Published in The Daily Star on Sunday 28 July 2019
Private credit growth target may be 15pc
The central bank may set a 1.5 percentage points lower private sector credit growth target for the second half of the year amid the shrinking demand for credit.
For instance, private sector credit growth hit a six-year low of 11.29 percent in June, according to data from the Bangladesh Bank.
The central bank though was hoping it would be 16.50 percent when it had set the target earlier in January in its monetary policy for the first half of 2019.
“The country has achieved 8.13 percent GDP growth in fiscal 2018-19 with private sector credit growth of 11.29 percent, so a credit growth target ranging from 14 percent to 15 percent is enough to achieve 8.20 percent growth for the current year,” said a central bank official.
Besides, the credit growth will also help contain inflation at 5.5 percent as targeted by the government this fiscal year, he added.
The BB may not revise its policy rates and statutory and cash reserve ratio in the upcoming monetary policy, which will be unveiled on July 30 at its headquarters in the capital. Cautious lending by banks and low confidence among the business community are to blame for the existing low trend of credit growth, economists said.
The low private sector credit growth figure raises questions about the veracity of the economic growth figure given by the government, said Fahmida Khatun, executive director of the Centre for Policy Dialogue, a think tank.
The private sector credit growth target is immaterial as it will have little impact on the investment scenario.
A lack of power supply, bureaucratic complexities and corruption are discouraging investors from taking up fresh investment plans or expanding their existing units, she said.
“The country’s ranking in the World Bank’s ease of doing business index has reflected the actual scenario of the private sector. We should remove the barriers for the sake of investment, or else the monetary policy will not have any effect,” Fahmida added.
Any monetary policy can be implemented when lenders and businesspeople play a collective role, said AB Mirza Azizul Islam, a former adviser to the caretaker government.
“Many banks are facing a liquidity crisis mainly due to high volume of default loans. This has lessened their capability of distributing loans. This will create a roadblock in implementing the monetary policy.”
A large number of businesspeople is going through a confidence crisis because of the haphazard situation on the country’s socioeconomic front.
“So, both the demand and supply sides are going through a crisis. This had an adverse impact on implementing the monetary policy in recent years.”
Unless the situation improves, the central bank will face the same problem this time in materialising its monetary policy, Islam added.