Budget 2018-19: Some core issues

It is a general perception that the national budget for the fiscal year 2018-19 has not taken adequate measures that can help the banking sector overcome the challenges it faces. Economists have warned that the crisis in the banking sector will linger unless effective measures are taken at an appropriate level to tackle the growing trend of financial scams and bad loans. They have also expressed concern over the burden of underwriting investment in the private sector, which is very unusual and dangerous. "What is happening is that commercial banks based on deposits of short-term are now bearing the full risk of financing long-term investment'', renowned economist Professor Rehman Sobhan says, calling  it  one of the most dangerous elements in the financial system. It remains a fact that long-term investment financing should largely be provided by the capital market and specialised financial institutions as they are designed to take risks for long-term investments.

 Financial pundits have argued that stock market remains non-functional as a source of capital for new investors. As a result, short-term deposits are being used for financing long-term investments. Leaders of the financial sector say that this is a crisis that has been lingering for 10 years and is likely to continue in the years ahead, if it does not get adequately addressed. Mass depositors and borrowers are wondering that no action has been taken against unscrupulous elements who have looted money from banks and the capital market. It is the talk of the town that to save their face and in an apparent move of diverting attention from the core issue, the  private bank owners’ association at its own behest has come forward with a proposal for downsizing the lending interest rates for a fixed and limited period of time.

Timely, efficient and cost-efficient implementation of taxpayer-funded mega projects and policy consistency can help investors take their decisions on investing. Prudent public spending as well as risk-based supervision in the banking sector should bring better result. Thousands of cases are pending with courts owing to delays in settlement. Budgetary allocation for the judiciary need to be increased to bring about good governance in the financial sector.

Default loans of nine new private banks more than trebled to Tk 17.61 billion in the first quarter of 2018 from the same period a year ago mainly because of illicit lending practices, according to Bangladesh Bank data. The central bank's investigation found that a sharp increase in the non-performing loans of the banks, which got licence in 2013 on questionable considerations, was the consequence of loan-related scams and corruption. When the licences were offered, many experts had warned that the financial health of the new banks would deteriorate in the coming years. The large amount of default loans is a reflection of poor corporate governance of the fourth-generation banks. The banks have also disbursed huge loans to politically influential individuals and much of these loans turned too burdensome. Farmers Bank lent more than Tk 30.0 billion violating banking norms and the previous board was directly involved in the irregularities, according to a central bank probe report. The amount of classified loans in the bank stood at Tk 9.68 billion as of March, which accounted for 18.73 per cent of its total outstanding loans, BB data showed.

The national budget for 2018-19 has neither reflected on any supportive measures for export diversification nor suggested any policy prescription to develop skilled manpower. It must be noted that Bangladesh and Vietnam were almost at the similar level 20 years ago. Today, Vietnam's exports stand at more than $200 billion while Bangladesh's exports hover around $40 billion. Vietnam receives $10-12 billion in foreign investment every year whereas Bangladesh gets a little over $2 billion. Over the years, policymakers should have discussed how to ensure corresponding levels of structural change in Bangladesh's economy in line with Vietnam's. Unfortunately, there is dearth of any guidance even though there are a variety of industrial policies.

The government's initiatives to expedite implementation of the annual development programme (ADP) have failed to pay off as the execution rate remains unchanged and gets a boost at the last moment, paving the way for corruption. The government took a number of initiatives by way of creating a pool of project directors (PDs), formation of a taskforce for fast-track project monitoring, a special committee for foreign-aided projects, timely disbursement of funds, and training for the PDs and officials to expedite implementation of the ADP. But these did not get reflected in the development works. According to the Implementation Monitoring and Evaluation Division (IMED) of the planning ministry, the government spent only 62.81 per cent of the allocation for the ADP in 11 months of the outgoing fiscal ending on June 30, down from 64.72 per cent for the same period a year earlier. Poor implementation of the development projects is often ascribed to inefficiency and lack of accountability of the PDs. Initiatives are yet to create a specialised team, like a pool of PDs for project management and introduce rewards for the good performers and punishment for the poor performers.

The South Asian Network on Economic Modeling (SANEM) observed recently that the country could not get on the track of the sustainable development goals (SDGs) through the proposed national budget of Bangladesh for the fiscal year 2018-2019. SANEM also stressed on quality expenditure of public money apprehending that the government might go for spending spree in the first half of the new fiscal to make the development projects visible ahead of the upcoming national elections.

The country requires big budget considering the size of its economy and future development goals, but the main problem is implementation of the budget. The government agencies must feel the pressure for better implementation of the budget as the economy grows at the rate of over 7.0 per cent.

Dr Muhammad Abdul Mazid, former Secretary and former Chairman NBR.

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