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Banking sector inefficiency causes 1% loss in GDP per year

  • Published at 03:52 pm April 4th, 2018
  • Last updated at 11:25 pm April 4th, 2018
Banking sector inefficiency causes 1% loss in GDP per year
Bangladesh has been losing minimum one percentage of GDP (gross domestic product) annually due to inefficiency in the banking sector. The amount of the annual loss is equivalent to Tk10,000 crore for the 2016-17 fiscal year, said the study found. The findings came from a study is based on a research by the South Asian Network on Economic Modeling (SANEM). The research organization disclosed their findings during SANEM’s first quarterly review of Bangladesh’s economy in 2018, held at The Westin, on Wednesday. Presenting the latest quarterly economic review, Dr Selim Raihan, executive director of the SANEM, said: “Using the general equilibrium model, we made estimates and we find that the current level of inefficiency in the banking sector is leading to a loss in GDP by around 1% annually which is equivalent to around 10,000 crore taka in 2016-17. “There are exceedingly high non-performing loans, frequent scams in the banking sector, which have created a lack of confidence in the banking sector among depositors.” He also said that the crisis in the banking sector is a culmination of the prolonged structural problems in the banking sector. The banking sector is now characterized by weak regulation and monitoring and no visible punishment of irregularities backed by political patronage, said Dr Selim Raihan. “Also, lack of independence of Bangladesh Bank intensified the problem. Recent decisions on allowing state agencies to deposit 50% of their funds in private banks and slashing CRR by 1.0 percentage point to 5.5% may lead to a bigger crisis. Also, cutting down interest rates on NSD is not a valid proposition.” SANEM’s Executive Director expected that Bangladesh will be able to meet the graduation criteria in the second review in 2021 and will finally graduate from the LDC status in 2024. Mentioning a number of risk factors for Bangladesh associated with its graduation from LDC status, he said, the country has to prepare itself over the next 9 years to counter these losses. “For this, the country need to attract the large volume of foreign direct investment, noticeably diversify their export baskets, enhance competitiveness, and significantly improve physical and social infrastructure.” Improvement in the quality of economic and political institutions and quality service delivery by the public institutions are crucial for sustaining the development process, he added. SANEM Chairperson Dr Bazlul Haque Khondker, SANEM Research Director Dr Sayema Haque Bidisha, and SANEM’s Senior Research Associates --- Iffat Anjum, and Zubayer Hossen, also spoke at the event. Dr Sayema Haque Bidisha said: “In order to meet the development challenges of the country, particularly those of SDGs, the country needs to drastically improve its performance in terms of revenue mobilization through increased tax generation efforts.” “In the context of expenditure, both implementation rate and quality of spending have to be increased substantially. Expenditure target should not only be aimed towards spending. but should also be aligned with development goals of the country,” she added.