Hopes still abound for financial turnaround

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Finance Minister AHM Mustafa Kamal said recently the country's economy will surpass that of Malaysia and Singapore by 2024. He said the Bangladesh economy flourished immensely under the leadership of Prime Minister Sheikh Hasina.

Bangladesh is set to become the world's 26th largest economy within the next decade, according to a written report published by UK-based Centre for Economics and Business Research in early January. It says Bangladesh's economy, now ranked 40th, will overtake heavyweights such as for example Malaysia (34th), Hong Kong (37th), Singapore (38th), Denmark (40th) and Norway (36th).

The minister said the united states will achieve most of its goals by the estimated time.

However, the coronavirus pandemic is posing a major challenge prior to the country's economy. The International Monetary Fund (IMF) has recently lowered the country's GDP growth projection to 3.8 % for fiscal year 2019-2020 from its earlier estimate of 7.4 %.

The downward GDP (gross domestic product) growth revision is 3.6 percentage points less than pre-Covid estimates, according to its Bangladesh report released recently.

The IMF projected readymade garment exports and remittances, the two major sources of external financing, to decline sharply.

Necessary policy responses to avoid a domestic pandemic, including shutdown of major cities, will inevitably affect economical activities and slow growth, the IMF said in its report.

It, however, predicted the gradual recovery in the second quarter of FY '21.  Despite signs of disruptions in the domestic food supply chain, overall inflation is projected to stay broadly unchanged, owing partly to a bumper harvest, it said.

The Washington-based global monetary watchdog has advised the authorities to re-focus on addressing the banking sector problems, particularly state-owned banks, following crisis.

The authorities have started amending several laws to enforce more discipline, but repeated loan rescheduling, regulatory forbearance, and failure to deal with weak and insolvent banks hindered progress. For strengthening the banking sector, the IMF gave a couple of recommendation - introducing risk-based supervision and avoiding regulatory forbearance; strengthening corporate governance in private banks, making certain classification and provisioning requirements are consistent with Basel standards.

The Fund also recommended addressing the indegent financial performance of state lenders through improved governance and risk management, a far more level-playing field, and a clear definition of the general public mandate with transparent budget support and investing in place a framework for effective resolution of weak banks.

It said loans under the stimulus package ought to be effectively targeted and monitored with homework and risk assessment considerations by banks to preserve banking soundness while providing support where most needed.

The IMF advised the central bank to preserve banks' capital resources by temporarily suspending distribution of capital, including dividends, share buybacks, and increases in executive compensation and discretionary bonus payments.

The banking sector is likely to play a crucial role in channelling assist with the economy. A considerable part of the recently unveiled stimulus packages will be provided via subsidised loans to targeted recipients.

The prime minister has up to now announced a complete of 19 stimulus packages worth Tk 1.03 trillion to cushion the shock of the pandemic on various sectors.

The packages, which are 3.7 % of the GDP, are being implemented beneath the supervision of the central bank and the finance ministry.

A GLOBAL Bank report, prior to the outbreak of coronavirus, projected the country's GDP growth would surpass that of India, China and Pakistan in today's fiscal.

The WB report said that growth took popular in much of South Asia as the impact of the global economical slowdown was compounded by the cronoavirus crisis.

The economic slump in India, a deepening recession in Iran, and looming twin crises (fiscal and balance-of-payments) in Pakistan have influenced the outlook for many of the smaller economies in the region, which have struggled to keep solid growth rates within an increasingly challenging global environment.

The World Bank had earlier painted a brighter picture for Bangladesh's economy for the next two fiscal years, pinning hopes on strong domestic demand, exports, investment and remittance. The Global Economic Prospects, a flagship report of the WB Group, said economic activity would grow at an average of 6.7 % a year over fiscals 2018-2020, benefiting from strong domestic demand and strengthening exports.

Whatever the growth rate projection for the country, the government must take some precautionary measures to handle unpredicted disasters arising out from the ramifications of the pandemic. It needs to look at a flexible budget for the next fiscal year so that it might include priorities later to guard the economy from the impacts of the recession. Indeed, no budget was prepared in the country's history under such uncertainties.

The government must also streamline its expenditure to create more jobs to help the poor get out of poverty. Among the development challenges ought to be to raise expenditures in the general public sector through gross annual development programme (ADP) and channel more funds to the marketplace. Line ministries must have more institutional capacities to implement ADP and raise public sector infrastructure investments.

What counts most is stability and sustainability of the growth so far achieved. Investment in infrastructure such as for example power, roads and telecommunications will be vitally important to keep the sustainable growth rate above the potential rate.

However, furthermore to output growth - and for poverty reduction purposes - one must go through the impacts of that growth on employment and real wage. Likewise, professional growth cannot reduce poverty unless growth is employment-intensive and inequality-reducing in nature. There must be efforts to make sure macroeconomic stability instead of showing higher GDP growth rate.
Source: https://thefinancialexpress.com.bd

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