Recapitalising state banks poses biggest downside risk to economy, says MCCI

Critical of subsidies to inept public agencies

FE Report | Published: August 07, 2018 09:58:33 | Updated: August 07, 2018 14:42:44

Picture used for representational purpose only

A leading chamber was critical on Monday of recpitalising the state lenders, saying it is one of the biggest downside risks to the economy.

The Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) was also critical of the growing requirement for subsidy payments by the state to different public sector agencies, most of which have remained inefficient for years.

The government has allocated Tk 15 billion as recaptilisation for state-owned banks for the current fiscal year.

It has been keeping the provision for quite a number of fiscal years as the state-owned banks lack fund.

The views of the MCCI came in the quarterly report prepared for April-June period of the fiscal year 2017-18.

It said the corruption-ridden banking sector is perhaps the "biggest downside risk" now, which will call for strict vigilance by the central bank and the Ministry of Finance to bring discipline to the sector.

The chamber body raised its concern over growing income inequalities in the country.

In the quarter (Q4 of FY18), some risk factors such as power and gas shortage and weak infrastructure appeared as major obstacles to the expansion of economic activity as they disrupt industrial production and also discourage new investment.

However, the overall economic situation is positive as indicated by steady improvements in the major economic indicators.

But it predicted that the rate of inflation is likely to go up in the coming months upto September next because of the increased demand before and during the Eid-ul-Azha.

It forecast the point-to-point inflation may rise to 5.80 per cent in August and 5.85 per cent in September.

The average annual inflation in the just-concluded financial year (FY18) increased by 0.34 percentage point to 5.78 per cent from 5.44 per cent in the previous fiscal year.

The rate of annual average inflation also remained higher than the government's target of 5.5 per cent in FY18.

The chamber predicted that the foreign exchange reserves would fall in July and September due to the payment to the Asian Clearing Union (ACU) against imports.

The MCCI projected that exports, imports and remittances are expected to increase as it was assumed that the peaceful political situation that currently prevails will continue in the coming days.

It said between end-June of 2017 and end-June of 2018, the Taka depreciated by 3.85 per cent in terms of US dollar.

"The Taka depreciated mainly due to a large increase in the current account deficit," it noted.

On the inter-bank market, the US dollar was quoted at Tk.83.7 at the end of June 2018 and Tk. 80.5995 at the end of June 2017.

Total liquid assets of scheduled banks stood at Tk 2.4853 trillion as of end May 2018.

It was at Tk. 2.6719 trillion as of end June 2017.

The MCCI said in the first 11 months of the present fiscal (July-May of FY18), the net foreign direct investment (FDI) decreased by US$ 70 million or 4.18 per cent to US$ 1.606 billion from US$ 1.676 billion in the corresponding 11 months of FY17.

FDI inflow in Bangladesh is low compared to many countries at the similar level of development.

"Bangladesh's low labour costs are generally believed to be attractive to foreign investors, but yet they hesitate to make fresh investments in the country, the MCCI review noted.

This is because of the country's underdeveloped infrastructure and such other impediments as the shortage of power and energy, lack of consistency in policy and regulatory framework, scarcity of industrial lands, corruption, and political uncertainty, the review said

It noted the government needs to address these impediments to attract more FDI in the country.

According to a government estimate, the country needs to attract average annual FDI inflow of 6.0 to 7.0 billion US dollars to graduate to an upper middle income country by 2021.

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