High non-performing loans must drop
Bangladesh needs to improve financial sector governance — especially in order to reduce high non-performing loans of banks — to continue pace of growth in Gross Domestic Product (GDP) annually, the World Bank (WB) said on Tuesday.
Non-Performing Loans (NPLs), which reached 10.4 percent of all loans of the banking sector in the fiscal year (FY) 2018, are concentrated disproportionately in the six state-owned commercial banks that accounted for 48 percent while 40 private commercial banks together shares another 44 percent.
“The country must improve financial sector governance addressing especially the high NPLs to continue pace of GDP growth,” said Zahid Hussain, World Bank Lead Economist, in a latest report titled “Bangladesh Development Update: Powering the Economy Efficiently” on October 2′ 2018.
In its report, the WB forecasts 7.0 percent growth in GDP for the financial year (FY) 2018-19.
Meanwhile, Bangladesh said that the country has achieved 7.86 percent growth in GDP in last FY and targets 7.8 percent in the current FY.
The WB, however, stated that Bangladesh’s economy remains among the fastest growing economies in the developing world driven by strong domestic demand and it would grow at an even faster pace if it implemented economic reforms.
The WB underscored the need for creating more and better jobs by boosting private investment, diversifying exports and building human capital to achieve its growth aspiration. It say the country also needs to make doing business easier, complete its mega-projects on a fast track, improve financial sector governance and ensure a reliable supply of electricity. Besides, sustaining its export and remittance growth will be important. It also needs to focus on improving infrastructure, urban management, and environment conservation.
It says that growth will remain resilient, underpinned by strong domestic demand and structural transformation, but there is no room for complacency.
“To realize its goals of achieving upper-middle income status, Bangladesh must make sure its economic fundamentals are sound. As immediate measures, the country needs policies to contain inflation, correct the exchange rate, and remove interest rate distortions,” the report says.
The report recommends expanding reliable electricity supply to meet the needs of a growing economy. “Much progress has been made in recent years, with access to electricity increasing from 47 percent of the population in 2009 to 80 percent in 2017. But by 2030, electricity demand is expected to grow to 34 gigawatts, more than double the country’s current installed capacity.”
It says the government needs to focus on smarter pricing of electricity through a cost-based pricing mechanism, better load management, and increased efficiency in electricity generation. Better load management alone could save $1.65 billion annually in fuel cost.
The report also urges more efficient pricing and use of gas.
“Bangladesh is known for its remarkable progress in reducing poverty and creating opportunities for its citizens. It is among the 10 fastest growing economies in the world and has made commendable progress on human development,” said Qimiao Fan, World Bank Country Director for Bangladesh, Bhutan and Nepal.
“To maintain the current growth trajectory, it needs to promote entrepreneurship, innovation and structural transformation. Bangladesh should also focus on improving education, skills, nutrition and adaptability to enable its workforce to thrive in an environment of rapidly changing technology and global demands.”
The report stresses the importance of increasing resilience to a possible slowdown in major export markets or a decline in donor support to address the influx of Rohingya refugees.
