In a bid to end the liquidity crisis in Bangladesh’s private sector Policy Research Institute (PRI), a domestic think-tank, organized a round table on the up-coming budget, that suggested entrepreneurs seek foreign commercial borrowing, as they are not getting sufficient credit from local sources.
Presenting the keynote paper, at the round-table on “Private Foreign Commercial Borrowing”, on Sunday, PRI Executive Director Ahsan H Mansurat said: “The banking sector is currently going through a liquidity crisis, driven by diversion of deposits to the banking system, and the disappearance of liquidity through the net foreign assets channels.”
Three factors appear to be hindering the private sector access to foreign borrowing and discouraging entrepreneurs to make use of it - complexity in the application process, involvement of uncoordinated agencies, and application of arbitrary all-in cost cap, he added.
He further said that the private sector is very cautious in utilizing their approval limit for foreign loans, which is why, less than 50% of the approval limit on foreign borrowing is utilized.
The round-table organized by PRI had Deputy Governor of Bangladesh Bank Ahmed Jamal as chief guest, and moderated by Sadiq Ahmed PRI vice-chairman.
Mansur added that, following the more liberal approach adopted by Bangladesh Bank, utilization rate was the highest in FY15, when the London Interbank Offered Rate (LIBOR) was very low, and the spread between domestic interest rate and that of foreign borrowing, was very high. At that time, exchange rate of Taka against the US dollar was very stable, with the Balance of Payments (BoP) recording large surplus in the current account and overall balance.
Currently an application must made to the Bangladesh Investment Development Authority (BIDA), and following an initial review by BIDA, the application is sent to the designated officials of Bangladesh Bank for technical assessment. Another requirement is authoring a working paper for the scrutiny committee, peopled by members of BIDA, PMO and Ministry of Finance, etc, and chaired by the Bangladesh Bank Governor.
Delays in the approval process are a problem as the scrutiny committee does not approve projects on time, because of delays in technical assessment and/or preparation of the working paper for the committee. The lack of standard decision time varies significantly from case to case, Mansur said.
Drawing on the experience of India and other emerging markets, Bangladesh needs a more liberal and flexible External Commercial Borrowing (ECB) policy. Central banks of emerging markets have liberalized the ECB policy to attract more overseas capital and the results have been significant, he concluded.
Bangladesh Bank’s Chief Economist Faisal Ahmed, Chairman of Policy Research Institute Zaidi Sattar, CEO Standard Chartered Bank, Bangladesh Naser Ezaz Bijoy, Managing Director, DBL Group M A Jabbar, and Managing Director, Green Delta Capital Limited Md Rafiqul Islam were also present at the event among others.