Contrary to what AHM Mustafa Kamal has been saying since he took charge as the finance minister over a year ago, the amount of default loans is on the rise. At the end of 2018, the amount was Tk 939.11 billion, in September 2019 it rose to over Tk 1162.88 billion. That means, in nine months the default loans rose by Tk 223.77 billion.
The International Monetary Fund (IMF) said the actual amount of default loans in Bangladesh is much more than that.
The story does not end there. According to an estimation of the World Bank’s latest ‘Global Economic Prospects’ report, among the South Asian countries, Bangladesh has the highest percentage of default loans- 11.4 per cent. Bhutan and Afghanistan are the following countries with 10.9 and 10.8 per cent default loans.
The report also said the economy in South Asia is in a bad shape. It has worsened in the last six months. The finance sector is also facing challenges. That’s why investors and consumers are losing faith, resulting in decrease in individual-level consumption and investment in these countries.
World Bank thinks the risk will grow for the South Asian countries. Main factors for this are bad shape of financial sector, geo-political tension and slow pace of economic reforms. Investment will face a hitch if the tension between India and Pakistan soars.
Despite the increase in default loans, the World Bank predicted that the growth rate of Bangladesh would remain well above seven per cent in the current 2019-20 and the next fiscal.
Though the country’s financial sector is faltering, it said macro-economic structure is solid, political stability is there, mega projects are being implemented and steps have been taken to reform business environment. As a result, the growth rate would remain well above seven per cent.
The report apprehended that Bangladesh’s tax deficit would increase like that of Sri Lanka as there is no progress in the reform of revenue structure. It will be difficult to invest in the infrastructural sector, which would have an impact on the growth rate.
Higher growth rate in the US and Eurozone will have a positive impact on business, finance and confidence building of the South Asian countries, the report added.
World Bank contacted various organisations to prepare the report. Those organisations said their productivity in Bangladesh and Pakistan is low. Getting loans is difficult in many cases. Resources in banking sector in South Asia are mainly controlled by the state, and the amount is close to 70 per cent in India. Besides, the amount of default loans is also there.
In case of Bangladesh, the increase of government’s loans from the banking sector works as a big hindrance to the expansion of the private sector. The amount of loans the government planned to take in the whole fiscal, it has already taken nearly the equal amount in the first six months.
The situation in India
The World Bank projected the growth of India would decrease to 4.9 per cent in 2019-20 fiscal. This will happen due to the decrease in the domestic demands. Banks in India are very cautious as the amount of default loans has increased there. As a result, the credit flow has decreased. The consumption at individual-level has decreased as well. This has affected the growth in South Asia.
Learning a lesson
The growth rate in India has been decreasing for the last few years. The main reason behind this is disorder in financial sector.
South Asian Network on Economic Modeling (SANEM) executive director Selim Raihan thinks Bangladesh and other countries should be cautious about the situation.
Speaking to Prothom Alo on Thursday, Selim Raihan said, “The default loans would not increase and we have listened to this for several times. But nothing has happened. Instead, the amount of default loans has increased. The government loans from the banks have increased to such a level that the private sector credit growth hit an 11-year low. Lack of good governance in the financial sector is also acute. Interest of a certain quarter is being preserved.”
Selim Raihan also apprehended that the way the government has been forcefully imposing interest rate this might have a reverse effect.
Mentioning that there’re many things to be worried about, the SANEM executive director said there’s a ‘lack of seriousness’ among the policymakers.
*The report, originally published in Prothom Alo print edition, has been rewritten in English by Shameem Reza