Economists see red signal in the economy

The economy of Bangladesh is teetering on the edge of a cliff, and to prevent a fall, the government should cut down USD expenditure, reduce import payments, take a zero tolerance policy against money laundering, boost exports, and continue fuel subsidies.

It is also important for the government to firmly implement the already introduced austerity measures, and continue negotiations with the International Monetary Fund (IMF) for a loan, experts said at a discussion organised by the Centre for Policy Dialogue (CPD) on Sunday.

At the event titled “Recent Economic Challenges: How Risky is it?” experts warned that the ongoing crisis in Bangladesh’s electricity sector – triggered by the government’s decision to reduce fuel imports in a bid to save USD – can get worse if local gas production goes down.

“The government should listen to experts’ suggestions to manage this macroeconomic crisis. People’s opinion should get more importance as well,” said Salehuddin Ahmed, former governor of Bangladesh Bank.

Hossain Zillur Rahman, former advisor of the caretaker government, said, “Political-economic management is now under the iron triangle – the government’s one-track mind approach to development, conflicts of interest with vested quarters and public suffering.

Zillur, also the executive chairman of PPRC, said now is the high time to break this triangle as Bangladesh’s economy is now under serious pressure.

 Macro economy

Bangladesh’s macroeconomic situation is now under pressure because of the unusually high import payments, which rose by 39 per cent to $75.40 billion during the July-May of FY22 compared year-on-year.

Addressing the matter, former advisor to the caretaker government AB Mirza Azizul Islam said, “The government should look into whether capital flight is taking place under the guise of import payments.

“However, I think the National Board of Revenue (NRB) and relevant government agencies are not giving adequate attention regarding the capital flight issue.”

He continued, “Marco economy is facing big challenges and we should tackle these challenges bravely and be ready to make sacrifices if needed. After LDC graduation, our macroeconomic challenges may deepen.”

PPRC’s Executive Chairman Hossain Zillur Rahman said, “Bangladesh’s economy is growing, but employment generation is low, which may create social unrest.”

CPD’s Executive Director Fahmida Khatun said, “To tackle the inflation, our government should first reduce the supply of money, support the poor and vulnerable people with a system free of corruption. Fuel subsidies should continue as well.”

Bangladesh University of Engineering and Technology (BUET) Professor Mohammad Tamim said at the event, “The on-going power crisis has been triggered by our complete dependence on imports, without locally increasing the primary fuel supply of electricity.

“Currently, the country’s power generation is under threat, if two or three wells at Bibiyana – the country’s largest gas field – shut down, Bangladesh will be at a serious risk.”

Terming the government’s move to allow diesel-based power plants across the country, Prof Tamim said, “There are many unjustified capacity charges because of these plants, and those should be shut down gradually.

“We should now move towards coal based power plants. Another hope is renewable energy, and we must try to increase the use of such power generation systems. We can reduce our demand by following austerity measures and increasing efficiency of the power plants.”

 External sectors

The government measures recently introduced to ease the macroeconomic pressure are welcome, but these measures must be imposed firmly to save USD and reduce imports, said Professor Mustafizur Rahman, distinguished fellow of CPD.

“Devaluation of taka should continue against the USD. The government should adopt a zero tolerance policy against capital flight under the guise of exports and imports. But do not create any panic,” he added.

Prof Mustafizur further recommended, “Our discussion with the IMF should continue. To get loans from the lenders, the government should agree with its reform conditions and should carry out proper estimation of debt service liabilities.

“Moreover, the government needs to take initiatives to increase net exports. Our net exports were only $28 billion last FY, so we need more value addition in this sector. Bangladesh should focus more on the Asian market.”

Banking sector

Salehuddin Ahmed, former governor of Bangladesh Bank, said, “The country suffers from corruption, waste of wealth and capital flight. But adequate initiatives have not been taken to resolve these problems.

“Global uncertainty triggered by the Covid-19 pandemic and Ukraine-Russia war has exacerbated our existing economic issues.”

He continued “The main problem in our banking sector is the lack of governance. Banks should focus more on reducing corruption and boost governance. The central bank alone cannot do everything, but it should be firm.”

Commenting on the USD shortage, Salehuddin said, “It is not good enough to push USD into the money market from forex reserves to stablise the exchange rate. 

“The banking regulator must take initiatives to reduce classified loans and increase recovery of loans taken out from the EDF fund. It will help us save forex reserves.”

He pointed out that the new rescheduling facility will trigger a crunch in banks’ liquidity, and hamper the CMSME sector’s access to loans.

 Business scenario

Federation of Bangladesh Chambers of Commerce & Industries (FBCCI) Senior Vice President Mostofa

Azad Chowdhury Babu said, “The business community is also under a lot of pressure due to the current macroeconomic situation in Bangladesh.

“Industrial production cost will increase in the coming days due to load shedding, which in turn will hamper exports. I am urging the government to keep the export-oriented industries free of power cuts.”

He continued, “The new income tax law – which features a provision on automation – will increase revenue collection three-fold, and reduce the hassle of paying taxes. The FBCCI also welcomes the new loan reschedule facility, but it should be equal for every borrower.

“Do not discriminate between big and small borrowers.”

He also demanded establishment of an industrial bank for providing long-term loan facilities to businesses.