Former central bank Governor Dr Salehuddin Ahmed on Thursday said there are 'challenge, uncertainty and fear' for Bangladesh's economy if any further sanctions are imposed by the western countries following the upcoming national election.
"The national economy is now facing challenges from many fronts. In addition, there is a fear of sanction regarding the next election. Then how will we recover from those problems?" said Dr Ahmed at a discussion in the city.
He was presiding over a discussion on 'Macroeconomic challenges and policy options in Bangladesh' at the inaugural session of the three-day long Annual BIDS Conference on Development (ABCD) in the city on Thursday.
Amid the upcoming non-participatory national elections, people fear that the USA and western economy may impose sanctions and trade restrictions on Bangladesh if the present government fails in holding free, fair and participatory elections.
Dr Salehuddin Ahmed also said it is difficult to ensure policy reforms in Bangladesh as the businesses and policy-makers have been mixed up here.
Comparing the economic challenges with a running ox, Dr Ahmed said: "If you hold the tail of an oxen rather than holding the horn, how will you prevent it from running?"
Meanwhile, Policy Research Institute (PRI) Executive Director Dr Ahsan H Mansur presented a keynote paper at the session and described the macroeconomic challenges of Bangladesh and the way forward.
He said when the country's macro-economic stability had started declining for the impact of Covid-19 and Ukrain-Russia war and aggravated further for some internal reasons, the central bank failed to address the situation in time.
One of the major challenges was inflation which was virtually unattended from the government side, he added.
He said: "You continue unnecessary complicated macro-economic, fiscal and monetary policies. You have kept going the fixed interest and deposit rates, foreign exchange rates. You have not addressed the low tax-GDP ratio for more than a decade. You have allowed very shallow financial system."
He added, "Amid the higher inflation and non-performing loans (NPLs), you have injected more funds or liquiditated the banks, even the high NPL-laden banks, rather than asking them about their failures,"
Pressure of balance of payments (BoP) faced pressure due to lack of adequate policy response in time, Dr Mansur said.
Meanwhile, the central bank for a long time hoped that a positive supply response would take care of the inflation, the PRI executive director said.
"Inflation has been very high for a long time. Many people, particularly the poor and those with a fixed income, are suffering. The BoP issue is complicating inflation management," he said.
Mansur said for a long time, the BB hoped that a positive supply response would take care of the inflation. But their fight against inflation remained virtually unattended except fixing the interest rate.
He also said there are multiple issues creating a balance of payment crisis.
But in particular, the rapidly declining foreign exchange reserves and a sharp depreciation of the local currency have contributed to it.
Stating that the challenges remain in the field of inflation, exchange rate and reserves, he said policy needs to be adopted ahead of the national election.
Dr Mansur said: "The global fiscal policies were changing from a very low interest rate to very high interest rate but the central bank applied here 6-9 per cent method, which is a big departure from standard macro management."
Besides, maintaining a virtually fixed exchange rate for a decade despite a very high inflation compared with trading partners and competitors reduced competitiveness, he added.
Dr Mansur cautioned about the $26 billion private sector foreign debt, saying the reserve will fall under further pressure for some short-term loans, that was not managed properly earlier.
He said: "The government had continued fixed foreign exchange rate for more than a decade. It has given message to the private sector that you can borrow foreign loan as our exchange rate is risk-free. Then the private sector went for borrowing heavily."
"The private sector did not know that once the USD rate will be appreciated by Tk 30. So, they borrowed the short-term loan heavily. Now, it has become burden for the country to payback those from its dwindling reserve. Was it a better financial management by the central bank?" he questioned.
The PRI ED said Bangladesh is facing multiple challenges on the macro-economic front and those have to be managed shortly.
Bringing down inflation, restoring exchange rate stability, preserving and then rebuilding foreign exchange reserve to a much higher level, and managing fiscal situation amid revenue shortfall will be extremely challenging, he added.
The short-term problem has also been compounded by the long-term structural problems associated with the structure of BoP, the extremely vulnerable banking sector and the poor state of revenue administration, Dr Mansur said.
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