IMF raises alarm

The rising defaults on loans poses the biggest risk for the Bangladesh economy that stands to grow at a remarkable pace, said the International Monetary Fund yesterday, raising the urgency level for the government to address the banking sector’s ills.

“Now is the time to start a reform programme in the financial sector of Bangladesh,” Anne-Marie Gulde-Wolf, deputy director of IMF’s Asia Pacific Department (APD), told a press briefing during the World Bank-IMF’s annual meeting here in the American capital.

As of June, the total defaulted loans in the banking sector was Tk 112,425 crore, up 19.71 percent from December last year, according to data from Bangladesh Bank.

“The percentage of defaulted loans in Bangladesh is around 11 percent. This means a good amount of fund was not paid back to the banking sector. For this reason, the country’s private sector is not getting required loans,” she said.

The high level of defaulted loans is “a very big issue” for Bangladesh and the trend will have to be arrested to ensure future growth, she said.

Gulde-Wolf particularly singled out the state banks, which are saddled with high levels of defaulted loans.

“This has narrowed their capacity to give out credit to businesses,” she said, while calling for an urgent improvement in corporate governance in state banks.

The authorities concerned of Bangladesh should start working on modernising the financial sector, she said, adding, “A modern financial sector will help banks disburse their credit evenly to economically reliable sectors.”

Gulde-Wolf also said economic reforms were essential to make the Bangladesh economy more vibrant and ensure the ongoing trend of growth in the years ahead.

In its recent edition of the World Economic Outlook, the IMF upgraded Bangladesh’s growth projection for 2019 from 7.3 percent to 7.8 percent, the third highest in the world.

“Bangladesh has been enjoying a good GDP growth for the last few years, which is quite remarkable,” she said.

The trend will continue this year as the country saw a notable foreign direct investment flow in recent months. Furthermore, the ongoing global trade tensions did not have a negative impact on the Bangladesh economy.

“Rather, it had a quite positive impact on the economy in the form of trade diversion,” Gulde-Wolf said.

Bangladesh needs to create a good number of jobs so that the young population benefits from the tremendous growth momentum, she added.

Changyong Rhee, director of APD, said the Asia-Pacific region is faced with a significant growth slowdown as the region has been caught in prolonged uncertainty.

Headwinds from global policy uncertainty and growth deceleration in major trading partners are taking a toll on manufacturing, investment, trade and growth, he said.

“Risks are skewed to the downside. That said, Asia remains the world’s fastest-growing region, contributing more than 70 percent to global growth.”

While the region has been contributing about two-thirds to global growth over the past few years, the contribution in 2019 is higher due to the concurrent growth slowdown in other regions.

The near-term outlook for Asia and Pacific points to continued slower growth, driven by protracted global policy uncertainty and slowing growth in China, Rhee said.

The region is projected to grow at 5 percent in 2019 and 5.1 percent in 2020 -- down by 0.4 and 0.3 percentage points respectively from the Washington-based multilateral lender’s projections in April.

“This would constitute the slowest expansion since the global financial crisis,” Rhee added.