Bangladesh has lost Tk 92,261 crore in 24 banking scams between 2008 and 2023, a figure that is close to the country’s FY08 budget of Tk 93,610 crore. This is high time for a comprehensive reform to fix this long-troubled sector, said the Centre for Policy Dialogue (CPD).
CPD documented this figure after analysing media reports on banking sector scams taking place during the 15-year period. It added that there might be more scams that remained unreported by the media.
Making the remarks in its first review of the State of Bangladesh Economy in FY24 at a press conference on Saturday, the think tank pointed out that the banking sector’s existing issues are worsening.
CDP also recommended forming a temporary banking commission to address issues in this sector.
Fahmida Khatun, executive director of CPD, said, “The banking sector is now in the hands of crony-capitalism, so the problems of this sector are intensifying. They influence the regulator, and push policies favourable to them.
“But we are yet to see any instance of anyone being brought to justice.”
The think tank expressed disappointment that defaulted loans in the banking sector rose from Tk 22,000 crore to Tk 1,56,000 crore from 2008 to September this year. When rescheduling, write-offs and debt stuck in litigation are taken into account, the figure would be three-fold.
CPD Distinguished Fellow Prof Mustafizur Rahman said, “If you search, you will find hundreds of cases in the money loan court. But bankruptcy courts get almost no cases. This means it is easier for a person to be a defaulter, than become bankrupt.”
Debt trap
During the presentation, CPD pointed out that in the backdrop of Bangladesh’s graduation into a lower middle-income country, interest rates on its foreign borrowings are on the rise. Meanwhile, the share of grants and concessional loans in the portfolio has been on the decline.
So, debt servicing liabilities will rise significantly in the near and medium term future.
A principal plus interest payment on long term loans was $5.3 billion in 2021, which rose to $6.2 billion in 2022 – a 16.9 per cent growth. The corresponding figure was only $3.7 billion in 2020.
The total amount of the country's external debt was $96.54 billion at the end of September this year.
Mustafizur said, “According to the IMF and World Bank method of debt assessment, Bangladesh is currently under no under risk in terms of GDP to external debt ratio. But in terms of debt servicing, which may cause further depletion of reserves.
“In this context, foreign loans are a matter of concern now.”
The economist added, “All the revenue we collect goes to operating expenditure. On the other hand, the entire expenditure of ADP implementation has to be borrowed. Such a country is rare in recent times.
“In such a situation, loans have to be repaid with more loans. This is called a debt trap. Many countries have fallen into this trap. We must be very careful. No new mega projects, besides trying to achieve the highest rate of returns from already implemented ones.”
Cost of living
CPD states that the key issue in Bangladesh's economy is skyrocketing inflation rates, which has been hovering around the 10 per cent mark throughout most of the year. This has significantly increased living costs and decreased consumers’ purchasing power.
The ongoing price hike of essential commodities has been influenced by domestic factors as well, including market manipulation by a small number of dominant businesses and inadequate monitoring mechanisms.
According to a CPD analysis, from January 2019 to December 20 this year, prices of 34 kitchen items rose between 9 per cent and 400 per cent.
Costs of goods and services are increasing, making it harder for low-income families to meet their financial responsibilities. Many families, including those with people working in different fields and making minimum wage, are having a hard time getting their finances in order.
Under such circumstances, CDP urged the government to increase minimum wages in all industries so that the workers can at least properly afford basic food items.
Distribution of essential commodities sold through the open market system (OMS) must be managed effectively, and without corruption, so eligible people can access those items at lower prices.
The government should provide direct cash support to people experiencing poverty, enhance social protection for low-income families, and extend stimulus to small businesses to ensure their survival during challenging times.
Reform and dual economy
CPD said the government will have to focus on structural issues since better economic performance will critically hinge on the efficiency of some of the important institutions, including the National Board of Revenue (NBR), and the Bangladesh Bank.
The think tank seeks reform of the institutions responsible for improving economic performance, as accountability remains an unfinished agenda.
Enforcement of laws and regulations against bank loan defaulters or those who are involved in illicit financial flows is almost absent, it says, adding that similarly, lack of accountability has led to overpriced and wasteful public expenditure.
CDP pointed out that the establishment of good governance through reform measures will not be an easy task, as vested interest groups are strong and public institutions have been captured by the oligarchs.
CPD Research Director Khondaker Golam Moazzem said, “The big challenge for the government after the election will be to deal with these oligarchs to implement expected reforms. But the country is not going towards an election that has this commitment.
“As a result, inequality will increase and the dual economy will continue in the country.”
