Policy Research Institute, a local think tank, on Tuesday said that growing vulnerabilities including banking sector woes, slowdown in employment growth and low-skilled labour force should be addressed to sustain the country’s economic growth.
Banking sector situation with over Tk 1 lakh crore non-performing loans and liquidity constraints will threaten the economic growth and stability, PRI said in a report titled ’state of Bangladesh economy 2018: managing vulnerabilities, creating opportunities to sustain growth’.
The research organisation, at a seminar on the report held at its office in Dhaka, recommended a set of priority agenda including reforms in the banking sector as a way-out from the situation.
The government should stop loan concentration to some big borrowers to prevent NPL accumulation, it said.
It also recommended that the government turn the state-owned banks, except one or two, into deposit banks and impose a ban on those banks from disbursing loans.
PRI said that macroeconomic balances also came under pressure in 2018 as the gap between the ratio of national savings and investment increased by more than 3 per cent of gross domestic product growth leading to 3.2 per cent current account deficit.
Growth in employment slowed down while low-skilled labour force remained one of the major challenges for the economy, it said.
Though private investment showed modest growth, flows of foreign direct investment remained very low compared with that in regional competitors such as India and Vietnam.
Investment to GDP ratio should be raised to 35 per cent to sustain GDP growth over 8 per cent, it said.
’Bangladesh economy has geared for growth with over 7 per cent growth for four consecutive years but sustaining and accelerating growth will be the challenge amid the growing vulnerabilities which needs to be addressed,’ it said.
PRI chairman Zaidi Sattar said that loan concentration became the major threat in the sector as banks gave loans only to some big borrowers ignoring small businesses.
As a result, big borrowers hold the banking system hostage, he said.
PRI in the report also suggested bringing reforms in tax system and trade policy, and prioritising education, labour skill development, urban and infrastructure development.
Former adviser to an interim government Mirza Azizul Islam said that absence of governance and competition in the banking sector was the major problem in the economy.
Bank owners and bankers set the interest rate in the country, he said.
Referring to the illicit financial outflows from the county, former finance minister M Syeduzzaman advised the government to find out ways to tackle siphoning off money, particularly trade-based money laundering.
Consumers Association of Bangladesh chairman Ghulam Rahman said weakness in judiciary and delay in prosecution were the major reasons for building up the NPLs in the country’s banking sector.
Former Dhaka Chamber of Commerce and Industry president Asif Ibrahim suggested formation of an independent banking commission to oversee the issues.
Planning minister MA Mannan, PRI executive director Ahsan H Mansur and director Ahmed Ahsan also spoke at the programme, among others.