Economic challenges
Published: August 09, 2019 The Financial Express Editorial
We have been enjoying a spate of development and growth in recent times that earned the international community’s praise. As the country strides to its cherished goal of becoming a middle-income country by 2031 and the status of a high income by 2041, certain issues need to be addressed if we are to forge ahead as planned. These were aptly brought out a few days ago in an executive board report of the International Chamber of Commerce, Bangladesh (ICCB). That Bangladesh faces a host of concerns in investments in both human and physical capital is recognised. Continuous economic growth and eradicating inequality remain as serious challenges. The requirement of reform-induced advances in the financial sector, business regulation, and the existence of an infrastructure gap are all accepted. The ICCB’s bringing all these out in one document and drawing the nation’s attention in their annual council meeting have been laudable.
One of the important aspects of the ICCB report has been bringing in the World Bank development update where some inherent structural deficiencies were ticked off. Foremost of all these was the weakness of the private sector investment. It therefore called for meaningful initiatives to face the challenges in this area. That our export earnings depend on a limited number of items has been a nagging issue -one which our economists never tire of pointing out. Now the World Bank update has called for diversifying export. The performance of the banking sector has come for especial mention. We all know except for a very few privately owned banks, most others are mired in a morass of bad governance, loan default and seepage of assets. Maybe, the state-owned Basic Bank has earned infamy as the villain of the piece, but a question may be asked as to how far behind are quite a few of the others. One private sector bank had to undergo a change in name and a wholesale restructuring in manpower recently to stay in business. The World Bank update in effect pointed out non-performing loans as a curse of immense inefficiency. It mentioned ‘directed lending, poor risk management and weak corporate governance’ as the main causes of loans not doing the job they were intended for. The ICCB opined that autonomy of the central bank has to be a key issue here. Indeed undue external interference does a lot of impediment to the central bank’s working. It also called for integrating risk-based supervision in the central bank’s supervisory framework, tightening rescheduling guidelines and stopping ad-hoc scheduling.
Indeed, loan rescheduling and occasional write-offs lay largely behind the plight of the banking sector. However, the government must also see the performance of the scheduled banks’ top echelon including that of the boards. In almost all banks the boards depend largely on people nominated by the government. While selecting them, due diligence has to be the practice. The Banking Division under the Ministry of Finance has to be encouraged to work as helping hand and not as a super boss. The central bank should have a freer hand. The day-in-day-out cry for single-digit interest rate seems only being partially heeded to, although the Prime Minister and the Finance Minister have all along been stressing the need for this. However, whatever interest rate is finally accepted by all, the main criteria should be the performance of the loans and their repayment as scheduled. Schedules must be stuck to. Changing goal posts would not deliver the much needed reforms for continuous economic growth and eradicating inequality.