Finance minister’s assurance versus reality

Our finance minister’s assurance that the country’s economic condition would be better at the end of the year could have generated hope about the future if words could speak louder than actions.

His assurance is not accompanied by a plan of strong actions to make the major economic indicators bounce back from downtrend. Therefore, reality speaks otherwise.

Most of the broader economic indicators, except inward remittance, are showing a downtrend compared to the period a year ago.

The latest data of the first seventh months of the current fiscal year shows Bangladesh’s export continues to slump because of the garment sector’s continuous low earnings for the last few months. This triggered fear that Bangladesh may not be able to achieve the current fiscal year’s export target of $45.5 billion.

Bangladesh’s readymade garments are losing competitiveness with other exporting countries such as Vietnam, Cambodia, India and Pakistan. Alongside the failure to diversify products and explore new markets, the local currency, which has grown stronger against the US dollar, became a major reason for losing the competitiveness in the global market. RMG sector leaders have long demanded devaluation of the local currency to arm them in the global market. But Finance Minister AHM Mustafa Kamal ruled out their demand.

Like export, import also declined.

Continuous slow export has already put pressure on the balance of payment.

Though in an economy the private sector is considered as its main driving force, the sector’s credit growth fell to 9.83 percent in December, lowest in a decade.

In contrast, the government’s borrowing keeps spiralling. In the first seven months of the current fiscal year, it already borrowed more than Tk49,000 crore from the banking system, exceeding the target for the year.

Revenue collection is not satisfactory. It remains far behind the budgetary target despite a 7.3 percent year-on-year growth in the first half.

Deficit in revenue collection may put pressure on the government to borrow more from the banking system to meet the budget deficit. The budget deficit already increased beyond 5 percent of the GDP – the recommended safe limit for growing economies like Bangladesh – in the last fiscal year for the first time in recent history.

The current state of all the broader economic indicators indicates a tightrope walking for our economy. The finance minister’s assurance sans strong actions will not make the walk smooth.

Assuming the office in January 2019, he assured that the soured loans in the banking sector would not increase. But in one year since his assurance non-performing loans increased around Tk22,000 crore.

Finally, the banks fulfilled the minister’s assurance by rescheduling a record amount of soured loans – more than Tk50,000 crore – last year, highest ever in a single year.

The rescheduling spree sparked widespread criticism and fear of reverse consequences as experts predicted that many rescheduled loans will become defaulted as banks rescheduled them without verifying the defaulters’ ability to repay.

Governance in the banking sector is still fragile. The finance minister had pledged to form a banking commission to address the problems in the sector. But his promise remains unmet. Still there is no move to form the banking commission.

It is difficult to predict how the finance minister will come up with a statement showing good health of major indicators of the economy at the end of the year.

His assurance is facing another ground reality. The sudden outbreak of the coronavirus has already infected the Chinese economy, the second largest economy of the world. The global economy is feeling the shock. Our economy cannot feel safe given the significant size of our export and import business with China.

Yet, the finance minister deserves praise as he on Thursday acknowledged that our economic condition is not in a good shape and made the assurance. A day before in parliament he, however, claimed that economy was doing well, except that export showed a downtrend.

He knows well that only assurance does not work. His function is crucial for the country’s economy. He is to coordinate the finance ministry and ensure the transparency operation and operations in efficient and accountable manner to support the development of the country’s economy.

The finance minister is, of course, aware of the well-known maxim – actions speak louder than words.