbursement to the government from the banking sector increased by 49.71 per cent to Tk 1,73,504 crore at the end of October, 2019.

Economists and bankers said a fall in import of capital machinery and industrial raw materials in recent months indicated stagnancy in investment in the country.

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