Making the same mistakes

Wahiduddin Mahmud

Economic trends more or less maintained continuity at the year’s end, but with the elections ahead, the new year may see inevitable political unrest and uncertainty. And this will naturally affect the economy. Of course, that depends on the degree of the unrest.

Last fiscal saw record GDP growth, despite a standstill in export growth and drop in remittances from migrant workers. However, the impact of these two factors may come to the fore in the new year.

Neither local nor foreign investment can be expected amidst political unrest. However, the government has the scope to keep the economy vibrant by implementing the ongoing large infrastructure projects. That will be a boost for the government’s election politics. But implementation of most of these projects faces impediments, except the Padma bridge project.

On a positive note, export earnings did go up a bit towards the end of the year, as did remittances. And the credit flow in the private sector has suddenly accelerated, though there are doubts as to whether this is actually production-oriented investment.

The food situation needs attention too. The rice market has been restive after crops were damaged in the floods. The marginalised population has been suffering. This is much like the seasonal slump in the northern districts. It may not be recorded in the annual poverty rates, but it is poverty.

Increased food prices have pushed up inflation. Deficit grows in foreign transactions, where there had been a surplus in past years. This has been caused by increased import costs, along with the drop in export earnings and remittances.

Pressure has mounted on the dollar exchange rate due to rising oil prices in the international market and the government’s enhanced expenditure on import of infrastructure implements and food grain. However, armed with adequate foreign exchange, Bangladesh Bank can intervene in the foreign exchange market if required.

The most negative aspect of the prevailing economic scenario is the indiscipline and the irregularities in the banking sector. Previously a couple of the politically approved banks had been in dire straits. Now new banks are being given approval, ownership is changing hands and more private banks are in the lurch. And instead of tightening the reins on the owners and directors of these disorderly banks, the central bank is relaxing its rules. It will be dangerous if political unrest in the new year is considered to be scope for further underhand machinations in the banking sector.

Towards the end of the eighties, approval had been given for new banks without coming up with the required rules and regulations. That gaffe led to one third of the deposits going to the directors’ pockets as loans. And most of the loans eventually ended up as default loans. After certain drastic measures and dismissals, order was restored to the banking sector. But it looks like we are all set to make the same mistakes again.

* Wahiduddin Mahmud is advisor to the former caretaker government. This piece, originally published in Prothom Alo Bangla print edition, has been rewritten in English by Ayesha Kabir.

Source: Prothom-Alo.

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