Finance Minister AMA Muhith on Wednesday said the rising non-performing loan (NPL) in the commercial banks is really a big challenge for the economy as the banks are failing to manage the same efficiently.
"Commercial banks' performance in dealing with NPLs is really bad. The culture of non-repayment of credit has also risen in recent years compared to that of the past," he said at a review meeting of the mid-term implementation performance of the current Sixth Five-Year Plan (FY2011-FY2015).
He said: "Thirty years ago, I had seen that some borrowers were not repaying their loans to the lenders in time. That practice has now intensified further. I think the non-repayment culture was a baby 30 years ago which has now become an adult."
The Finance Minister sought suggestions from the economists and experts attending the review meeting on ways to reduce the NPL.
Presided over by Planning Minister AHM Mustafa Kamal, the mid-term review (between FY2011 and FY2013) meeting of the 6th FYP was held at the NEC conference room. State Minister for Finance and Planning MA Mannan, economists, high government officials and researchers were present at the meeting.
On achievement of the 6th FYP targets, Mr Muhith said the poverty reduction in Bangladesh has been really 'fantastic' as the income inequality has not widened over time.
"I think we need to boost the national protection (social safety-net) for the vulnerable groups. If it is done correctly, poverty reduction will get a new momentum," the Finance Minister observed.
He, however, expressed his dissatisfaction over slow employment growth. The minister was also critical of the present method of employment calculation saying it is not the right one.
The minister was upbeat about increased public investment although he expressed his dissatisfaction over the reform of the public sector institutions.
"Public service reform has not been done and it is unlikely to happen in the near future. It will take more time," said Mr Muhith.
Planning Minister AHM Mustafa Kamal found the increase of the country's export earnings to US$ 30 billion from $14 billion over the last five years "incredible."
About the government's bid to rein in inflation rate, he expressed the hope that it would be excellent if the inflation rate remained at 6.30 per cent at the end of this fiscal year.
The Planning Minister also opined that if the non-performing loans are not reduced, it would be tough to expand industrialisation.
Bangladesh Bank Governor Dr Atiur Rahman said that the country wants to attain 8 per cent growth rate in 2015, the terminal year of SFYP.
But, for attaining that target, there is perhaps lack of infrastructure, coordination and above all political stability.
"But, despite all these, whatever we've achieved is not small, and there is nothing to be depressed."
He said the country's performance in the matter of debt-servicing has been highly satisfactory. The bank interest rate has also come down below 13 per cent, he said.
Mr Atiur Rahman said the central bank too is not comfortable with the rise in the NPL in the banks. "The NPL has jumped to 10.39 per cent from 8.0 per cent a year ago due to newly- introduced 90 days' calculation method."
"We have enhanced our supervision over the commercial banks to reduce the NPL," he pointed out.
Earlier, Executive Director of the Centre for Policy Dialogue (CPD) Mustafizur Rahman at the 6th FYP review meeting said the NPL in Bangladesh has crossed 10 per cent of the total outstanding credit which is the highest in this region.
He cited the example of India and said their NPL in that country is only 2.0 per cent of the total outstanding loans of the commercial banks.
Mr Mustafiz said the spread between the bank credit and the deposit is still high (more than 5.0 per cent) which is also hurting the economy.
He said poor governance in the financial sector largely responsible for the rise in the NPL. Had there been good governance, the Hallmark scam could not have occurred in the banking sector.
"If a businessman borrows money at 12-14 per cent from a bank how much profit he or she has to make to stay in the business?", he questioned.
Mr Mustafizur Rahman said there are many achievements during the last three-year period of the 6th FYP. He, however, was critical about misuse of public funds.
"Public investment is going up. But the government is failing to invest public money at affordable cost," he said adding the Padma Bridge project cost was Tk 100 billion initially which has now increased to Tk 260 billion."
He suggested the government to include governance indicators with its achievements in the macroeconomic framework.
Meanwhile, Member of the General Economics Division (GED) of the Planning Commission Professor Shamsul Alam presented a review on the progress of the ongoing 6th FYP at the function.
He showed that although the GDP growth and the investment had fallen short of targets in the 6th FYP, the revenue-GDP ratio, remittance income, foreign exchange reserve, and export earnings recorded an increase.
Besides, reduction of poverty, low pace of inflation and budget deficit also reflected a good performance for the economy, he added.
The GED member reflected some challenges on the way of achieving the targets of the five-year plan.
Prof Alam said lower private investment, impact of the global financial crisis, and low pace of employment growth and export diversification are the challenges for development of the country.
He emphasised on some reforms and enhanced governance suggesting strengthening of the local government with necessary legal framework, civil service reforms, quick reform of the commercial banks to reduce the NPL, modern tax measures and strengthening of the Anti Corruption Commission.
The government started implementing the 6th FYP from the financial year 2010-11.
BIBM Director General Dr Toufic Ahmad Chowdhury said that the central bank should enjoy autonomy in full scale. Otherwise, it would not be possible to reduce the NPL.
The mid-term review of the SFYP for 2011-2015 has suggested the government to identify the highest transformational projects and complete those first instead of spreading resources thinly on too many projects.
It cited some examples of transformative projects that need to be prioritised and fully resourced. These include the Dhaka-Chittagong four-lane project, double tracking of the Dhaka-Chittagong Railway, the Padma Multipurpose Bridge Project, completion of the two Bibiyana gas field-based large power plants, and the Dhaka metro rail.
The suggestion came as the performance in terms of infrastructural development, especially in the areas of transport including roads, bridges, railways and ports in the Sixth Five-Year Plan fell short of the target.
On the whole, the review said, the slowdown in investment may lead to the failure to achieve the average GDP growth rate above 7 per cent during the remaining two years of the Plan period.
About the progress with economic growth, the review noted that the solid growth performance in Bangladesh during the Sixth Five-Year Plan so far compares favourably not only by own historical standards, it also looks very good in international and regional comparison.
It said Bangladesh has been among the fastest growing countries in the world during 2011-13 along with China, India and Indonesia.
"On the whole, average GDP performance in the first three years is a solid (6.4 pc), but lower than the Sixth Plan target (7.3 pc)," the review said.
Regarding progress with poverty reduction in line with the Plan target of reducing head-count poverty at 22.5 percent by 2015, the incidence of poverty has been declining on an average 1.74 percentage points in Bangladesh during 2000 to 2010 as per the HIES data.
It noted that prudent macroeconomic management has been the hallmark of Bangladesh's long-term development as tax to GDP ratio, fiscal deficit, export growth, export to GDP ratio, current account balance, reserve build up and external debt management are all on track in line with Sixth Plan targets.
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