Zahid Hussain joined the World Bank in 1995. Prior to that, he was a member of academia, with 14 years of teaching experience in a number of universities in Bangladesh and abroad. He has worked on several flagship World Bank reports on Bangladesh.
What challenges is Bangladesh likely to face in 2019?
The fundamental activities of a bank are to collect deposits and provide credit. Deposits are a bank's raw materials using which it provides services, and from which it makes profits. Deposits are the heart of a bank, and if diagnosis reveals a disease in this organ, the disease must be prevented from spreading to other parts of the body.
Default loans too, if not controlled, may create systemic risks and ultimately threaten financial stability of a bank.
We have to rein in the growing non-performing loans [NPLs] in both private and state-owned banks, before it creates a capital shortfall. In curbing NPLs, we have to take a traditional approach and take preventive measures. In order to recover default loans, we have to develop a mechanism for resolution.
As of the end of 2018, NPLs in the country’s banking sector stood at almost Tk100,000 crore, the highest ever in the banking sector. This happened because of a lack of good governance in the sector. So, to increase cash flows to the market, reforms in the sector are a must.
Bangladesh is scheduled to graduate to a developing country by 2024. How should we retain the trade benefits we enjoyed as an LDC?
Bangladesh is now eligible to move up from an LDC [least developed country]since it has fulfilled all three criteria _ in terms of gross national income per capita, human assets index, and the economic vulnerability index _ to graduate to a developing country.
However, Bangladesh will have to undergo two more reviews in 2021 and 2024 to formally graduate. As an LDC country, Bangladesh currently enjoys duty-free market access to the European Union [EU] under the EBA [European Banking Authority], which we will lose after graduation, and Bangladesh will have to pay 8-9% tax.
Before reaching that stage, Bangladesh should renegotiate with the EU to replace these trade benefits with other means, such as free trade agreements [FTAs]. Bangladesh also has to look for other available bilateral options.
Additionally, we have to improve economic diplomacy to materialize the options.
What should be done to develop an entrepreneurial culture in Bangladesh?
The biggest constraint to entrepreneurship development is financing. Very few entrepreneurs have the capacity to start a business with their savings.
Although entrepreneurs can come up with innovative ideas and products, these need incubation and nurturing to grow. Without credit support, it is difficult to sustain a business as the entrepreneur will not get any returns at the primary stage. While there are infrastructural deficiencies in materializing ideas, which need to be addressed, access to finance is the key to creating new entrepreneurs.
How can investments, both at home and from abroad, be increased?
An investor does not even know whether the tax rate offered in the budget will be implemented or not. Usually, tax rates are increased or decreased by SROs [statutory regulatory orders], and it is done without transparency.
Importers come to know about import tariffs while imported goods are being delivered. On the other hand, businesspersons are unaware of what the trade or tax policy will be the following year. So, policy uncertainty and lack of predictability are the two main constraints to attracting investments.
Even a bad policy can be predictable as investors can prepare to cope with it.Access to finance and infrastructural deficiencies are also big constraints.
But there have been initiatives taken to improve the ease of doing business; what Bangladesh needs is to implement those within the deadline to give investors confidence for attracting investment.
How would you evaluate Bangladesh's economic performance in 2018?
In 2018, overall performance of Bangladesh’s macroeconomy was mixed. However, there was a noticeable and positive change in export growth.
In the first five months of the current fiscal year [FY2018-19], export earnings showed a balanced growth with better earnings in the non-RMG sector, which is a good indication.
Rise in agricultural production—especially bumper yield of Boro and Aman—was another positive sign, but there are concerns over the price of paddy. Other indicators, such as remittance inflow, foreign exchange reserve, and inflation were also positive.
In what sectors did our economy perform poorly in 2018?
Firstly, private sector investment in the country was stagnant, like the previous year. And the investment to GDP ratio is hovering within 22-23%, again because of infrastructural deficiencies.
Additionally, there were other concerns regarding revenue collection, which was below the set target last year. There was a downtrend in the private sector credit growth. There was nothing surprising in terms of private sector investments, either.
Capital machinery imports also declined, indicating that investments were still stuck in a sluggish trend.