while addressing the mid-term review of SFYP by the General Economics Division (GED) on Wednesday, 3 September 2014.
Published in The Financial Express
Muhith worried about rising NPL in banks
Sixth FYP review points to investment slowdown
FE Report
Finance Minister AMA Muhith on Wednesday said the rising non-performing loan (NPL) in the commercial banks is really a big challenge for the economy as the banks are failing to manage the same efficiently.
“Commercial banks’ performance in dealing with NPLs is really bad. The culture of non-repayment of credit has also risen in recent years compared to that of the past,” he said at a review meeting of the mid-term implementation performance of the current Sixth Five-Year Plan (FY2011-FY2015). He said: “Thirty years ago, I had seen that some borrowers were not repaying their loans to the lenders in time. That practice has now intensified further. I think the non-repayment culture was a baby 30 years ago which has now become an adult.”
The Finance Minister sought suggestions from the economists and experts attending the review meeting on ways to reduce the NPL. Presided over by Planning Minister AHM Mustafa Kamal, the mid-term review (between FY2011 and FY2013) meeting of the 6th FYP was held at the NEC conference room. State Minister for Finance and Planning MA Mannan, economists, high government officials and researchers were present at the meeting.
On achievement of the 6th FYP targets, Mr Muhith said the poverty reduction in Bangladesh has been really ‘fantastic’ as the income inequality has not widened over time. “I think we need to boost the national protection (social safety-net) for the vulnerable groups. If it is done correctly, poverty reduction will get a new momentum,” the Finance Minister observed. He, however, expressed his dissatisfaction over slow employment growth.
The minister was also critical of the present method of employment calculation saying it is not the right one. The minister was upbeat about increased public investment although he expressed his dissatisfaction over the reform of the public sector institutions. “Public service reform has not been done and it is unlikely to happen in the near future. It will take more time,” said Mr Muhith. Planning Minister AHM Mustafa Kamal found the increase of the country’s export earnings to US$ 30 billion from $14 billion over the last five years “incredible.”
About the government’s bid to rein in inflation rate, he expressed the hope that it would be excellent if the inflation rate remained at 6.30 per cent at the end of this fiscal year. The Planning Minister also opined that if the non-performing loans are not reduced, it would be tough to expand industrialisation. Bangladesh Bank Governor Dr Atiur Rahman said that the country wants to attain 8 per cent growth rate in 2015, the terminal year of SFYP. But, for attaining that target, there is perhaps lack of infrastructure, coordination and above all political stability. “But, despite all these, whatever we’ve achieved is not small, and there is nothing to be depressed.” He said the country’s performance in the matter of debt-servicing has been highly satisfactory.
The bank interest rate has also come down below 13 per cent, he said. Mr Atiur Rahman said the central bank too is not comfortable with the rise in the NPL in the banks. “The NPL has jumped to 10.39 per cent from 8.0 per cent a year ago due to newly- introduced 90 days’ calculation method.” “We have enhanced our supervision over the commercial banks to reduce the NPL,” he pointed out.
Earlier, Executive Director of the Centre for Policy Dialogue (CPD) Mustafizur Rahman at the 6th FYP review meeting said the NPL in Bangladesh has crossed 10 per cent of the total outstanding credit which is the highest in this region. He cited the example of India and said their NPL in that country is only 2.0 per cent of the total outstanding loans of the commercial banks. Mr Mustafiz said the spread between the bank credit and the deposit is still high (more than 5.0 per cent) which is also hurting the economy.
He said poor governance in the financial sector largely responsible for the rise in the NPL. Had there been good governance, the Hallmark scam could not have occurred in the banking sector. “If a businessman borrows money at 12-14 per cent from a bank how much profit he or she has to make to stay in the business?”, he questioned.
Mr Mustafizur Rahman said there are many achievements during the last three-year period of the 6th FYP. He, however, was critical about misuse of public funds. “Public investment is going up. But the government is failing to invest public money at affordable cost,” he said adding the Padma Bridge project cost was Tk 100 billion initially which has now increased to Tk 260 billion.” He suggested the government to include governance indicators with its achievements in the macroeconomic framework.
Meanwhile, Member of the General Economics Division (GED) of the Planning Commission Professor Shamsul Alam presented a review on the progress of the ongoing 6th FYP at the function. He showed that although the GDP growth and the investment had fallen short of targets in the 6th FYP, the revenue-GDP ratio, remittance income, foreign exchange reserve, and export earnings recorded an increase. Besides, reduction of poverty, low pace of inflation and budget deficit also reflected a good performance for the economy, he added. The GED member reflected some challenges on the way of achieving the targets of the five-year plan.
Prof Alam said lower private investment, impact of the global financial crisis, and low pace of employment growth and export diversification are the challenges for development of the country. He emphasised on some reforms and enhanced governance suggesting strengthening of the local government with necessary legal framework, civil service reforms, quick reform of the commercial banks to reduce the NPL, modern tax measures and strengthening of the Anti Corruption Commission.
The government started implementing the 6th FYP from the financial year 2010-11. BIBM Director General Dr Toufic Ahmad Chowdhury said that the central bank should enjoy autonomy in full scale. Otherwise, it would not be possible to reduce the NPL. The mid-term review of the SFYP for 2011-2015 has suggested the government to identify the highest transformational projects and complete those first instead of spreading resources thinly on too many projects. It cited some examples of transformative projects that need to be prioritised and fully resourced. These include the Dhaka-Chittagong four-lane project, double tracking of the Dhaka-Chittagong Railway, the Padma Multipurpose Bridge Project, completion of the two Bibiyana gas field-based large power plants, and the Dhaka metro rail.
The suggestion came as the performance in terms of infrastructural development, especially in the areas of transport including roads, bridges, railways and ports in the Sixth Five-Year Plan fell short of the target. On the whole, the review said, the slowdown in investment may lead to the failure to achieve the average GDP growth rate above 7 per cent during the remaining two years of the Plan period.
About the progress with economic growth, the review noted that the solid growth performance in Bangladesh during the Sixth Five-Year Plan so far compares favourably not only by own historical standards, it also looks very good in international and regional comparison. It said Bangladesh has been among the fastest growing countries in the world during 2011-13 along with China, India and Indonesia.
“On the whole, average GDP performance in the first three years is a solid (6.4 pc), but lower than the Sixth Plan target (7.3 pc),” the review said. Regarding progress with poverty reduction in line with the Plan target of reducing head-count poverty at 22.5 percent by 2015, the incidence of poverty has been declining on an average 1.74 percentage points in Bangladesh during 2000 to 2010 as per the HIES data.
It noted that prudent macroeconomic management has been the hallmark of Bangladesh’s long-term development as tax to GDP ratio, fiscal deficit, export growth, export to GDP ratio, current account balance, reserve build up and external debt management are all on track in line with Sixth Plan targets.
Published in The Daily Star
Dull investment takes toll on GDP growth
Review report on Five-Year Plan says
Star Business Report
The country may not be able to achieve 7 percent average economic growth in the final two years of the Sixth Five Year Plan due to sluggish investment, a government review report said yesterday.
Shamsul Alam, member of general economics division of the planning commission, presented the report on the country’s achievements in the first three years of the Sixth Five Year Plan (for fiscal 2011 to fiscal 2015) at the National Economic Council in Dhaka.
Real GDP growth was 6.7 percent in fiscal 2011, the first year of the plan, meeting the target. It was followed by 6.3 percent and 6 percent economic expansion in the following two fiscal years, but falling short of targets.
“On the whole, the average GDP performance in the first three years is solid, but lower than the target in the plan,” Alam said.The economist said slow recovery in the western markets affected export growth as expected.
“While domestic political stability has returned and there is likely to be a recovery in private investment, on the whole, it is clear that the investment targets in the plan may not be achieved.”
The investment-GDP ratio stood at 26.8 percent in fiscal 2013, against a target of 29.6 percent.
In the first three years, 63 lakh jobs were created by the government, he said.
Alam urged the government to improve the investment climate by removing the constraints.
“The shortfall in public investment needs to be addressed speedily with a range of measures, including more focused and steady implementation of the tax modernisation plan and proper pricing of electricity.” In Bangladesh, getting an electricity connection requires 185 days as per the Global Doing Business report. “This issue should be addressed,” Alam said.
Almost in all macroeconomic indicators, Bangladesh has been on target in the first three years of the Five Year Plan.
In fiscal 2013, the tax-GDP ratio was 11 percent against a target of 11.2 percent. The fiscal deficit stood at 4.4 percent of GDP against a target of 5 percent and the export-GDP ratio was 20.2 percent against the 22.1 percent target.
Remittance brought home $14.3 billion against a target of $14.2 billion and the foreign currency reserves could finance five months of imports, whereas the target was to amass foreign reserve that could meet three months of imports.
Only the inflation target could not be reached as it stood at 7.7 percent against a target of 7 percent.
The plan, however, targets to bring inflation down to 6 percent at the end of the programme. “This requires continuous monitoring and management,” Alam said.
AHM Mustafa Kamal, planning minister, who chaired the meeting, said no indicators suggest that Bangladesh is lagging behind any of its targets.
Atiur Rahman, governor of Bangladesh Bank, said the country has achieved quality GDP growth as it cut poverty and has not widened inequality.
“We did not expect the export sector to perform so well, as trucks could not ply the roads and even small shops could not be opened for five months last year.”
Mustafizur Rahman, executive director of Centre for Policy Dialogue, said the country is not being able to ensure expected returns on investment.
“The Padma bridge project is being delayed, which is raising the cost,” he said, adding that the cost of the project has been revised up to Tk 25,000 crore; it was Tk 10,000 crore in 2010.
AMA Muhith, finance minister, said the mid-term review is also an attempt to have a good input for the next Seventh Five Year Plan.
In many countries, there has been poverty alleviation but inequality has also gone up in many of those countries, he said.
“Bangladesh is the only country where inequality has been static from 2006 and it has been going down from 2010.”
Bangladesh will have to increase the expenditure set aside for social protection as it has a great contribution to bringing down inequality, the minister said.
Mahbub Ahmed, finance secretary, said there should be no worry if inflation goes up a bit as a consequence of actions aimed at boosting economic growth.
Published in Dhaka Tribune
Poor private investment impedes sixth Five-Year Plan targets
Tribune Report
GDP growth falls short of target though revenue-GDP ratio, remittance, forex reserve and exports increase
Lower private investment and employment generation along with impact of slow economic recovery in USA and EU from the financial crisis are the headwinds for achieving the targets Bangladesh set in its 6th five-year plan.
The observation came at a meeting on the mid-term review of 6th Five-Year Plan arranged by the General Economic Division of the Planning Commission, at NEC Conference Room yesterday.
The government has started to implement the 6th five-year plan from the financial year of 2010-11.
Presided over by the Planning Minister AHM Mustafa Kamal, the meeting was also attended by Finance Minister AMA Muhith, State Minister for Finance and Planning MA Mannan, economists, high government officials and researchers.
Member of GED, Prof Shamsul Alam, presented a review on the progress of the ongoing 6th Five-Year Plan.
He said although the GDP growth and the investment have fallen short of target at the sixth five-year plan, the revenue-GDP ratio, remittance, foreign exchange reserve and export earnings have increased.
“Sluggish private investment might be a concern. As a result, the target of average GDP growth at 7% might not be achieved in the Plan,” he added.
Shamsul said low pace of employment generation and export diversifications are the challenges for the development of the country.
He suggested strengthening local government with necessary legal framework, civil service reforms, quick reform of the commercial banks to reduce the NPL, modern tax measures and also strengthening the Anti-Corruption Commission.
Commenting on the progress of the Plan, the finance minister said poverty reduction in Bangladesh was really fantastic as its income inequality had not risen over the period.
“I think we need to boost the national protection (social safety-net) for the vulnerable groups. If it is done correctly, the poverty reduction will get a new momentum,” he said.
The GED member, however, expressed his dissatisfaction over the slow employment growth.
The minister was also critical of the present method of the employment calculation, terming the process not a better one.
Muhith was upbeat about the increasing public investment although he was dissatisfied about the institutional reform of the public sector.
“Public service reforms are yet to be done and it will not happen in near future. It will take more time,” he said, expressing dissatisfaction over the present bureaucratic tangle on the reform pace.
Centre for Policy Dialogue Executive Director Mustafizur Rahman said there are many achievements during the last three-year period of the sixth five-year plan.
He, however, criticised the misuse of the public funds.
“Public investment is going up. But the government is failing to invest the public money at an affordable cost, he said, adding that the Padma Bridge project cost was Tk10,000 crore initially which has now dubbled up to Tk26,000 crore.”
Muhith: Banks deal with NPL really bad
The finance minister said the rising non-performing loan (NPL) in the commercial banks is really a big challenge for the economy as the commercial banks fail to mange it.
“Commercial banks’ performance in dealing with NPL is really bad. The culture of non-repayment of the credit has also risen in recent years compared to the past days,” he said.
He said: “30 years ago I had seen that some borrowers were not repaying their loans to the lender in time. Now, this culture is being practiced to a large extent. I think the non-repayment culture was a baby 30 years ago which has now grown into a adult.”
The finance minister has sought suggestions from the attended economists and experts on how the NPL could be reduced.
Mustafizur Rahman said the NPL in Bangladesh has crossed 10% of the total outstanding credit which is highest in this region.
Citing example of India, he said their NPL is only 2% of the total outstanding loans of the commercial banks.
The CPD official said the spread between the bank credit and the deposit is still high (more than 5%) which is also backfiring the economy.
He added that the lack of governance in the financial sector is boosting the NPL which is also affecting the spread.
If the governance was established, the “Hall-mark scam” could not emerge in the country.
“If a businessman borrows at 12-14 percent rate from the bank he needs to realise how much profit does he make?” he questioned. Bangladesh Bank Governor Dr Atiur Rahman said they were not in a comfortable position on the increased NPL at the banks.
“But the NPL has jumped to 10.39% from 8% a year ago due to newly introduced 90 days calculation method.”
“We had enhanced our supervision on the commercial banks to reduce the NPL,” he said.
Published in Daily Sun
Reforms in public banks essential to cut bad debt
Sixth five-year plan unveiled
Staff Correspondent
Reforms in public banks are essential for reducing non-performing loans as well as brining institutional improvement and establishing governance in the country, says the mid-term review report of the Sixth Five-Year Plan unveiled here on Wednesday.
General Economics Division (GED), the government’s think thank, made the mid-term review of SFYP, which expires on 2015, for a period between 2010-11FY and 2012-13FY to assess what has been achieved under the plan by this time.
Admitting that weakness in governance is a major concern for the economy, especially the bad loans, Finance Minister AMA Muhith said loans’ appraisal process should be strengthened and “greater discipline” must be ensured in the banking sector.
He, however, said the intensity of non-performing loans has been now lowered.
Bangladesh Bank Governor Dr Atiur Rahman said a quantum jump has been made in curbing bad loans with greater oversight of the central bank. Now, any loans exceeding 90 days after its maturity are termed as non-performing loans, he said.
The report also suggests that Mid-Term Budgetary Framework should be strictly followed as it provides a long-term direction for establishing governance in the country.
The suggestions for governance also include strengthening of Anti-Corruption Commission (ACC), the local government system and the tax administration, merit-based promotion in public service and providing necessary support to the judiciary for quick disposal of cases.
Despite many achievements in GDP growth, poverty alleviation, job creation and average GDP growth might not exceed 7 percent at the end of SFYF because of flagging investments, the report said.
About infrastructure, the report suggested putting emphasis on important transformational projects instead of many small projects.
Addressing the function, executive director of the Centre for Policy Dialogue (CPD) said the country has bogged down at a growth of 6 percent, but can not go up to the much-needed 7 to 8 percent.
He said the main engine of growth is investment and a major failure of the policymakers is that they can not ensure reasonable investments.
Planning Minister AHM Mustafa Kamal said low investments are mainly caused by high bank interest rates.
Muhith said although Bangladesh has done very well in reducing poverty, but allocations for socials safety net schemes must be higher. He also stressed on higher revenue collections.