The last year has been an interesting year for Bangladesh and its financial sector. Political turbulence, strikes, intolerance, and stubbornness have dented the economic potential of the country. We did not see many strikes or blockades during the first four years of the government. However, 2013 alone almost made up for those four years.
The country’s apparel exports are still holding up, with an annual volume of about $24bn, though there has been some apprehension around the suspension of the EU GSP facility due to human rights violations and worker safety failures.
Other exports, including frozen food and leather, also seemed to be on track towards a $30bn annual export. Imports are a little dull with a sluggish investment scenario. Foreign exchange reserves have shot up, which is now equivalent to six months’ imports. Inward remittance is a little down these days, but still healthy. So is foreign aid disbursement. The foreign portfolio investment in local bourses has also gone up.
The Rana Plaza collapse that took away over 1,100 garment workers’ lives was the single worst disaster in 2013. That showed the dismal picture of our workers’ safety, building safety, and overall administration.
This incident also expedited the GSP withdrawal process by the US. The issue of workplace safety in Bangladesh has garnered much global attention. It has also caused important stakeholders to do some soul-searching, and for the first time, put some pressure on buyers and decision makers.
The signing of the Ticfa (Trade and Investment Cooperation Framework Agreement) with the US was in discussions throughout the year. As a precondition, the government wanted the reinstatement of the GSP. Reportedly, the government lost the bargain due to the Rana Plaza tragedy and disturbing political developments at home.
The Padma Bridge graft allegation didn’t help with bridge construction financing coming from the World Bank and other associated agencies. There were also discussions and media reports about rampant corruption in telecom and the banking sector throughout the year. Banking and insurance licenses were granted purely on political considerations. For the same reason, the government and the central bank could not be harsh on the wrongdoers. Licenses were granted even during the election time government, which was supposed to conduct routine work only. Serious irregularities were identified in the banks, mainly run by ruling party cronies or loyalists.
The central bank was found quite focused with financial inclusion through measures such as the expansion of bank branches to rural areas, mobile banking, increases in farm loans, opening of Tk10 accounts, and green banking. However, efforts were short-handed with regards to ensuring governance and risk management in the state owned banks.
Large and politically connected borrowers were reportedly favoured by banks’ boards and regulatory agencies too. This has seen massive increases in politically driven default loans in private commercial banks. The Hall-Mark and Bismillah episodes eroded confidence in the banking sector.
There were serious concerns regarding almost every bank’s loan portfolios in Chittagong. There were also discussions around the excessive borrowing by a few large borrowers, where money was reportedly diverted to unrelated sectors, or even transferred overseas.
There has been a marked increase in classified loans and provision shortfalls. Banks have been apprehending sharp falls in their profitability. The National Board of Revenue (NBR) has also been concerned with a possible reduction in corporate income taxes. Nine new banks, approved on political consideration, have put pressure on the banking sector’s human resource standards and capacity.
The Dhaka Stock Exchange (DSE) index hovered around 4000, with less liquidity available. The capital market regulator was happy with a few long-pending reforms, including their own capacity-building and financial autonomy.
Demutualisation was rolled out during this year. BSEC was rated number one as a capital market regulator. A much-needed corporate governance guideline was out. The Financial Reporting Act (FRA) could not be strengthened due to serious resistance from accounting professionals. Foreign institutional investment in locally traded securities increased during the second half of the year to take advantage of the lower stock price.
There was growing interest in energy, pharmaceuticals, and banking stocks. However, government efforts still failed to bring back confidence among the small investors, and kept the index at less than half of what we have seen in 2010.
The Bangladesh economy, which has shown resilience during various international shocks, has been much affected by domestic uncertainty. Against the growth rate of 7% to 8%, which is required for us to march towards middle-income country status, the GDP growth for the fiscal year 2014 is estimated to fall below 5%.
With increased tension and uncertainty surrounding the election and its aftermath, we have reasons to feel disquiet about its possible effects. Never in the past has the right political environment mattered so much for Bangladesh. We can’t backtrack, nor can we afford to continuously suffer the consequences of politics and corruption.
