Economy is a major concern of the new government

When Awami League came to power 15 years ago in 2009, at the start of its ascending to the helm for four consecutive terms, the world was facing an economic recession back then too. Bangladesh benefitted from this. The army-backed government that had been in power for two years before that, faced a crisis over food prices. But when the elections came around, the situation had more or less come under control. Low income countries like Bangladesh benefitted when the price of fuel dropped. Food prices fell. Inflation pressure lessened. The government had no large crisis to face. It took up the responsibility to lower the prices of diesel and fertiliser. The boro rice crop farmers benefitted.

The sailing was not so smooth in 2014. The extended political unrest and conflict wrought harm to the economy. There were apprehensions concerning investment. But using the excuse of damages caused by the violence, default loans spiralled. In the meantime, the economy ran rife with major loan scams. The very first term saw the Hall-Mark, BASIC Bank and share market scams. In the next five years there was growth, but the financial sector also weakened.

On 30 December 2018 when Awami League took over power for the third consecutive term, growth was still high. But the banking sector faltered further -- financial scams increased, there was the Bangladesh Bank reserve heist and defaults loans crossed a trillion taka (Tk 1 lakh crore).

This time, however, the situation has surpassed the past. Almost all indicators of the economy have taken a nosedive. There are crises in all sectors. In the words of the Bangladesh Bank governor, the economy has gone down to the dregs. It is now a major challenge for the government to retrieve the economy from the dregs. Alongside the global crisis, the government's flawed policies are also responsible for this predicament.

The list of challenges is quite long for the Awami League government in its fourth term. Firstly, it must stabilise the macro-economy. In this regard it is most important to control inflation. Another important task is to halt the decrease in reserves and to stabilise the dollar exchange rate. If these tasks can be carried out, an investment environment will be restored.

The next task will be to get the economy back on the growth track. There is no alternative but to ensure macroeconomic stability for this. Experts feel that the main reason that Bangladesh could get on the high growth track was that the macro-economy had been stable. But that is now threatened.

The first half of the financial year is over. There are six months to go. Another challenge for the government is to bring about economic repairs in these six months. This crisis will not be resolved by any regular conventional means. Economists feel that till the next budget, special programmes need to be adopted. And that will deliver a positive message to the private sector and development partners.

It is also true that during Awami League's rule reserves had almost reached USD 50 billion. Export revenue and remittance saw high growth. Inflation mostly remained at around 5 per cent. But all those indicators are in the past now. In fact, three indicators of the past have still kept the economy in danger -- the lowest tax-GDP ratio, artificially keeping up the taka value against the dollar, and keeping the interest rate a 6-9 per cent. Then there is the propensity to deny any  crisis when it appears. Bangladesh Bank did not even use the monetary policy to control inflation. And four different dollar rates were maintained. This pushed up the buying and selling of dollars through illegal channels.

Inflation is now 9.42 per cent in the country. This inflation has made things difficult for the common people. In the meantime the rate of the dollar has gone up due to the deficit in foreign exchange earnings, imports have to be controlled, and Bangladesh Bank is having to sell dollars from its reserve. As a result, reserves are steadily declining, now dwindling to USD 20.38 billion or USD 2,038 crore dollars. And if net reserves are taken into consideration, then this is 16 billion dollars less. In the first six months of the financial year (July-December), overseas remittance growth was only 2.91 per cent and export earnings was low too -- only 0.84 per cent. Imports fell by around 21 per cent. The most restless element in the overall balance of payments is the deficit in financial accounts which now stands at USD 5.4 billion (USD 540 crore).

The political unrest, one-sided election, the state of human rights, Nobel laureate Dr Muhammad Yunus being convicted by the court -- none of this has served to improve Bangladesh's image overseas. As a result, Bangladesh is not in a position to attract foreign investment. Therefore hope lies in the suppliers' credit taken form certain countries as well as loans from IMF, the World Bank and other multinational institutions. And to step up investment within the country, the dollar and energy crisis must be resolved. The cost of doing business must also be reduced. The government has not been very successful in this area over the past 15 years. So this is a long-standing challenge. The government must take up this challenge if it is to increase growth from the coming financial year.

Businessmen now dominate the parliament in numbers. In the 2008 election, businessmen made up 57 per cent of the parliament. In the next two parliaments, this was 59 per cent and 62 per cent respectively. This time it has increased further, now standing at 67 per cent. As a result, the state policy making is gradually sliding into the hands of the businessmen. They have taken all sorts of advantages, from tax exemptions to changing bank policies. Yet they have had little contribution in improving the investment environment. There has been very little progress in the initiative to reduce the cost of doing business. And so the hindrances to business remain in place.

When Awami League formed the government in 2009, default loans totalled Tk 22 thousand 481 crore 41 lakh. That is now Tk 1 lakh 55 thousand 397 crore. According to the Centre for Policy Dialogue (CPD), Tk 920 billion (Tk 92,000 crore) has been looted in various financial scams over the past 15 years. A large chunk of this has been siphoned out of the country. The banking sector in the country has become a hub of money misappropriation. Influential businessmen now control Bangladesh Bank. They central bank's surveillance is weak.

The most difficult challenge for the new government will be to tackle the various vested interest groups to dispel the dark cloud over the banking sector. Experts have long been recommending a commission to oversee the banking sector. That is deemed to be essential.

In face of the steady decline in reserves, the government has taken at USD 4.7 billion (USD 470 crore) loan from the International Monetary Fund (IMF). Bangladesh has received two tranches of the loan so far. It is supposed to receive two more tranches in the new year. The government must carry out reforms to avail these installments of the loan. This includes curbing various tax cuts, adjusting the price of fuel, decreasing subsidies, reducing default loans, regularly publishing the distressed assets of the state-owned banks, formulating plans for supervision of the banking sector, determining policy interest rate structure, reducing financial risks of the state-owned institutions, etc.

Economists feel that reforms are required in several other sectors too. This includes bringing the government's loan-taking under control, improving the quality of government expenditure, discarding unnecessary projects, ensuring transparency in the share market, etc. The to-do list is long. Over the past 15 years an opportunist coterie had emerged. They are now politically powerful. It will be yet another challenge to implement reforms under these circumstances.

Advisor of the former caretaker government Akbar Ali Khan, in this book 'Porarthoporotar Orthonti' wrote, "Neither the rules nor the people decide the fate of the modern state. It is a particular vested interest group that controls the state machinery. Their objective is not social welfare, but self-welfare. Economist Olson called these "distributional coalitions". They do not want to increase production, but increase their share in the distribution process. Such vested interest groups include industrialist and business groups, professional groups, and employee and worker trade unions. When reforms take place, the interests of one group or the other is affected. None of the groups are willing to make any compromises when it comes to their interests. These vested interest groups fight tooth and nail against reforms, even fiercer than the Russian soldiers fighting with emotions and commitment for their motherland in the Leningrad battlefield during the Second World War."

This is the present state of Bangladesh. It will therefore not be easy to acquiesce to IMF's conditions and carry out reforms. For example, immediately after the 12th parliament election, former finance minister AFM Mustafa Kamal said that it will not be possible to follow IMF conditions and increase reserves. The main obstacle to reforms will be those who have been enjoying tax cuts, who have had the opportunity to step up their default loans, and those who have misappropriated bank funds.

Abul Hasan Mahmud Ali is the new finance minister. So long it had been the Bangladesh bank governor who had the responsibility of determining the main economic policies. The central bank must now do its job well. All over the world it is the main task of the central banks to control inflation. It is the main challenge of the central bank to do this task with accountability. A serious challenge for the commerce ministry will be to prevent the sudden abnormal price hikes of various items.

Former state minister for planning Shamsul Alam feels that the main challenge is to control high inflation. The new government must place priority on this. He told Prothom Alo that in order to control inflation, the new government must increase production in the industrial and agricultural sector so that the growth trend continues. If agricultural production increases, the price of commodities will not increase. Market monitoring must increase and be made competitive. Attention must also be paid to ensure that there are no syndicates at an import or retail level.

Shamsul Alam went on to say that over the last one and a half years the dollar rate went up by 28 to 30 per cent. This has hike import costs. This has increased revenue collection. So now it is time to cut down tariff. Also, remitting money through 'hundi' must be halted and emphasis be placed on remittance through banking channels. A committee can be formed to look into default loans. A case-to-case study can reveal why default loans are on the rise. There can be logical reasons behind the increase in default loans. Then again, there are certain loan defaults with no adequate reasons at all. A committee needs to be formed to see if that money is in the country or been laundered overseas.           

* This column appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir