The World Bank (WB) recently reported that “Bangladesh recorded retail sales of $10-12bn during the last two Eid festivals, which took place within a span of three months.” Excellent news indeed.
It shows all the signs of a vibrant economy, a nation that is gradually getting wealthy, and the augmented purchasing power of the masses resulting from that prosperous economy. However, the WB puts a caveat on this upbeat mood – the nation needs to maintain a stable political scenario. I don’t think it would take a rocket scientist to figure out the importance of stability in our political scene.
We have seen, throughout last year, disruptions caused by certain quarters and their adverse effects on the economy. Those disruptions caused untold misery for farmers, small traders, entrepreneurs, and of course, the overall industrial sector.
The government, as Muhith chalked out in his budget speech, expects the economy to grow at around 7.2%, but the WB is not that optimistic. The major hurdle for the government to achieve their projected target of growth, according to Dr Zahid Hussain, chief economist of the Bangladesh chapter of the WB, is poor investment scenario.
Why is the investment situation so deplorable? With Bangladesh being a hub of economic activity in South Asia, investments in various sectors should be at an all-time high. Poor infrastructure is a major hurdle in big investments to be made by entrepreneurs. The power situation is dicey too, and there are major concerns about primary fuels to generate electricity.
Now, how do the banks service their liabilities, ie the money of the depositors? In order to attract investment they are starting to cut interest rates, but that would inevitably force them to lower rates on deposits both on normal savings and term deposits. This is a dangerous scenario.
This situation will give rise to various Ponzi schemes and multi-level marketing (MLM) companies will mushroom with lucrative yet absurd offers of return on investment. I don’t need to elaborate what has already happened to many hapless people who trusted the unscrupulous elements running such schemes.
Now, we come to the big problem – the stock market. Some analysts have already suggested that the market seems overheated. We are starting to see a common trend in the Bangladesh capital market: “Too much money chasing too few stocks.” This syndrome is starting, if it has not already started.
As it is, many good companies have never bothered to enlist with the bourses, and the market is flooded with many junk company stocks. Prices of some stocks have formed bubbles and an irrational chase will only make the bubble bigger.
Some major market players are busy setting the board already, and when the bubble bursts, we will again see the government with a pie on its face, and of course, screaming and shouting small investors.
To stop this recurrence, the government should immediately be on guard. I will never suggest over-regulating the market, but the regulatory body should be vetted with due diligence. The central bank, which was found wanting during the last crash in 2010, should keep their eyes and ears open for any red flags, their inspection of banks should be very rigorous, and their actions prompt.
Overall, there should be a holistic policy that would guarantee that kneejerk reactions in the forms of “circulars” are not needed to cool the market if the stock prices become way past irrational. If the government cannot avert another crash with the wisdom, if any, gained from 2010, then their popularity will plummet and they will find it hard to keep their noses above water.
