As part of CPD’s flagship programme Independent Review of Bangladesh’s Development (IRBD), CPD organised a media briefing on the State of the Bangladesh Economy in FY2016-17 (Third Reading) at BRAC Centre Inn Auditorium, Dhaka on 27 May 2017.
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Published in The Financial Express on Sunday, 28 May 2017
Economic growth sans jobs, public welfare useless
CPD predicts fall in forex reserves following remittance, export shrinkages
The Centre for Policy Dialogue (CPD) said economic growth sans employment and people’s benefit is “irrelevant” as it focused on downside of the economic situation.
In modern development analysis such excessive growth-based analysis is partial and incomplete, it remarked in its latest review of the country’s economy.
CPD distinguished fellow Dr Debapriya Bhattacharya made comment at the Centre’s press briefing on the state of Bangladesh economy in 2016-17 (third reading) held at a city centre Saturday.
Bhattacharya said the CPD has been pursuing modern development thinking over past 10-15 years that takes into account human resource development, balanced distribution (of wealth) and how a distressed person benefits as a result of economic growth.
“The main theme of the concept is nobody remains behind,” he told the reporters. He said the fractional changes in growth estimates do not mean anything if those fail to explain overall employment, sectoral employment as well as whether the marginal reap benefit out of it.
The economist also said the CPD does not want to create any debate about government’s provisional estimate on gross domestic product (GDP) for the current fiscal year as it relies on ‘too assumptions and limited data’.
Another distinguished fellow of the policy think-tank, Prof Mustafizur Rahman and executive director Dr Fahmida Khatun attended the briefing session while research director Towfiqul Islam Khan presented the keynote.
On VAT, a major fiscal issue of the day in the run-up to a new national budget, the CPD said the VAT rare should be set at 12 per cent. And if not possible, then get there in phases.
It said the planned uniform 15 per cent VAT may affect both the consumers and the producers and suggested setting maximum retail prices incorporating the VAT in order to give a relief to consumers.
The CPD urged the government not to impose supplementary duties on cement, telecom services and petroleum products in view of its adverse impact on the economy.
In reply to questions from media personnel, Dr Bhattacharya said private investment remained weak and identified three reasons: capital flight, interest in investing abroad, including African countries, and uses of luxury goods, including BMW vehicles. Burdened with rising bad loans and lack of governance, the banking sector of Bangladesh has become a “growing malignancy” for the economy, said the Centre for Policy Dialogue in its latest review.
“Overall performance of banks, particularly of state-owned commercial banks, is far from satisfactory,” the CPD said in the report. It noted that despite various initiatives taken by the central bank, the amount of non-performing loans piled up.
Replying to questions, Dr Fahmida said there is need for orderly transition to end the crisis facing the Islami Bank Bangladesh and recommended effective interventions by the central bank.
Dr Khatun said this as a matter of concern when the biggest borrowers become owners of banks.
She was critical of latest government decision on expansion of the number of directors on the boards of banks from a family to four. The policy analyst said more directorial posts to a single family and extending their tenure in a bank would mean family ownership will have greater control on banks with the possibility of “erosion of corporate governance”.
While presenting the keynote, Towfiqul Islam Khan stressed the need for strengthening quality public expenditure.
Citing high construction cost per kilometre road in the country, Mr Khan said the same cost is at least four times lower in neighbouring India.
The keynote carried a note of caution that the country’s foreign-exchange reserves, which were in a much comfortable stage, would now start to fall under pressure for slow growth in exports and negative growth in remittances.
It recommended cautious moves about opening up capital account for the private entrepreneurs under such circumstances.
The Centre called for strengthening the transfer-pricing cell for proper pricing in this respect.
It was critical of the decision of BBS which wants to release inflation data on a quarterly basis instead of the monthly delivery.
“We used to get a picture on the price situation through the analysis of the monthly CPI inflation data,” Mr Khan said.
Published in The Daily Star on Sunday, 28 May 2017
CPD ON BANKING SECTOR
Growing cancer for economy
Think-tank wants VAT rate to be 12pc
Burdened with rising bad loans and lack of governance, the banking sector of Bangladesh has become a growing malignancy for the economy, according to the Centre for Policy Dialogue (CPD).
“If the current trend of mammoth non-performing loans, inefficiency and lack of governance continues, the banking sector can cripple a flourishing economy instead of contributing,” CPD Research Fellow Towfiqul Islam Khan said yesterday while unveiling its interim review of Bangladesh economy for the 2016-17 fiscal year.
Moderated by CPD Executive Director Fahmida Khatun, the organisation’s distinguished fellows Debapriya Bhattacharya and Mustafizur Rahman also spoke at the programme in the city’s Brac Centre Inn.
The independent think-tank said Bangladesh’s economy would post a respectable growth in the current fiscal year, but termed the persistent weakness in the banking sector, falling remittance inflow and sluggish export growth “disquieting signals”.
The CPD said the banking sector burgeoned over the years in terms of number of banks, volume of assets and contribution to the economy. Despite achieving a significant growth, the sector is currently faced with some serious challenges.
“The overall performance of banks, particularly of the state-owned commercial banks, is far from satisfactory,” said the CPD, adding that the sector was struggling to recover from the setbacks of large financial scams in some public and private banks unearthed in recent years.
“Most of the indicators reveal a poor health and lack of discipline in several banks,” said the CPD in its review.
It suggested that the VAT rate should be 12 percent under the new VAT law.
The VAT rate should be lowered in phases, if not possible at a time. Otherwise, the new VAT law would put increased pressure on producers and consumers, said the organisation.
The CPD said non-performing loans (NPL) rose to Tk 73,409 crore during January-March of 2016-17 fiscal year from Tk 62,170 crore in the preceding quarter. The toxic loan rose to 10.5 percent of total loans in March this year from 9.2 percent in the previous year.
The total amount of NPL in six public banks went up to Tk 35,717 crore from Tk 31,026 crore in the previous quarter.
The think-tank said the flexible loan rescheduling policy adopted by Bangladesh Bank in December 2013 didn’t bring positive outcomes as expected.
According to the organisation, Sri Lanka and India has a much lower NPL than Bangladesh. However, Pakistan has seen a poorer performance in terms of NPL.
“Increased non-performing loans in Bangladesh were the result of relaxed recovery efforts, financial fraudulences, lack of governance and political influence,” it added.
The CPD questioned the regular recapitalisation of state banks with taxpayers’ money.
“In a resource-constrained country, the opportunity cost of such a large amount is high. The fund could be used for social sectors where budgetary allocation falls short of requirement,” said Towfiqul.
The CPD demanded formation of a financial sector commission to look into the challenges facing the sector.
Implementation of the new VAT law, possible depreciation of Taka, rise in rice prices and another round of increase in the prices of electricity and gas might cause a rise in production costs, said the organisation.
About putting the provisional GDP growth at 7.24 percent for the 2016-17 fiscal by Bangladesh Bureau of Statistics, the CPD said growth would decline at the final count as the latest estimate was made based on limited available information and without considering the recent trends in the key economic sectors.
It observed that projection was made based on data of the manufacturing sector for five-six months which could not capture the falling growth rate of export earnings in the latter months.
The growth of agricultural GDP was shown higher than last year’s although floods in the country’s haor areas, blast attacks in some districts and heavy rainfall caused losses of around 16 lakh tonnes of rice, according to Towfiqul.
Replying to a question on the issue, Debapriya said discussions should focus on transformational changes of the economy instead of growth.
“Our perception is that the economy is growing, but jobs are not being created proportionately. It appears that a capital intensive growth is taking place.”
About the sluggish private sector investment, the economist said despite efforts in the last few years, the private sector didn’t see a breakthrough.
“The growth of the economy is being driven by the state at the moment, not by the private sector,” he said.
Three symptoms were signaling at the stagnant private sector investment, he said citing illicit flow of money out of the country. “The CPD’s past analysis suggests that capital flight goes up significantly as elections get closer.”
Debapriya said Bangladeshi entrepreneurs were considering many African countries as attractive investment destinations instead of investing in the country. “Entrepreneurs are willing to export capital from a capital starved country where investment is not picking up. It sends out a big signal about the prevailing situation.”
Another major change was the move towards consumption compared to investment, added the economist, citing Bangladesh becoming the fifth largest market for BMW in Asia as an example.
Referring to the sluggish growth of export and decline in remittances, he said, “There is a crack in the wall. But the most important change is that we have not seen proactive macroeconomic management.”
Prof Mustafizur said it was important to look into the source of growth, job creation and whether it was helping the country boost its competitiveness.
“We have to ensure quality education, introduce a universal health insurance scheme, and transition towards social security from social safety net. These have to be implemented in phases, not in a single year.”
About the cost escalation of projects, he said discipline was not maintained during procurements when a project’s implementation time overruns, creating scope for lack of governance and corruption.
The CPD recommended formation of a public expenditure review commission to ensure quality of public investment.
Published in The Daily Observer on Sunday, 28 May 2017
CPD questions growth estimate
Over the last few years the declared size of the budget in revenue mobilization and public expenditure point of view have increased but in reality its implementation did not improve in any discernible way.
It is necessary for the government to turn budget from the so-called ‘big budget’ myth into an implementable one by enhancing capacity of different agencies, said a CPD third quarter reading on State of Bangladesh Economy 2016-17 released on Saturday.
It said the government agency capacity needs to be enhanced significantly in order to have improved impact of public resource flow in the economy.
The report said for smooth implementation of the new provisions of VAT, rate may be reduced to 12 per cent and in the new budget maximum retail price should be fixed.
It said in the budget there should be no supplementary duty on petroleum products, cement and telecom services as well as their income tax rate should also be lowered from current 10 per cent to 7.5 per cent for the first slab.
The CPD study suggests for enhancing allocation to social sectors and allocation for education and health sectors.
The provisional figure of GDP growth for fiscal 2016-17 is perhaps overestimated, the Centre for Policy Dialogue has said in a report.
As estimated by the Bangladesh Bureau of Statistics or BBS, economic growth is expected to reach 7.24 percent in the year ending Jun 30. It was 7.11 percent in the previous fiscal year.
This will be the third time in the country’s history over the last two decades that GDP growth would cross the 7 percent mark.
At the same time, for the current fiscal year, Bangladesh’s per capita gross national income or GNI has been projected to be about $1,602, which is $138 higher than the preceding year.
“It needs to be considered that the provisional estimate of GDP has been prepared with limited available information and did not consider more recent trends in key macroeconomic correlates,” the Dhaka-based research organisation said.
For example, the provisional estimate of BBS has predicted a strong growth of agriculture — 3.4 percent this fiscal year, up from 2.79 percent in the previous.
This accelerated growth is predicted to be driven by strong performance of crops and horticulture which, in all possibility, has not considered the loss of Boro output, according to the report — the State of the Bangladesh Economy, which was launched on Saturday.
Besides, the value addition of manufacturing sector has been estimated with first five or six months of data which could not capture the falling growth rate of export earnings in the latter months, the CPD said.
Also, the estimates have been prepared with an assumption that the entire government budget earmarked for the outgoing fiscal year will be implemented.
“Nevertheless, even if the provisional figures are perhaps overestimated, the GDP growth outcome for FY2017 may still be recognised as quite respectable, particularly when compared to global developments,” the CPD said.
The domestic savings-GDP ratio is expected to rise by about 1.1 percentage points to 26.1 percent in the current fiscal year.
On the contrary, the national savings-GDP ratio is projected to decline by 0.5 percentage point to 30.3 percent in FY2017 in the backdrop of the large current account deficit.
The CPD said this may be the first time in the recent history of Bangladesh when national savings and total investment as a share of GDP have come this close.
The private think tank Executive Director Fahmida Khatun presided data release programme while research fellow Towfiqul Islam Khan presented the report..
Dr Debapriya Bhattacharya, Distinguished Fellow of the CPD and its former executive director Prof Mustafizur Rahman and other economists were present in the briefing programme.
The state of the Bangladesh economy’s reading also states that adequate provisioning for implementing the National Social Security Strategy should be taken by the government in the budget and there should be rationalization of interest rates on NSD certificates along with the purchasing ceilings.
The CPD pointed out overall macro economic developments and decline in several indicators in the economy.
It said among fall of remittance, export growth and slow ADP implementation there are some positive developments, such as rise of manufacturing sectors development in GDP, private sector credit growth and the government’s capacity of increasing tax collection.
It said due to higher prices of rice food inflation are on the rise and which are increasing costs of living.
The third quarter reading also states that the overall banking sector and capital market is not in a good shape as the government’s measure in the last budget of improving capital market did not work.
It stated that the banks’ non performing loans are increasing and there is no good governance in the money market.
It suggested for establishing banking commission that may diagnose the banks’ health in the true sense.