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Commission for Banking sector essential – M Syeduzzaman

In an exclusive interview with the FE recently, Mr Syeduzzaman said quite a few banks are showing their non-performing loans at artificially lower levels, “some by manipulations by the management and boards, some because of policies of the central bank on rescheduling.”

Published in The Financial Express on Thursday, 10 September 2015.

A commission is essential to look into banking sector health
M Syeduzzaman tells FE

FE Report

Former finance minister M Syeduzzaman has suggested formation of a high-powered Finance Commission to look into the overall situation in the banking sector.

In an exclusive interview with the FE recently, Mr Syeduzzaman said quite a few banks are showing their non-performing loans at artificially lower levels, “some by manipulations by the management and boards, some because of policies of the central bank on rescheduling.”

“Current economic situation is reasonably positive considering the overall global situation. Six plus percentage growth of the gross domestic product (GDP) for nearly a decade is expected to continue this year. But it could be better. Targets have generally not been achieved in the past years, including those of the Sixth Five-Year Plan.”

This is how the former finance minister summed up the current trend of the country’s economy.

His experience in managing the country’s macro economy is vast as he served both as finance minister and finance secretary during the 1980s.

In the light of his long experience along with continuous efforts to keep track of the national and global economic developments, M Syeduzzaman, a dedicated and life-long public servant, pointed out several challenges the economy is facing now. “The challenges include achieving higher levels of investments, demonstrating efficiency in implementation, ensuring a conducive investment climate, and lowering the cost of doing business,” he told the FE.

“Reduction of incremental capital-output ratio (ICOR) is a major challenge for the public sector. For raising the level of investment we need more foreign direct investment (FDI), which will depend on strengthening of the physical infrastructure, and we also need to increase higher level of disbursement from an ever-bulging pipeline of committed foreign aid.”

M Syeduzzaman, however, believes that both monetary and fiscal policies are in the right direction. “But raising higher domestic resources from tax revenues for helping higher investment is a must-through activation of the National Board of Revenue (NBR), reducing bank borrowings and bringing down the level of wastage of resources in several publicly-owned corporations.”

The former finance minister started his career in the Civil Service of Pakistan in 1956, at an age of 23, after obtaining his M.Sc. degree in Physics from the University of Dhaka. After about six years, spent on training, field service, two years in the finance department of the then East Pak Government, he decided to study economics to prepare himself for better understanding and knowledge about the development process. Those were the days of second five-year plan in Pakistan, when issues of equity and economic justice between the two wings of the country were coming out in public.

He obtained a degree of M.A. in development economics from Williams College in Massachusetts, USA, in 1963, and returned to the finance department, where he was posted in the development wing — to work with the Provincial Planning Authority (and Planning Commission of the then Central Government.) first as deputy secretary and then promoted as joint secretary. In 1967 he was transferred to the Pakistan Central Government in Islamabad in the economic affairs division — where he had to work with the bilateral donors and multilateral development institutions for negotiating development aid, and actively participating in the process of preparing financial documentation for the annual Pakistan Aid Consortium. Later he was posted in the Ministry of Commerce and in 1970 was promoted as joint secretary (external finance) in the finance ministry with less than 14 years’ service, superseding a large number of officers of his own cadre and of the then “Economic Pool” of the then central government. This was the recognition of his better performance.

When asked by the FE to judge the quality and efficiency level of the current civil administration on the basis of his vast experience in the field of public administration and also his involvement with a large number of organisations of different nature in various capacities, he said: “In my view, 15-20 per cent of the middle and upper middle level public servants are of good quality, even compared to our time. But overall quality has declined, and so has the process of decision making, as promotions and selection of officials for higher positions are, in most cases, not done in consideration of merit.”

Mr Syeduzzaman had been actively involved in management of Bangladesh economy as a bureaucrat and also in the capacity of a minister.

He was appointed the finance secretary in February 1976. In July next year he was sent out as Alternate Executive Director of the World Bank. On his return from the Bank, he was reappointed finance secretary in October 1982 and promoted as Principal Finance Secretary (with the status of a Minister of State) and Advisor to the President in-charge of the Ministry of Finance and Economic Relation Division (ERD) in early 1984.

He was given the status of a full minister (as Adviser) in mid 1985. After the elections to the Parliament in 1986, and when Martial Law was lifted, Mr. Syeduzzaman agreed to be a full technocrat minister and took premature retirement from the civil service. However, he resigned from the government in December 1987. For some time (1984-87) he also held the portfolio of the ministry of planning as his additional responsibility.

In reply to a question on whether the country needs a ‘bloated’ civil administration, given the poor quality of service delivered by the latter, M. Syeduzzaman opined that such questions couldn’t be brushed aside. “Number of public servants is higher than sanctioned positions, even taking into need the requirements for training, leave, and deputation,” he added.

“One negative outcome is that officers promoted to higher levels, in many cases, have to work in lower positions, and therefore, cannot deliver the services expected of them.”

It is notable that during 1972 M. Syeduzzaman was taken off his official position as he had opted for Bangladesh, and was stranded in Pakistan, the whole year. He returned to Bangladesh in January 1973, through Afghanistan and with the help of the Indian High Commission, like many others, via New Delhi. On his return to Bangladesh he was appointed as secretary in planning & external resources division of the high-powered planning commission, as well as secretary in the planning ministry in addition.

“It was a challenging responsibility and opportunity — working with the top economists of the country in the planning commission and top policy planning authorities of the newly independent country, including the head of the Government — Bangabandhu Sheikh Mujibur Rahman, and Finance Minister Mr. Tajuddin Ahmed,” he added.

M Syeduzzaman also provides his analyses on the uncomfortable situation of the country’s banking sector. “In my view too many banks have been permitted, mostly in political consideration. The state of governance in some of the private banks, as well as of the state-owned commercial banks (SOCB) and specialised banks need serious review,” he added.

Capital adequacy ratios (CARs) of many SOCBs continue to be inadequate, and this is leading to drainage of huge public resources. The reason in common perception and on the basis of facts, appear to be politically-influenced decisions by politically-appointed boards. Enquiries into SOCBs’ scams are either inadequate or slow, and exemplary punishments are either absent, delayed, and mostly middle and lower level functionaries are punished.”

M Syeduzzaman also opined that the banks were exposed to the share market beyond desirable levels, and permitting merchant banks and brokerage houses to almost all commercial banks as subsidiaries, was highly inappropriate.

In reply to another question on the weaknesses of economic management at this moment M Syeduzzaman presented a long-list of problems along with some suggestions to overcome those.

“We, no doubt, have a stable macroeconomic situation, but at the cost of higher investment and growth in employment,” he said. “The list of weaknesses, if we go into the details, is quite long. To start with, local currency public debt is growing, with growing interest payments, denting into domestic resources for investment. Others are given below, not necessarily in correct order. Inadequate collection of revenue, and drainage of public resources through state-owned enterprises (banking and non-banking). Too many projects in the ADP, including many unapproved, and inadequate monitoring and supervision of implementation by the ministries. Institutional weaknesses are contributing to this. Not enough FDI inflow, and inadequate disbursement of foreign aid, as mentioned earlier, both of which are important for increasing investments.”

According to M Syeduzzaman, the law and order situation raises worries over the investment climate. “Similarly, perception and data collected by some think tanks on corruption and grafts are not helping improve the investment climate,” he added. “Slow physical infrastructure expansion, including supply of power and gas, does not help investment-domestic or foreign. Available power generation is considerably lower than the installed generation capacity. Slow developments of the designated SEZs are not helping FDI inflow. Unplanned urbanization and urban transportation system are raising cost of doing business and reducing productivity, and a medium term plan is urgently required for improving the situation.”

M Syeduzzaman expressed concern over inadequate employment generation because of GDP growth falling below the target. “The Social Safety Net programmes are not enough to reduce poverty and guarantee nutritional security. Quality of education, especially technical education, is a drag on skill development, and creation of better quality jobs,” he continued.

He also pointed out that this year’s floods and water situation call for priority attention to a comprehensive water management plan, including river control, efficient irrigation system, a different type of social safety net programme, and urban sanitation plans.


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