Economy battles triple woes in 2018

Banking, BoP, exchange rate crises eclipse growth story

Jasim Uddin Haroon | Published: December 30, 2018 08:13:50 | Updated: January 13, 2019 16:54:43

Picture used for illustrative purpose only

The outgoing year saw Bangladesh's economy buckle under increasing pressure, with balance of payment deficit, banking crisis, and weak local currency exacting a toll on the macroeconomic health.

The capital flight is also undermining the economy as it is believed to be one of the key reasons behind the overall deficit in the BoP.

The country's foreign exchange reserves are also under pressure but still remained much higher than the thumb-rule of maintaining the same to meet the import payment.

The reserve was US$33.1 in December in 2017 and now it stood at $31.9 billion at the end of December, 2018.

Given that this was an election year, the government presented a populist budget.

Economists view that the fundamental crisis in the banking-both deposits and lending-did not improve in the outgoing year.

"As a result, the non-performing loan (NPL) has been growing, which is now over 11 per cent," said Dr Zahid Hussain, lead economist of the Dhaka office at the World Bank.

He said the fundamental crisis in one of the key sectors is due to the lending side.

"There is a lack of proper due diligence, poor monitoring, poor governance in the banking sector, which resulted in banks' losses."

There was a compliance issue, which was ignored in public banks during the year, he argued.

Dr Hussain said the depreciation in the local currency has had some adverse impact on the economy.

A significant depreciation in the value of local currency triggered inflationary pressure, he added.

Dr Hussain said there is a huge capital flight in the name of imports, which impacted the BoP.

"Look, there was over 25 per cent growth in imports in the last fiscal year, but if you evaluate it then you find a mismatch at least $4.0 billion dollar," he said.

Dr Ahsan H Mansur, executive director at the think-tank Policy Research Institute (PRI) of Bangladesh, told the FE that Bangladesh's deficit in overall balance of payment is due to higher trade deficit.

This is impacting the exchange rate regime, he said, adding the central bank is depreciating the currency.

On the other hand, the economy has some positive sides; continuity of higher economic growth with lower rate of inflation.

Besides, exports receipts and remittances inflow were buoyant in the year.

Bangladesh also managed to move one point up in the "Doing Business' index in 2018 from the 177th to 176th.

Dr Mansur said exports income is satisfactory in the year as overall growth was more than 17 per cent.

"This is not only in the RMG sector, there are some visible growth in non-RMG sectors as well," he added.



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