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MCCI: NPLs may affect pace of investment growth

  • Published at 04:22 pm February 25th, 2019
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MCCI made the observation in its Economic Situation in Bangladesh review for the second quarter of 2018-19

High levels of non-performing loans in the banking sector could impede a pickup in investments, said Metropolitan Chamber of Commerce and Industry (MCCI).

Meanwhile, infrastructure deficits and utility (power and gas) supply problems were undermining the performance of the manufacturing sector from July to December of 2018.

MCCI made the observation in its “Economic Situation in Bangladesh” review for the second quarter of 2018-19.

“Domestic challenges that could complicate the situation further are fiscal slippages and rising inflation, as well as delays in structural reforms to address balance sheet issues in the banking and non-financial corporate sectors, said the review.

It also urged the government to improve the country’s road and rail infrastructure, develop port facilities, increase power and gas production, and remove other infrastructure bottlenecks as these impediments delay the execution of development projects.

Analyzing the performance of the country's manufacturing sector, the trade body said infrastructural inadequacy and lack of proper utility services hindered the manufacturing sector.

“Infrastructure deficits and gas and power supply problems were undermining the performance of the manufacturing sector,” said the chamber in the review.

“Government will, therefore, need to adopt suitable measures to remove these bottlenecks in order to support the growth of the country.”

Performance of the economy

The overall economic situation in the country was positive in the first half of fiscal year 2018-19, as indicated by steady improvements in the major economic indicators.

The economy is progressing well, despite the presence of some risk factors such as marginal growth in remittances, slower growth in export receipts, and a lower rate of investment, specially FDI. Inflation was under control, the exchange rate remained stable, and foreign exchange reserves rose to a comfortable level, the chamber stated.

In July-December of FY18-19, the agriculture sector performed well, but continuous government support with inputs and finance will be needed to sustain the sector’s growth, said the review.

Challenges need to be addressed

The MCCI urged the government to take into consideration the external and internal factors for sustaining investment and economic growth.  Policymakers should take careful note of significant downside risks, both domestic and external, for a sustained revival of the country’s investment and growth prospects in the medium term, said the trade body.

Large fiscal deficits, inability to maintain fiscal discipline, low tax to GDP ratios, and weak capital spending, are some of the key risks that a developing country like Bangladesh can seldom ignore. The financing of public private partnerships also remains a challenge, it added.

Other downside risks like the problems of poor governance, corruption in administration, labor indiscipline, and the high cost of credit, are also major impediments to investment and growth in Bangladesh, the chamber noted.

Chamber's projection on economic indicators

On the basis of observations in the preceding nine months, this chamber made its own projections on some select economic indicators for the third quarter of the present fiscal year.

The MCCI is assuming that the peaceful political situation that currently prevails will continue in the coming days, and exports, imports, and remittances could be expected to increase.

The rate of inflation is likely to go up from January because of the probable rise in some essential commodities, including fuel.

The trade body projected that export earnings in January to March of 2019 will be $3.6 billion, while imports will reach $5.36 billion. It also forecast that remittances will increase to $1.72 billion and foreign exchange reserves should reach $31.05 billion.

Point to point inflation will remain at 5.55% during the Q3 of the current fiscal year.

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