Published in The Financial Express on Saturday, 7 February 2015.
Money supply to economy slows down
Credit crunch, capital flight, conversion to savings tools cited as reasons
Jasim Uddin Haroon
The growth of broad -money in the economy declined substantially to 13.35 per cent by official count, as of December last, over the corresponding period a year earlier for diversion by various means.
Such a situation came clear in the latest data issued by the central bank of Bangladesh Thursday — giving analysts food for thought on the country’s economic health.
The money supply or broad-money growth — defined as total banking-sector deposits — is nearly 3.0 per cent down the target set in the monetary policy for December 2014.
The broad money or M2 growth also declined in July-December period by nearly 3.0 per cent to 5.8 per cent over the same period in 2013-14.
By definition M2 includes narrow money such as coins and notes in circulation and other money-equivalents that are easily convertible to cash.
Economists familiar with the financial developments and a number of top bank executives said this was due to the diversion of funds from the banking to other systems.
They said both public-and private-sector credit growth had fallen significantly, leading to the squeezes in the money-supply growth.
They also said a surge in the sales of the national saving certificate is also one of the reasons behind the decline in money supply.
Again, many hint that some people have siphoned off the money through over-invoicing of imports, and they identified some fictitious growth in the import of machinery during July-November period.
Dr Zahid Hussain, lead economist at the macro and financial management unit of the World Bank at its Dhaka office, appeared to be at his wits’ end over such high-and-dry situation of the money market. “Probably, I’ve never seen such low of broad money in the economy,” he says.
This, in his view, shows the economy in a stagnation-like situation as the growth of net public-sector credits was “negative”.
According to the data available with Bangladesh Bank the net credits to the public sector accounted for minus 4.63 per cent in December.
It was just reverse in its previous corresponding period — the growth stood at 4.29 per cent.
Mr Hussain also said the rate of the net foreign assets (NFA) also declined during the period under review.
The NFA was programmed up to November at 28.9 per cent and the actual figure was 26.6 per cent in November 2014, according to available data presented in the latest monetary policy.
Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), said: “This picture of the broad money is not at all rosy by any means.”
Mr Mansur, who had worked as the division chief of the International Monetary Fund (IMF) at its Middle-East and Central Asia office, assumed that capital flight might have slowed down the money supply growth.
He also said a part of the money has entered the government borrowing tools through the national saving certificates.
The net sales of saving certificates amounted to Tk 131.35 billion in the six months of the FY2015, substantially up from the target of Tk 90.56 billion.
Dr Khandker Moazzem Hossain, additional director at the Centre for Policy Dialogue (CPD), sees possibility of capital flight as there are many import items that seem to be fictitious. He said the National Board of Revenue has revealed the suspicious growth in imports of capital machinery during the July-November period.
“The imports for a large number of items are exceptionally high,” Mr Moazzem said.
A CPD analysis says whether this is an issue of ‘misdeclaration’ or mispricing or whether flight of capital is taking place through this is something that needs to be examined thoroughly by competent authorities.
Banking-sector people feel the slow growth may hit them after rise in the credit flows.
Md Nurul Amin, Managing Director and Chief Executive Officer of Meghna Bank, said: ‘We have adequate liquidity now. For this reason we are not facing problems.”
He said transaction had slowed in recent months. “This is an indication that the money supply has slowed.”
Jasimharoon@yahoo.com