Uncertainties plague the economy

Hartal at the beginning of the year does not augur well for the economy. The Bangladesh Bank (BB) has indicated the prospect of high inflation. Investment is already in jeopardy because of high interest rates. Banks have a lot of idle money. It is alleged that opportunists are taking huge loans from banks in their own names as well as 'benami' (others' names). In the preceding year, many bank forgeries took place. This had a negative impact on the economy.
Last year, there was a revenue shortfall of Tk 40 billion in spite of downward revision of target. In the current year also, there is a fear of revenue shortfall.
Economists say that in the current year, the economy will face many challenges. Political uncertainty is one of them. No noticeable action to establish good governance is visible yet. Good governance is necessary to inspire confidence among the investors. Once this is done, other things will fall in line. A fair, participatory and acceptable election is necessary to bring back confidence among entrepreneurs and investors.
Inflation is likely to increase in view of the proposed new national pay scale in 2015. This will also impact the private sector. Pay scale has to be increased in the private sector too. This will increase expenditures in unproductive areas. This will fuel inflation.
The banking sector is beset with many problems like growing level of classified loans. The credit flow to the private sector is poor. The capital market is maintaining a low-level stability. There is no possibility of a big rebound in 2015.
Shortage of energy, both electricity and gas, is taking its toll on production in the industrial sector. Many industrial units are running well below capacity because of short power and energy supplies. The government is not adjusting the domestic petroleum prices to reflect international oil prices. But it is committed to the International Monetary Fund (IMF) to revise the prices downward in line with global trend.
The key challenge for the government will be to attain 8 to 10 per cent economic growth in the next 6-7 years to achieve Vision-2021, the Metropolitan Chamber of Commerce and Industry (MCCI) said recently in a statement. Bangladesh can not become a middle-income country by 2021 with its current 6.0 per cent growth rate, said the chamber. Investment must increase to 35-40 per cent of GDP (gross domestic product) from its current level of 28.7 per cent. Despite resilience and growth performance of the economy, Bangladesh faces many challenges arising out of domestic and international environment.
Citing a confrontational political culture and lack of tolerance as barriers to democratic practices, the MCCI said political parties must reach a consensus by any means and stop violence, blockades and hartals which severely affect business and employment. The business community has assured it will actively support formulating strict policy and its enforcement ensuring peace and stability to conduct business and trade.
On infrastructural bottlenecks, the MCCI said that roads, highways, bridges, railways and ports are so backward that these create hurdles in attaining potential growth in all sectors. A build-operate-transfer (BOT) policy may be adopted for infrastructure development in order to increase the inflow of foreign direct investment (FDI) as well as local investment. Domestic savings and investment remain stagnant which must be energised.
There is an uncertainty about bringing back Bangladesh's money from Swiss banks. The BB has written several letters to Swiss banks but there is no reply from them. The BB wanted to sign a memorandum of understanding in this regard. But there is no response from the Swiss side. Several emails were also sent but without any result.
The BB Governor has expressed his concern about the state of the economy in 2015. According to him, the economy suffered in 2013 due to hartal and blockade. The BB took steps and the business turned around in 2014. If the present situation continues, the vibrancy of the economy will be sapped. If political uncertainty increases, forward march of the economy will be hampered. The BB Governor appealed to everybody not to stop the wheels of the economy.
The last election was held without the participation of many opposition parties including the Bangladesh Nationalist Party (BNP). These parties did not take any programme that could impede business and industry in 2014. Even then, investors are not coming. They are waiting because of uncertainty. Whatever investment is coming, it is only in the on-going projects for completion of the works. Banks are having idle money because of stagnation in investment.
The parliamentary standing committee on the Finance Ministry thinks that investment is hampered due to high interest rates. It said that interest rate has to be in line with the rates in China, India and other neighbouring countries. Businessmen and economists have expressed displeasure about high interest rates. Even if the government-owned banks have reduced interest rates, private banks have not done so. Although the government has success in many areas, desired investment is not taking place because of high interest rates and other factors.
Banks will also have to reduce their service charges. Investment-friendly atmosphere will only be created if interest rates and service charges are lowered. According to the Centre for Policy Dialogue (CPD) has said that gas, electricity, transport system and land acquisition problems for industry continue side by side with high interest rates. These are factors that block investment. It is necessary to take steps for reducing interest rates.
The CPD came down hard on the government for recapitalising the state-owned banks (Sonali and BASIC) despite their malpractices and rescheduling of bad loans.This is not a good sign for the economy and the banking sector. Last year, funds were given to the four state-owned banks for recapitalisation. Viability of concerned banks has become somewhat uncertain. Capital infusion has not resulted in any improvement in recipient banks.
Lastly, the events of Monday (January 05) such as banning of meetings and rallies in Dhaka, confinement of Khaleda Zia to her office premises, near-empty roads in Dhaka, triangular fight among BNP, Awami League and police throughout the country and declaration of siege programme by the BNP indicate that uncertainties will continue in the days ahead.
 
The writer is an economist and columnist. [email protected]