Bangladesh’s economic turmoil: How do we get here?19 December 2022
Editorial Desk :
Country's leading economists at a dialogue have said that the ongoing economic upheaval is mainly due to the long-standing structural problems, lack of good governance, absence of reforms, scams, capital flights and poor regulation. We witnessed corruption and poor governance eroding the very foundation of the economy to untold risks. Despite calling for corrective action for years, the authorities did not pay heed, they said.
Economists at the dialogue styled "Economy in Crisis: What should be the work plan?" organised by the Centre for Policy Dialogue in Dhaka on Saturday asked, "Can there be any legitimate expectation that these problems will be addressed in anyone's lifetime? Since these have gone so deep now." One such structural issue also lies in the banking sector. The banks in Bangladesh have been in a state of perpetual crisis, riddled with non-performing loans (NPLs). To them, "Banks are borrowing from lower-income people and lending to the better-off segment of the society who are not repaying the loans."
A recent report by the World Bank has identified that Bangladesh needs a more resilient financial sector to finance and sustain its growth in the future. In our country, the ratio of private credit to GDP is one of the lowest among its structural and aspirational peers, as a result of long-standing vulnerabilities in the banking sector that severely threaten financial stability.
According to the IMF's global Financial Development Index, while peer countries for instance China, Vietnam, Cambodia and Thailand have bank-credit-to-GDP ratios that are substantially above 100 per cent, in Bangladesh, this ratio has become stagnant at around 45 per cent since 2016. Unless urgent steps are taken to rectify these issues, it will simply not be possible to facilitate productive investments that are needed for the country to progress to the next level.
"From the regulatory side, Bangladesh Bank has a soft touch or no touch, so the problem of default loans and lack of governance in the banking sector remains," said the economists. To mitigate inflation, the neighbouring Indian central bank reacted proactively. So inflation is near 5 per cent there, whereas Bangladesh is grappling with inflationary pressure. The government also borrowed more than Tk 30,000 crore from the central bank until last month, indicating it is printing money and fuelling further inflation.
Despite the myriad challenges the country has been facing, the government has essentially held the economy hostage to protect the self-serving interests of money launderers, frauds and loan defaulters. It must undertake comprehensive reforms in line with best international practices, and increase Bangladesh Bank's independence so that it can deal with crises in a timely and cost-effective manner.