Bangladesh Bank has just released its monetary policy statement for the second half of the current fiscal with a usual focus on stability and investment growth. Most of the indicators like private and public sector credit growth, inflation and money circulation have been kept almost unchanged in the new MPS. Courtesy too many newspapers and electronic channels, even an ordinary person now knows about the measures that the central bank takes to tame inflation and drive investment through monetary management. In view of the good harvest, benign global prices, dampened imports, the inflation target for the current fiscal has been set at seven per cent. Considering the political chaos during the second quarter of the fiscal and its cascading effects, the economists at the central bank for understandable reasons projected the GDP growth at around six per cent. Without going into debates, I would keep the projection at 5.5 to 6.0 per cent. However, this is not enough if Prime Minister Sheikh Hasina or her comrades want to drive us towards a middle income country by 2021. We need an accelerated economic growth; no backtracking.
The new monetary policy takes a 'business as usual' approach and does not show much direction. I have a feeling that the central bank seniors are perhaps becoming tired of doing the same job year after year. Some of them, it seems, lack energy, ability to drive changes, conceive and action-oriented reforms. I have developed the feeling hearing the comments from one or two planning commission seniors. May be the new government, if they are determined to stay in power for the full-term despite a 'not so appreciated' election, should think of infusing dynamism and finding 'beyond the box' solutions through necessary changes/adjustment of human resources. Old guards can also be rewarded for a 'job well done' through new placement and elevation.
A layman on the street or a newspaper reader can say that as of today our biggest challenge is bringing back the confidence of the business community and investors. Our seniors are possibly clear with their 'laundry list' too. They need to support further investment in the core sectors like apparel, food, pharmaceuticals and construction or real estate. They also know, in order to accelerate investment we need more power, gas and efficient transportation network. Most importantly, we need our interest rates to go down, especially in the case of lending in local currency. Bangladesh has hitherto been known for its cheap labour vis-a-vis its competitors like Vietnam, Cambodia, Sri Lanka, India or Pakistan. With the recent wage hike, there is not much of a gap between the competitors. On the other hand a Vietnamese or Indonesian entrepreneur enjoys access to finance at eight to ten per cent less than his or her counterparts in Bangladesh. Average local currency borrowing rate in Bangladesh is fifteen per cent, whereas prevalent interest rates in the competing countries hover around four to six per cent. If interest rates could be brought down, the pressure on a higher and somehow artificial exchange rate would also ease. Land or infrastructure price or cost is possibly highest in Bangladesh.
Bangladesh Bank with its high foreign exchange reserve should come forward to put up an integrated solutions for our export sectors, help our apparel entrepreneurs relocate and improve their factory standards with better equipment and machineries; most importantly reduce their financing costs. They have put up some interim solutions by expanding the export development fund (EDF). It requires further review, re-engineering and involvement of other important stakeholders. In recent days, we have seen a spike in offshore foreign currency borrowing by our local business houses mostly with foreign currency receivables, though there are issues around interest rate ceiling and associated costs. The central bank can think of gradually developing an inter-bank foreign currency market and structuring an optimum yield curve for this. Our apparel entrepreneurs also expect deep engagement from the central bank in their drive to put up few 'garments village' or 'special economic zones' for the apparel producers. If Bangladesh Bank is serious about capital market development, they should somehow link the corporate borrowing from the banking sector with their capital and reserve. The large ones would be forced to go to the equity market for capital raising or expansion financing.
Bangladesh Bank has been supporting US dollars in the recent days through mopping up excess dollars from the system and thereby keeping the exporters and non-resident Bangladeshis happy with exchange rates. If there was no support from Bangladesh Bank, US dollar would have obviously seen a price level at Taka 75, if not lower. However, in order to do justice to the importers and thereby inflation, the central bank can also think of coming up with special package for the exporters and remitters abroad. They can gradually allow successful and competent entrepreneurs to spread their wings abroad by approving equity investment on a case to case basis, especially those with foreign currency earnings at present or in the past. It is possibly also high time to review our all archaic laws and regulations; update them to support newer business challenges and global realities.
Bangladesh is poised for a significant growth, no matter who is in power. We must be able to make best use of this historic time. We expect 'full throttle' focus from our seniors on the six growth impacting projects already put on the priority list. We want forward looking regulators, competent policy planners and implementing agencies. We must remain away from massive corruption that deprives our common people and make them cry loud. We don't want to go back to a regime that only awards large contracts on political consideration. We need to stop the bleeding of the national economy through our state-owned enterprises and improve their overall governance. Our head should be commanding us, not always the hearts.
(Mamun Rashid is an eminent banker and vice chairman, Financial Excellence Ltd)
