Prepare action plan to respond to economic downturn: BB
Friday, 21 November 2008
Siddique Islam
The Bangladesh Bank (BB) has recommended preparing an action plan to create some fiscal space to respond to any downturn in economic activities and absorb external shocks arising from the current global financial crisis.
"Plan to accommodate, if necessary, additional fiscal support to expand safety nets and provide assistance to the exporters especially readymade garment (RMG) exporters," the central bank's policy analysis unit (PAU) said in a report, released Thursday.
The policy paper styled 'Navigating the Global Financial Storm: Challenges for Bangladesh' also said that the fiscal sector had to withstand significant pressure during last year due to rapidly rising cost of subsidies and other current expenditures.
"As a sensible and quick response, trim low priority expenditure and improve revenue collections to help protect fiscal positions and the government's ability to respond when needed." the study added.
It also suggested rationalisation of tariffs and duties on imports of nonessential and luxury goods and similar goods produced locally as a means of increasing the fiscal base as well as to support priority domestic production.
"It's possible to manage the overall economic situation properly by taking short, medium and long terms policy measures to avert any adverse affect of the ongoing global financial crisis," Chief Economist of the BB Mustafa K Mujeri told the FE.
"Bangladesh's export sector (especially RMG export) is most vulnerable to the fallout effects of the financial turmoil," Mr. Mujeri said, adding that the authorities concerned will have to monitor closely the country's overall export performances particularly in RMG sector to avoid any negative impact on the country's economy.
Regarding inflow of remittances, the central bank chief economist said the country may face marginal impact on inward remittances temporarily.
"The short-term impact on remittances is not likely to be significant especially due to the nature of employment of most expatriate Bangladeshis," he added.
The study also suggested revisiting financial sector management aiming to ensure the quality of loans and to keep stable the liquidity position in the banking system.
"Although relatively well protected from the direct effects of the global financial crisis, Bangladesh's banking sector would probably face more pressure over time," the PAU study said, adding that the loan quality may deteriorate and liquidity may reduce if economic growth slows.
The study suggested, as short term measures, close monitoring of rising default on borrowings by importers against stocks of essential products imported at higher prices earlier due to anticipated loss by falling world prices and take appropriate actions as necessary.
Regular monitoring of the trend in non-performing assets of banks since there is an apprehension that such assets might rise due to lower profitability of firms especially produced for the export sectors.
"The chain effect may not only affect the industry but the financing banks may also face liquidity problems because of repayment defaults," the study noted.
Mr. Mujeri also said that the amount of default loan may increase particularly by importers because of falling trend in prices of commodities in the international market.
"The banks concerned will have to strengthen their internal monitoring and supervision to avoid any financial risks," he said.
Besides, the priority for Bangladesh is to improve the quality of information that the banks and other financial sector institutions put out and those collected by the regulatory agencies, according to the study.
"The important agenda for Bangladesh would be to convert the current global crisis into an opportunity in order to move forward," it noted.
Clearly, Bangladesh needs to plug in regulatory and supervisory infrastructures and strengthen its regulatory regime in a comprehensive manner covering all institutions dealing with both household savers and institutional investors in order to avoid the creation of any systemic distress, the study added.
The Bangladesh Bank (BB) has recommended preparing an action plan to create some fiscal space to respond to any downturn in economic activities and absorb external shocks arising from the current global financial crisis.
"Plan to accommodate, if necessary, additional fiscal support to expand safety nets and provide assistance to the exporters especially readymade garment (RMG) exporters," the central bank's policy analysis unit (PAU) said in a report, released Thursday.
The policy paper styled 'Navigating the Global Financial Storm: Challenges for Bangladesh' also said that the fiscal sector had to withstand significant pressure during last year due to rapidly rising cost of subsidies and other current expenditures.
"As a sensible and quick response, trim low priority expenditure and improve revenue collections to help protect fiscal positions and the government's ability to respond when needed." the study added.
It also suggested rationalisation of tariffs and duties on imports of nonessential and luxury goods and similar goods produced locally as a means of increasing the fiscal base as well as to support priority domestic production.
"It's possible to manage the overall economic situation properly by taking short, medium and long terms policy measures to avert any adverse affect of the ongoing global financial crisis," Chief Economist of the BB Mustafa K Mujeri told the FE.
"Bangladesh's export sector (especially RMG export) is most vulnerable to the fallout effects of the financial turmoil," Mr. Mujeri said, adding that the authorities concerned will have to monitor closely the country's overall export performances particularly in RMG sector to avoid any negative impact on the country's economy.
Regarding inflow of remittances, the central bank chief economist said the country may face marginal impact on inward remittances temporarily.
"The short-term impact on remittances is not likely to be significant especially due to the nature of employment of most expatriate Bangladeshis," he added.
The study also suggested revisiting financial sector management aiming to ensure the quality of loans and to keep stable the liquidity position in the banking system.
"Although relatively well protected from the direct effects of the global financial crisis, Bangladesh's banking sector would probably face more pressure over time," the PAU study said, adding that the loan quality may deteriorate and liquidity may reduce if economic growth slows.
The study suggested, as short term measures, close monitoring of rising default on borrowings by importers against stocks of essential products imported at higher prices earlier due to anticipated loss by falling world prices and take appropriate actions as necessary.
Regular monitoring of the trend in non-performing assets of banks since there is an apprehension that such assets might rise due to lower profitability of firms especially produced for the export sectors.
"The chain effect may not only affect the industry but the financing banks may also face liquidity problems because of repayment defaults," the study noted.
Mr. Mujeri also said that the amount of default loan may increase particularly by importers because of falling trend in prices of commodities in the international market.
"The banks concerned will have to strengthen their internal monitoring and supervision to avoid any financial risks," he said.
Besides, the priority for Bangladesh is to improve the quality of information that the banks and other financial sector institutions put out and those collected by the regulatory agencies, according to the study.
"The important agenda for Bangladesh would be to convert the current global crisis into an opportunity in order to move forward," it noted.
Clearly, Bangladesh needs to plug in regulatory and supervisory infrastructures and strengthen its regulatory regime in a comprehensive manner covering all institutions dealing with both household savers and institutional investors in order to avoid the creation of any systemic distress, the study added.