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Economic shocks not entirely external

Economists say internal issues remained unaddressed for long
STAR BUSINESS REPORT
The ongoing economic shocks Bangladesh is experiencing have not been entirely generated from the external source and many of them instead are the consequences of the absence of time-befitting measures on the part of the country, said economists yesterday.
The government regularly points to the coronavirus pandemic and the Russia-Ukraine war for the economy’s current ills. But experts disagree, saying the economy has been facing several problems for years but they have remained unaddressed.
“The prevailing problems in the economy have not stemmed fully from the external source as many burning issues were not addressed on time,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
“For instance, we have been talking about flexible exchange rates and tax reforms for years. But we have not done so. This type of negligence has made our financial sector vulnerable.”
He came up with the remarks on the first day of the 6th Annual Economists’ Conference organised by the South Asian Network on Economic Modeling (Sanem) at the Brac Centre Inn in the capital yesterday.
Speaking at a session of the two-day conference styled “Shocks and Shields: Sustaining Development in a Turbulent Time”, Mansur said the country’s foreign exchange reserves have been falling for months, but no initiative has been taken to stop the deterioration.
The foreign exchange reserves stood at $32.69 billion on February 2 in contrast to $44.99 billion one year ago.
“There has been a weakness in monitoring macroeconomic developments, leading to the worsening of the situation,” said Mansur, also a former official of the International Monetary Fund (IMF).
The financial account that earlier played a key role in boosting the balance of payments is now in a deficit zone, Mansur pointed out.
The deficit in the financial account was $1.09 billion in the first half of the fiscal year compared to a surplus of $6.89 billion during the same period a year back.
The deficit means foreign lenders are now shying away from disbursing short-term loans to the country.
“Now, the challenge is: “How will we improve the confidence of the foreigners?” Mansur asked.
Owing to US dollar shortages, local banks can’t settle letters of credit (LCs) on time, which has tarnished the image of the financial sector.
Mansur, however, said the government should be praised as it has gone to the IMF on time.
On January 30, the multilateral lender approved a credit facility of $4.7 billion for Bangladesh.
“I hope the economy will turn around in the next several months if the government implements the IMF’s recommendations properly,” Mansur said.
Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, said that the fundamental question is whether the ongoing economic shocks have derived only from outside of Bangladesh.
“If we say that it has been driven by the coronavirus pandemic and the Russia-Ukraine war, we are not addressing the issue properly. I think the shocks have also come through the persistent haemorrhages within the domestic economy.”
Rahman mentioned that it is well-known that thousands of crores of taka have been siphoned off from the banking sector and the percentage of default loans has been kept artificially low by rescheduling and writing off bad debts.
“The authorities have also taken measures in support of loan defaulters.”
The default loans accounted for 9.36 per cent of the total loans amounting to Tk 14,36,199 crore in the banking sector.