‘Where there is a crisis, there are opportunities’

International Finance Corporation country manager for Bangladesh, Bhutan and Nepal, Martin Holtmann, discusses the future of Bangladesh’s economy in an exclusive interview with the Dhaka Tribune’s Abu Sayeed Asiful Islam.

Bangladesh’s financial markets have plenty of growing to do. What have we done well and what has to happen next?

Bangladesh is a textbook example of successful development – it has made huge strides in income generation, poverty reduction, and improvements in indicators of population well-being.

The credit for this goes to several factors.

First, the government has provided a solid macroeconomic environment.

Second, Bangladesh has a world-leading class of entrepreneurs and social entrepreneurs.

Third, the country has a large internal market – next to India, it is the largest market in the region.

Fourth is Bangladesh’s success with industrialization, led by its world-class RMG sector.

Bangladesh has a very stable financial sector. In its fifty years of existence, the country has never had a bank failure – at least not to my knowledge.

 Mahmud Hossain Opu/Dhaka Tribune

But the ratio of bank credit to GDP is very low by international standards. Why? The country has a very fragmented banking sector.

I would expect consolidation to take place over the next couple of decades. There are strong economies of scale in banking.  

Many banks currently have assets of between $3 billion and $6 billion; I would expect Bangladesh will ultimately have banks with $50 billion to $100 billion in assets. There ought to be two or three players of that size.

Tell us about IFC’s vision for Bangladesh’s transport sector?

In a recent meeting with business leaders in Chattogram, they told me that in the 1960s it took 5 hours to get from Chattogram to Dhaka. Now it takes 5-7 hours!

While there have been impressive projects like the Padma Bridge, I think transportation infrastructure has lagged behind – leading to road congestion and underinvestment in railways. That is a space that IFC and World Bank are working on with the government and private sector.

Ports are a historically strong endowment: the challenge is to diversify that and build more terminals.

In light of global food supply shocks, do you think it is time to increase support for the agribusiness and cold storage sectors?

This is at the top of the World Bank Group’s priorities, especially since the outbreak of the Ukraine war. We have already engaged in two transactions to stabilize crop supplies for the Bangladeshi market – wheat is one of them. We helped to de-risk a transaction that covers probably up to 50% of wheat imports into Bangladesh, to make sure there is a stable supply.

Where there is a crisis, there are opportunities. Bangladesh has world-class agro and food firms like Pran and City Group and a sizable internal market – if it weren’t sitting next to India, Bangladesh would have the biggest market in the region.

 Mahmud Hossain Opu/Dhaka Tribune

We are seeing financial defaults, global inflation and soaring energy and food costs. How insulated is Bangladesh from all of this?

No country is insulated fully from potential macro defaults. Germany, where I am from, wasn’t always so economically successful. The same country that now has one of the cheapest borrowing costs in the world had the highest inflation – ever – in the 1920s.

Bangladesh has historically managed its macroeconomy very cautiously. Successive governments have managed external debt very carefully: Bangladesh has one of the lowest external debt ratios in the world. Government deficit has also been managed very well over the years.

Would you advocate liberalizing the exchange rate regime?

No, I certainly wouldn’t say now is the most opportune time to liberalize exchange rates. But as economies follow a trajectory of growth, we typically see exchange rate regimes that are more aggressive than a managed float.

You have very competent policy makers here and they will know best how much opening the economy can handle – looking at perhaps a twenty or thirty-year perspective.

How is the IFC supporting a climate-friendly agenda for Bangladesh? 

Bangladesh has learned to deal with extreme weather better than many – in terms of preventing harm to its population, Bangladesh has better flood management than almost everywhere in the world.

Collectively we must do more – both to reduce greenhouse gasses and mitigate the impact.

We are greening all of our investments, including financial investments. We are helping clients with climate-smart strategies. We have invested here in the green bond market. We have committed USD 250 million in climate investments here. And we are encouraging regional trade in renewable energy – for example importing energy from Bhutan or Nepal.