Addressing residual woes of the economy

Published: January 02, 2019 22:03:24 | Updated: January 04, 2019 21:45:39

Picture used for illustrative purpose only

The re-election of Awami League-led Mohajote government to a third term in office evidently increases its responsibility to measure up to its overwhelming mandate. In plain terms, it means continuity with increased obligations to deliver on all major expectations in terms of governance and economic management. The Awami League's (AL) electoral plank of continuity-for-progress has worked as a clincher for victory. The party also stood vindicated through its economic scorecard including infrastructure-building (not without a concern over cost escalation in regard to some mega projects). As the new government moves to build on the economic attainments, it has some residual issues from the past year to tackle - mismatches between some policies and priorities, lack of due diligence, auditing and discipline in the financial sector and the cracks of mal-invoicing of imports and exports fuelling capital flight!

So, continuity is as much an opportunity as it is a responsibility - and it coincides with the heralding of a new year. A stock-taking reveals that the "economy battled triple woes in 2018 as reported in this paper last Sunday." It touches on all broad macro-economic indicators such as balance of payments (BOP) deficit, banking crisis and weak local currency. The overall deficit in the BOP is believed to be the handmaiden of capital flight. Dr. Zahid Hussain, the lead economist of the Dhaka office of the World Bank, pointing to 'a huge capital flight in the name of imports' said, 'it impacted the BOP'. He argued that there had been 25 per cent growth in import in the last fiscal which on evaluation reveals 'a mismatch of $4.0 billion dollar.' The higher trade deficit is 'impacting the exchange rate regime', and many would tend to agree with the observation of Dr. Ahsan Manzur, executive director at the think-tank Policy Research Institute (PRI), that 'the central bank is depreciating the currency.' Dr. Hussain has correctly pointed out, 'A significant depreciation in the value of local currency triggered inflationary pressure.'

Although there is pressure on foreign currency reserve, it is safely over the stipulated amount to cover import payments for more than six months. The banking sector is caught up in the throes of serious trouble both on the deposit and lending sides, more in the latter domain. As result, the non-performing loan (NPL) has grown to over 11 per cent at the moment. The fundamental crisis lay in lack of proper diligence, poor monitoring, poor governance in the banking sector resulting in banks' losses. Compliance issue was ignored in the public banks during the out-going year while some new banks were given green light in the private sector to operate rather liberally.

Policy makers rightly emphasise the need to maintain current account balance in order that prudence is applied in contracting institutional foreign loans so as to avert falling into a debt-trap. Thankfully overall growth in export was more than 17 per cent and remittance inflow was buoyant in the outgoing year. Foreign Direct Investment (FDI) inflow from an important institutional source like OECD member-countries has been a trickle. There is work to be done there apart from a well-crafted headway made with Asian friends like Japan, South Korea, Singapore, Taiwan and Hong Kong in garnering FDIs from them. Pending the general election, one noticed a certain decline in the flow of FDIs into the country. In the post-election phase, an impetus has to be injected into the quest for FDI having regard to the fact that Southeast Asian neighbours are weaning away a good slice of foreign investments on offer. This is ironic because Bangladesh framework of incentives is intrinsically competitive. The government should research out a pathway to break the jinx.

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