Both the country's economy and its policy have gone through crisis in the outgoing year of 2019. Analysts say such crises did not continue for such long period in the past.
Statistics show the country’s income has decreased in 2019. On one hand, revenue and export earnings have went down while on the other, the government’s expenditure did not decrease.
The lack of balance between income and expenditure has already started affecting the economy. Government lending has increased. As the sale of savings certificates has decreased, the government in these five and half months has already taken loans that could be taken in a year.
It is not new to breach the basic policy of economy. However, this tendency has turned alarming during the outgoing year in comparison to the previous year.
The loan defaulters have been given special facilities. One digit interest rate has been fixed and there has been pressure to comply to the rule. However, the decision could not be implemented.
Although Value Added Tax (VAT) Act has been amended, many provisions of the old act remained.
The crisis in the export sector has not been solved by artificially controlling the exchange rate.
Despite efforts to decrease default loans in paper by changing the definition, the default loans have increased.
The economists all over the world suggested that economic crisis has to be tackled through economy. Crisis rather increases if different thing is done with political mind. Banking sector is a living example.
A number of such initiatives have been taken throughout the year, but those are not consistent with the basic policy of economy. So the matters have been criticised all the year round.
In all respects, the economy is now under pressure. Bangladesh has not faced the crisis of macro economy stability for many years.
Mismanagement and lack of good governance rule the banking sector. The experts said its effect is visible on the overall economy.
The beginning of the year was good. Awami League has been in power for three consecutive terms. New finance minister took the charge. First six months were the continuity of the financial year 2018-19.
At the end of the current financial year, total Gross Domestic Product (GDP) stands at 8.15 per cent.
However, different quarters questioned the accuracy of the data. Per capita income of the people increased to 1909 dollars. The inflation was under control. At the beginning of the year, it could not be estimated that the stock market will fall so badly.
Although the beginning was good, the ending is not. The economy is now under multiple pressures.
National Board of Revenue (NBR) was in trouble while implementing the Value Added Tax (VAT) Act which was formulated two years ago. It was earlier declared that the new act would be effective from July 2019. It was hoped that this new act will increase revenue.
Where crisis acute
Growth in export earnings is negative in first five months of 2019-20 financial year. Export earning is 7.59 per cent less than the corresponding of the previous year.
If the current trend of export earnings continues, the export earnings will be negative for the first time in 10 years. Global trade is affected worldwide, but Bangladesh was never affected in this way in the past.
Deficit in revenue income is not new in comparison to the target for the country. But 2019 has crossed all records of the past.
The first six months of the outgoing year were a part of the previous fiscal year. During the period the revenue deficit was Tk 56,000 crore. This deficit is estimated after the amendment of the budget. As per the main budget, the total deficit is Tk 72,000 crore. Such deficit did not happen in the country’s history.
The trend of revenue deficit is also seen in the following four months.
The deficit is Tk 20,000 crore between July and October. Growth is only 4 per cent in comparison to the previous year, but the target was 40 per cent.
The economists said the economic crisis will increase further if income is not raised.
Crisis also exists in import. Statistics available till October 2019 show import has decreased to 3.17 per cent in four months in comparison to the corresponding time of the previous year. The most worrying thing is that the import of capital machineries decreased to 10 per cent and industrial raw materials decreased to 20 per cent.
The rate of LC opening and settlement has also decreased. This signals that the new investment is not coming. In the previous fiscal year, the growth in import expenditure was 1.78 per cent.
Leading business body Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) president Mir Nasir Hossain said the economy is not in good state and most of the indicators are under pressure.
He said several indicators are the worst for the economy.
The business leader said export earning is one of them as income of foreign currency and employment is directly linked to it.
Mir Nasir said Bangladesh's currency is now overvalued to a great extent. But all competitive countries devalued their currencies to sustain their export.
Under such context, taking inflation into consideration, he said the currency needs to be devalued in phases and duly support the exporters.
Government itself borrowing
As the revenue income has fallen, the government mainly depends on banks to meet expenditure. The government had to borrow from the banks almost every day.
In the current financial year, the government targeted to borrow Tk 47,364 crore from the banking sector. The government has already taken loans of Tk 47,137 crore before ending six months.
The pressure in the banking sector will increase further if the government borrows more from banks. So the loans for the private sector will be cut. Meanwhile, the growth of private sector loans decreased to 10.04 per cent, which is the lowest in nine years. In the current monetary policy, the flow of private sector loans has been estimated 14.8 per cent. The target has been estimated 13.2 per cent till December 2019.
Many challenges ahead
Growth in remittance is 22.67 per cent. This is a new record and one of the comfort areas for the government. The government hopes this income will increase demand inside the country and would add to GDP.
The world economy is under pressure. The economies of China and India have become sloth. Vietnam is benefiting from the trade war. Still growth is over 8 per cent. Increasing the growth of export is one of the main challenges. Although the inflation was under control most of the time throughout the year, it starts increasing at the end of the year. Another challenge for the government is to rein in inflation.
Revenue collection is the biggest challenge for the government in implementing its economic plan. It would be difficult for the government to tackle the growing economic challenge if it cannot make success in the revenue collection.
The revenue collection can be raised if export increases as well as private investment increases.
The expenditure for business activities has to be reduced. At the end of the year, the government has finalised 9 per cent interest rate against all kinds of loans. The decision will be effective from 1 April. In fear of world recession, countries all over the world are lowering interest rate. Bangladesh is no exception. This would be another challenge to implement it.
Speaking to Prothom Alo, economist Zahid Hossain said Aus, Aman and Boro rice had bumper harvest. It is good news for the outgoing year.
Previous problems of macro economy of the outgoing year remain. The banking sector is a living example. Two new problems, income fall and government lending, have increased.
He mentioned that the finance minister raised many expectations at the beginning of the year to solve problems in the banking sector.
“The finance minister said that he would take steps to rein in loan default, but that did not happen,” Zahid Hossain added.
The banking sector was discussed and criticized throughout the year. Some steps were taken but the results became the opposite. Ignoring the market situation, the interest rate was fixed at 9 per cent. Everything cannot be done by order. It did not happen in the past.
“We are not learning from the past. Law exists to punish the loan defaulters but there is no implementation.”
Zahid Hossain said there are multiple problems in economy. All the problems are not equally severe. There must be priority in solving problems.
*This report, originally published in Prothom Alo print edition, has been rewritten in English by Rabiul Islam.