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Challenges for 2020: For economy, it's a bumpy journey ahead

  • Published at 09:46 pm December 31st, 2019
Challenges-for-2020-Collected
Collected

'The finance minister should have been pro-active to reduce mounting non-performing loans and address the core issues hindering the export and manufacturing activities'

Stimulating the low cost private sector credit growth and fixing the infected financial governance to improve revenue earnings and cutting the ballooning bad debts are the major economic challenges facing the Finance Minister AMA Mustafa Kamal in 2020. 

The finance minister, with one year in office, has yet to roll out any plan meant for a turnaround in the lackluster manufacturing activities now being plagued with low domestic and external demands.

The contracted export-oriented sector that employs most in the economy is apparently left with any policy direction and regulatory adjustment, raising question about the government's capability, while hard landing economy has lost most of its glamour and steam.

Economists and analysts skeptic about the vision and efficacy of 9% lending and 6% deposit rates Kamal announced with effect from April 1, which they fear will distort the market behaviour and go against the demand and supply theory.

‘The finance minister should have been pro-active to reduce mounting non-performing loans and address the core issues hindering the export and manufacturing activities,” Zahid Hossain, former World Bank economist in Dhaka, office told Dhaka Tribune.

Others say the finance minister is 'fishing in drought land' and less-focused on improving mastery in economic governance.

Confidence erosion, lack of performers in key institutional bodies along with ad hoc fiscal measures are some other deterrents that hold back the potential of the local economy in a politically apparent unchallenged regime.

The analysts now doubt whether they government will be able to go close to the projected 8.20% GDP growth.

Speaking to Dhaka Tribune, the country’s leading economists and trade leaders made the observations and suggested ways to overcome these challenges. 

Major challenges for 2020

Bangladesh’s economic challenges will be compounded by several factors such as negative export, sluggish private investment, tepid revenue collection and, most importantly, the mounting NPLs caused mainly by undisciplined banking sector.

“Certainly, reining in the soaring bad loans, gearing up the revenue collection in the first six months of 2020 and turning around from the negative export growth are the key challenges for the country’s economy in the new year,” Centre for Policy Dialogue (CPD) distinguished fellow Professor Mostafizur Rahman told Dhaka Tribune. 

As of September, NPLs in the banking sector stood at record Tk1,16,288 crore, the highest ever in the country’s history. 

Private sector credit growth dropped to 9.87% in November, a nine-year low, against the target of 14.80% growth for the current fiscal year.

Containing government bank borrowing, that already exhausted the yearly target in less than six months, is a pressing issue for the economy, which may increase budget deficit and go beyond the 5% projection for the current fiscal year, says the economist.

Amid government target of borrowing Tk47,364 crore from the banking sector in FY20, it already borrowed Tk47,139 crore as of December 9, 2019.     

Since the exports earning registered negative growth in last four months despite a positive growth in the first half, increasing export competitiveness and diversification of products and market are now burning issues for the export-led economy.

“The outgoing year was not pleasant for manufacturers as the export earnings fell drastically at the end of the year. This is because of appreciation of the Taka against US dollar, which eroded Bangladesh’s competitiveness in the global markets,” BGMEA President Rubana Huq told Dhaka Tribune. 

According to the Export Promotion Bureau data, during July-November period of the current fiscal, exports saw a 7.59% negative growth to $15.78 billion.  

In the new year, the biggest challenge is increasing the competitiveness and grabbing more work orders from the market, adds Rubana. 

While the brands increased the export prices a little, the apparel sector is not getting enough orders as its counterparts in competing countries are taking away orders as they are price competitive, she points out.

Meanwhile,  the country’s economy is saddled with falling private investments and unemployment.

“From my viewpoint, the worst thing in 2019 was the lowest private sector credit growth in the history, a key issue for investment that creates jobs and also a crying need for the economy to meet the GDP target,” said Abul Kasem Khan, former president of Dhaka Chamber of Commerce and Industry (DCCI).

This could be a threat for the economy as the private sector investment is going through a sluggish trend, warns Khan.

According to Bureau of Statistics (BBS) data, private investment to GDP was 23.54% in the last fiscal year, while for the current fiscal year the government target was set at 25.15 %.

Restoring investors’ confidence on stock market, which shed 1,012 points in the last year due to liquidity crisis and lack of investors’ confidence, remains as another potential challenge to make the stock  market as a source of fund for industrialization. 

“Though the stock market started on a positive note in January, it closed the year shattering investors' confidence. So, restoring investor's confidence will be a great challenge for the new year to overcome the crisis,” said Shakil Rizvi, a director of Dhaka Stock Exchange (DSE).

It is also very crucial for the market to bring the foreign and institutional investors back in the floor and give them assurance of market stability in the coming year, added Shakil.

Above all, the stakeholders have to come up with effective measures to remove liquidity crisis as the daily transaction has fallen to its historic low, he said.

Although the government set the target to keep the inflation rate at 5.5% for the current fiscal year, it inched up to 6.05% in November, putting extra financial burden on diverse groups of people.

Recipe to overcome challenges

“To in rein the NPLs, the government has to identify the reasons, which encourage bad loan and should stop the spiralling trend immediately,” Zahid Hossain, former lead economist of World Bank in Dhaka, said.

In restoring discipline and ensuring proper management in the financial sector, the government needed to empower the central bank with autonomy for enforcing effective reforms , Zahid added.

For increasing the revenue collection, he said, the government must enhance the efficiency of National Board of Revenue (NBR), widening tax net and more emphasis should be put on increasing the non-NBR revenue collection.

For a turnaround from the negative export growth, experts recommended diversifying export products and markets, while manufacturers stressed reducing production cost.

“Reducing production cost and improving the competitiveness in the global market are the key to making a turnaround from the negative growth. In this regard, manufacturers need support in exchange rate,” Sharif Zahir, a director, BGMEA, has told Dhaka Tribune.

Explaining, he demands Tk5 on the exchange rate for one-fourth of export receipts.

In addition, Sharif urges the government to cut utility charges and suggests factory owners take steps to reduce cost of production to adjust price pressure.

In keeping the bank borrowing under control, economists have suggested bringing efficiency in fund management for government projects. They also called for stopping corruption in implementing  different government projects. 

“In attracting investment from home and abroad, the government  has to create a friendly investment climate and rethink the corporation tax thought to be a barrier to new investment,” said Abul Kasem Khan. 

For long-term employment generation, there is no alternative to private sector investment, says Zahid, suggesting creation of investment opportunity in economic zones, where the investors are willing to invest.

External challenges 

Bangladesh economy is an integral part of global economy and open to global risks. There seems uncertainty and pressure in the global economy in the next year especially in the fronts of consumption and GDP growth. 

“One of the most concerning issue is slowing demands of apparel goods in the global markets. But there is nothing to do from the manufacturers end. Only thing we can do is  improving our competitiveness,” Mohammad Hatem, first vice president of BKMEA, told Dhaka Tribune. 

In addition, downswing in Chinese and Indian economies is other issue for Bangladesh as the countries are emerging export markets for Bangladesh, says Hatem. 

Vietnam, a close competitor of Bangladesh in apparel export, has gained the highest from the US-China trade war, while Bangladesh export saw downtrend, says Zahid. 

So, it is the high time for the country to get prepared to increase the export growth and for this there is no alternative to diversification of  goods and export destinations. Bangladesh has to think beyond RMG, explains the economist.  

India's economic growth declined to 4.5% in July-September period of 2019 caused by contracted consumer spending and private investment. 

On the other hand, the Chinese economy grew an underwhelming 6% in quarter three, its weakest rate in at least 27 years.