State of the Economy
New year, old concerns
Out of the 45 least developed countries (LDCs) in the world, Bangladesh was one among only five countries that had a GDP growth rate of 7-plus percent in 2017, according to the United Nations Conference on Trade and Development. Aside from being a great achievement, this is also indicative of the fact that Bangladesh's economy has great potential for rapid and continuous expansion as has already been highlighted by reports and assessments prepared by some of the largest financial institutions in the world, including Pricewaterhouse Coopers, which estimated that it could become the 28th biggest economy in the world—in terms of its Gross Domestic Product calculated at Purchasing Power Parity—by 2030.
An added bonus that comes with such positive projected outlooks is that the overall confidence of individuals and businesses within the economy goes up; for example, according to the results of a recent survey (of top 102 executives across 12 industries) carried out by a Dhaka based consulting firm called LightCastle Partners, business confidence in Bangladesh went up from "low-to-moderate confidence of +39" in 2016 to "a cautiously optimistic confidence level of +43" in 2017. This in turn increases economic activity by pushing consumption, production, investment, etc. up, which is usually a good thing.
When asked about their biggest concerns, however, these business leaders again came up with the same answers we have been hearing for years, particularly from experts—namely, the massive (and increasing) amount of classified loans in our banking sector, transportation and logistical hassles and infrastructure bottlenecks, among others. And this is where the real disappointment lies, as despite the numerous improvements that we have seen, no less due to the hard work put in by ordinary citizens (supported to an extent by government policies), the government is yet to address some of its biggest weaknesses and correct some of its greatest shortcomings.
Only this week, the Executive Committee of the National Economic Council approved eight revised projects with costs increasing three times compared to original estimates from Tk 2,008 crore to Tk 6,416 crore, according to planning ministry documents. The planning minister even tried justifying this increase saying that it was the expansion in work volume that had caused project costs to rise. Surprisingly, the example that he used was the construction of a 20-kilometre road which is set to be expanded to 38 kilometres; or, in other words, less than doubling of work volume.
How the doubling of work volume (if generalised for all projects) could treble costs, he did not explain. And who can blame him? After all, there is a thing called "economies of scale" that should apply even to large construction projects which, theoretically, means that cost per kilometre of road should go down (not up) as the overall length of road set to be constructed increases.
His response to why road construction cost per km is higher here compared to other countries was baffling, too; he said it was because roads here were "full of potholes" and that "the earth required to fill those had to be brought from far away, which pushes up the cost." Baffling because, first, it is difficult to imagine that roads everywhere else are so well made that they don't have potholes (or other issues), and second, Bangladesh is a much smaller country than many others that have much lower per km road construction costs. Thus, even if the minister is talking about bringing materials from one corner of the country to another, chances are that the transportation cost here should not be higher than everywhere else.
But even if we accept such seemingly flawed logic, what is difficult to understand is why the original cost estimates did not take into account the fact that roads here are "full of potholes" and that "the earth required to fill those had to be brought from far away, which pushes up the cost," in the first place.
The banking sector has perhaps been the biggest disaster when it comes to the economy, at least in recent years. As of September 2017, total nonperforming loans (NPLs) in the sector stood at Tk 80,397, according to Bangladesh Bank (BB) data. That is 10.67 percent of all outstanding loans. If restructured or rescheduled loans were included, NPL in the banking sector went up even more to 17 percent of the total outstanding loans. Moreover, loan write-offs went up by over 18 times in the three months up to June last year, from Tk 24.76 crore in the previous three months to Tk 452 crore, showing no signs of improvement in (most) banks' performances. And as the finance minister had finally admitted earlier this week, much of this has been down to constant government interference in the sector at the behest of powerful quarters and special interest groups.
As The Daily Star reported on January 18, "The top 20 defaulters account for 46 percent—or Tk 32,432 crore—of the total default loans in the banking sector." Only yesterday, The Daily Star also reported that Janata Bank had sunk deeper into trouble after just one of its clients, AnonTex Group, became a defaulter. In 2015, the group reportedly "restructured loans of Tk 1,095 crore under the central bank's special package for borrowers with loans of Tk 500 crore." With all the restructuring, rescheduling and other accounting tricks, instead of penalties for corruption, mismanagement and other irregularities, is it any wonder why the banking sector keeps going from bad to worse and beyond?
Finally, there is one more thing that should concern all stakeholders. And that relates to how confidence of individuals and businesses affect the economy, as mentioned at the beginning. With national elections fast approaching, there is a risk that violence and other forms of instability that often accompany polls in our country could turn consumer, producer and investor confidence in the wrong direction. That, too, could have major negative implications for our economy.
Thus, in the interest of the country and its economy as a whole, all political parties (as well as other stakeholders) should, with regard to the upcoming elections, make some compromises and push their own personal/party agendas aside, before and during it, and refrain from violence, harassment and other forms of provocations that all political parties in our country have, historically, often been accused and at times guilty of.
Eresh Omar Jamal is a member of the editorial team at The Daily Star.