Global economy will plunge into recession: Zahid Hussain

How do you view the current economic condition of Bangladesh?

Zahid Hussain: Productivity and spending are the most important indicators to assess the financial condition of a country. But we did not get any information about the growth of gross domestic product (GDP) during the ongoing financial year. However, the information of every quarterly is available in many countries, including India and Sri Lanka. So we have to depend on the trend of some indicators related to the growth of GDP. Such indicators, however, are not available.

How are the scenarios of those indicators in the current fiscal?

Zahid Hussain: Export is a big factor here. It registers a negative trend since the beginning of the year. Export has currently decreased in comparison to the previous year. If you look at the investment, there is also a negative trend.

Bangladesh Bureau of Statistics (BBS) assesses investment scenario on the basis of domestic productivity and import of capital machineries.

A big chunk of capital machineries used in our productivity comes from abroad. The import of these capital machinaries is also in the negative trend. A fragile condition is being noticed in the investment scenario.

Consumer spending is the major portion of our GDP, which is nearly 65 per cent. We have no direct data about it. However, the sales statements of big companies, which produce consumer items and enlisted in the share market, have been published in newspapers. According to the statements, sales have decreased in comparison to the previous financial year.

The number of shops, buyers and volume of sales has also decreased in Dhaka International Trade Fair this year in comparison to the previous year. This also shows a negative trend of consumer spending.

What is the reason behind the downward trend of indicators in almost all the sectors?

Zahid Hussain: We have noticed an increase in consumer spending. Foreign remittance has increased significantly between July and December 2019. Although it then decreased a bit, it is still above 20 per cent.

What is the reason behind it?

Zahid Hussain: Remittance is a source of consumer spending in rural economy. Although consumer spending is not as strong as before, it is not very weak due to the remittance inflow.

A section of consumers depends on the export. Their spending is supposed to be affected due to the decrease in the export. But consumer spending would not be affected as the remittance has increased.

There is a bumper production again in the agriculture. Although income has not increased in this sector, it has not decreased significantly.

Income of a section of people dependent on the export and the investment may fall.

But income is unlikely to decrease of those who depend on remittance and agriculture.

Out of three sources of growth, we notice negative growth in the export and investment.

But it is difficult to say what the scenario of consumer spending is, perhaps not negative to a great extent.

Export and private sector investment are two driving forces of growth. We notice weakness in these two sectors. So we can say that our growth has become weaker.

What is the cause of fall in export?

Zahid Hussain: Last year we noticed some good outcome for Bangladesh as a result of trade diversion due to the war trade between China and America. Export was higher than the previous year. American buyers, who bought items from China, are buying from other countries due to China-US trade war. Bangladesh is one of them. It was hoped the trend will continue. But there is no growth in export, rather the trend is negative. We could not retain the benefit of trade diversion following the trade war between China and US. Vietnam and other countries did it.

This is one of the causes behind the fall in export. International trade has also weakened. Economic recession has been noticed in the countries of European Union. Big economies like Germany and France have demand of our export items. But their demand is decreasing.

Why we could not retain the benefit of China-US trade deal? Why others including Vietnam are able to do?

Zahid Hussain: One reason may be the buyers could not keep trust on us as alternative exporters following the trade diversion.

Why?

Zahid Hussain: Buyers fear whether we would be able to supply products on time if they want to buy from us. There is a lack of capacity in our ports. If you cannot send export items to your buyers on time, they have to struggle to sell the items. The buyers know our financial sector is in crisis. All manufacturers are not getting loans to make products.

How did foreigners come to know?

Zahid Hussain: The newspapers publish reports in this regard. Our exporters also tell the buyers. Some of the exporters request buyers to finance as they are not getting loans from the banking sector. Buyers assume that if the small factories do not get loans, they will not be able to supply products on time.

Another cause of export decrease is taka overvaluation regarding currency exchange. The way our competitive countries devalued their currency we could not do in that way. As a result our exporters are defeated by other countries in the competition. For these three reasons we could not retain our earlier position. We had second position in American readymade garments. Vietnam seized our position. We are now in the third position. Although labour is cheap in our country, still we are lagging behind in overall competition mainly for three reasons.

What causes out investment fall?

Zahid Hussain: Our private sector investment has become stagnant from 22 to 23 for several years. Investment increases and decreases simultaneously. Its main reason is infrastructure problem. Bangladesh ranks 168^th out of 190 countries in business environment index despite 8 notches up last year. Investment means either you will start new business or extend your existing business.

What you want to do, you have to go through a regulatory process. If it is a new company, you need a trade licence, tax registration and import registration certificates.

It requires permission of the environment department to establish a factory. You need to go to 45 agencies to fulfill the regulation to start a new business. But these tasks are unlikely to be completed smoothly. You have to visit to every agency again and again. Much of your time will be wasted. The assessment made in doing business index as to how much time is required to complete the process and how much money is spent officially. Unofficial expenditure is not counted. The cost of doing business is the official cost of doing business. How much money you are paying to the government? You have more expenditure and that is unofficial. That is a big expenditure and expenditure at different level. Even in perspective of official count, we are lagging behind almost all South Asian countries.

Our position is exchanged merely with Afghanistan. We rank 168^th all over the world. Regulation complexity and harassment are the main problems for investment. That does not mean that no investment is happening. Many organisations are investing as they have already learnt how and what to do under such an unusual system. Many organisations have opened separate wings to manage the regulatory bodies. But those who want to start new business are discouraged by the regulatory system.

What is about foreign investors?

Zahid Hussain: Foreign investors with on arrival visas have to spend three to four hours at the airport. They feel discouraged when they need long hours to reach hotel from the airport. They are discouraged further when they face complex regulatory system. In this way, foreign investment is hampered.

Earlier, you talked about the financial crisis for investment which depends on the financial sector. Can you tell something about it?

Zahid Hossain: Foreign investment is very little in our country. Major investors are local people.They need money. Their main sources are banking sector oand stock market. It takes long time to draw money from the share market and there are many obstacles. There are no available opportunities to collect money from the stock market for investment. The banking sector is not in healthy condition to provide loans. The growth of private sector loans has fallen below 10.

Why?

Zahid Hussain: Loans recipients have no demand and the financial organisations have no ability to provide loans. International Finance Corporation (IFC) recently published a report conducting survey on 100 local organisations. It said the main problem is to get loans. The investors are not getting loans. Banks have no ability to provide loans.

Why is banks’ ability falling? The function of the banks is to provide loans.

Zahid Hussain: Banks are not getting back their disbursed loans. If the banks do not get back loans, how will they circulate the money? It may go on if their deposit increases continuously. But now-a-days, the deposit of banks has decreased.

What causes to the fall of growth of bank deposit? Are not people keeping money in the banks? Where are they keeping money if not in the banks?

Zahid Hussain: Earlier, deposit in the banks decreased as the government excessively depends on savings certificate. Moreover, the remittance was weak. People lose confidence to deposit money in the banks. When a incident took place at Farmers Bank, people may lose interest to deposit money in the banks. People may think they may face problems if they keep money in the bank. For these reasons, the deposit growth was little. After slashing interest rate on savings certificate, the bank deposit increased a little bit. Foreign remittance has also increased. Now the government is taking huge amount of loans from the banks.

Why the government is taking loans? What the government is doing?

Zahid Hussain: The government is taking loans to meet budget deficit as the revenue income has decreased and spending increased. New subsidies are being added. The government is giving subsidy in the export, LNG and remittance income. So the government is to take loans from the banking sector.

Coronavirus has spread across the globe. How this would affect our economy?

Zahid Hussain: When coronavirus broke out in China, it was assumed that our supply chain would be disrupted. Production for meeting local demand may be hampered and it would not be possible to supply export items. We have to import many things from China. Temporary disruption was feared. The cases of coronavirus are falling in China, some factories resume operation. So supply chain disruption will not prolong. Now the big problem is that coronavirus is spreading to Europe and America which are our big export markets. Donald Trump has cut off all communications with Europe. It seems to me that the world economy will fall into a recession. Although some policy responses have been carried out, Bank of England slashed interest rate and Federal Reserve Bank of America also slashed interest rate a little bit. Some financial incentives have been given in other countries. But where people are panicked, you cannot send them to shop by providing loans in low interest rate. They would not fly by air and go to the restaurant to eat. Although affected business people will get financial assistance, economic recession could not be avoided due to the fall of demand out of fear.

What are the ways out in local and global perspective?

Zahid Hussain: Now all countries should take steps so that public health does not fall in risk. The risks are already visible to be tackled efficiently and responsibly. This should be the first priority of our policymakers. It has to be ensured that coronavirus does not spread in our country. All necessary items including medicine, equipment and thermal scanning machines at airports have to be kept ready while physicians and nurses have to be ready, too. How is it possible that thermal scanning equipment becomes out of order in such urgent and vulnerable situation? Priority has to be given on the expenditure to fight health risks for coronavirus. The policy of zero tolerance has to be taken in case of inefficiency, negligence and corruption.

The accountability of those in responsible position has to be ensured.

Prothom Alo: Thank you very much.

Zahid Hussain: Thank you too.