Economy sluggish, investments drop

The dollar crisis continues. The value of the taka is still on a downward curve. Government earnings are low. And so the government is having to depend on loans. In the meantime, private sector loans have decreased. On the whole, there is no way out for the crisis for the country's economy. The economy lacks vibrancy. Then again, there are the election uncertainties ahead. As a result, the economy is failing to pick up momentum.

And yet many countries around the world have managed to bring down inflation. Many countries are even gradually being able to pull up their economies. Yet Bangladesh's economy remains sluggish.

Among the economic indicators, Bangladesh is faring well in export revenue. Remittance growth is fluctuating. Imports have decreased, but at the same time there has been a drastic fall in the opening and settlings of Letters of Credit (LC) for capital machinery, intermediate goods and industrial raw material. In other words, the manufacturing sector remains stagnant

However, it is the common people of the country who face the most suffering. Inflation is still close to 10. This has dropped negligibly. But inflation is increasing in the food indicators. Fixed income persons are at a loss with item or the other. Those who couldn't afford fish and meat, would turn to eggs, but now even eggs are going out of reach. And the price of rice continues to spiral.

Over the past two financial years in Bangladesh, the value of the taka has fallen by 23 per cent. In June of the last 2022-23 financial year, taka was devalued by 13.76 per cent. And in the 2021-22 financial year, the value of the taka fell by 9.25 per cent. Basically, the value of the taka could not be kept up due to the dollar crisis. And under impact of this, the foreign exchange reserves fell by half, a gaping deficit appeared in balance of payments and people floundered under the pressure of high inflation.

Meanwhile, two economists of the US-based National Bureau of Economic Research (NBER) have said if the value of the dollar rises by 10 per cent in country of growing economies, within one year their production will fall by 1.9 per cent. And this fall in production will continue for two and a half years. But the rise in dollar value will not impact developed countries so hard. In these countries, if the value of the dollars goes up by 10 per cent, production will fall only by 0.6 per cent and will normalise within a year. So countries with rising economies are the most affected by the increase in dollar value.

According to studies, the increase in dollar value has also had a negative impact on trade and capital markets of the rising economies. For example, imports have fallen by two-fold compared to exports. The credit ratings of these countries are falling, capital flow is decreasing, monetary policies are being constricted and share markets are plummeting too. These countries are even at a loss over current account balance. Each and every word of the researchers regarding the impact of the rise in dollar value is proving to be true in the case of Bangladesh. So in keeping with the calculations of the two researchers, production should be falling in Bangladesh too. International Monetary Fund (IMF) has used this research in their annual 'External Sector Report' published on 19 July.

After the impact of the pandemic, many persons took initiative to expand their businesses. But as the political situation in the country has heated up this year, the businessmen are changing their plans. Many have held up establishing new factories. As a result, loans in the private sector are on a steady downslide.

The growth of borrowing in the private sector at the end of June this year stood at 10.57 per cent. In the preceding month of May it had been 11.10 per cent. In June last year it was 13.66 per cent.

Bankers say that the businessmen are not taking up any new projects at present. Even those who had taken decisions on new enterprises, are now changing their minds. That is why there are no loans with the bank other than working capital loans. Everyone is waiting to see what shape the situation takes after the election before they take any decision.

Managing director of Pubali Bank, Mohammad Ali, speaking to Prothom Alo about this matter, said, "Everyone is waiting to see, because of the ongoing dollar crunch and the forthcoming election. After that people will decide on new investments. This is not the time to take up new projects. That is why there is hardly any growth in loans. Over the past seven months we gave loans of about Tk 30 billion (3000 crore). Of this Tk billion 5 (500 crore) to Tk 6 billion (600 crore) was for project expansion and modernisation."

From April 2020 after the interest on loans was fixed at 9 per cent, the deposit and loan scenario underwent a complete reversal. More loans were provided by banks than the amount of deposits made. In some months, loans were double the deposits. At the end of June this year, the growth in banks deposits stood at 8.4 per cent. Loan growth at the time was almost 13 per cent.

However, since July the interest rate was more or less left to the market. The banks are increasing interest on deposits. The bankers hope this will lead to increased deposits in the coming days.

Also, in the 2022-23 fiscal Bangladesh Bank sold USD 13.58 billion (1,358 crore) from the reserves. At the rate of Tk 95 per dollar, last year Tk 1,229 billion (1,29,000 crore) went from the banks to the central bank. This made liquidity management difficult for many banks. Some banks took loans at 10 per cent interest rate from other banks. That is another reason why the loan growth was not satisfactory. At the same time, tax evasion, not repaying loans and money laundering, all continue in full swing.

The government is taking both high interest loans from within the country and low interest loans from outside. That is why the rate of borrowing has increased in comparison to the GDP rate. From 31 March 2022 to 31 March this year, that is in one year, the government has borrowed Tk 2000 billion (200,000 crore). Four months have passed since March and the loans have increased in this time. This was revealed by sources of the financial division of the finance ministry.

The reason behind the government's dependence on loans is that its revenue earnings are not satisfactory. According to sources of the National Board of Revenue (NBR), there was a shortfall of at least Tk 380 billion (38,000 crore) in revenue in the last financial year. Another reason for increased borrowing is the dollar crisis. The government has a shortage of dollars and there is a shortfall of dollars in the market too. The central bank is selling dollars to tackle the situation. This is depleting the foreign exchange reserves.

According to Bangladesh Bank records, in the last year the government borrowed Tk 976.84 billion (97,684 crore) from the central bank alone. The rest was borrowed from commercial banks. Fresh currency was printed against the money borrowed from the central bank. The impact of printing money led to inflation. Experts say one of the major reasons behind the high inflation rate in the market is this printing of money.

Under these circumstances, the finance division published the debt bulletin on Wednesday, depicting the overall loan picture till 31 March. According to the finance division data, till 31 March the government's total borrowing stood at Tk 14483.33 (14,48,333 crore) that even three months ago in December 2020 was Tk 13698.98 (13,59,898 crore). And a year ago on 31 March 2022 the loans stood at Tk 12492.65 (12,49,265 crore). Alongside daily routine expenditure, the government is using the money from the loans to pay the interest on the loans too.

The finance division says that on 31 March 2022, the loan rate was 31.42 per cent compared to the GDP. On 31 March 2023 this went up to 32.55 per cent. In this regard the finance division has agreed to a rate of IMF. The report said that according to IMF, at least 5 per cent of the GDP can be taken as loans. That means that there is more scope for Bangladesh to take loans.

However, executive director of the Policy Research Institute, Ahsan H Mansur, feels that Bangladesh's loan-GDP ratio is fine in keeping with the rate accepted by IMF. But the loan-GDP ratio is now almost four times higher than the tax-GDP rate. This  is abnormal. Speaking to Prothom Alo, he said, "There is no point in looking at the GDP. This hardly makes a difference. We must understand that 88 per cent of the economy is in the private sector, the rest is in the public sector. How well the country's economy fares, depends on how must relief the government gives to the private sector, how much opportunity it is facilitating."

Ahsan H Mansur said, "There is no problem in the loan-GDP ratio even exceeds 100 per cent, if the tax-GDP ratio is good. I see no visible indications of any improvement in the tax-GDP ratio ahead."