The think-tank recommends converging the VAT rate to a uniform 12%, establishing independent banking commission
Country’s banking sector and capital market bleed from lack of good governance, said the Centre for Policy Dialogue (CPD) yesterday analyzing the first 100 days of the incumbent government.
The independent think tank made the comments at a press briefing held at the CIRDAP auditorium in Dhaka.
At the briefing, CPD published two analyses on “The First 100 Days of the New Government” and “Tracking Electoral Pledges and Implications for the National Budget for Fiscal Year 2019-20”.
Objectives of the research were to review the present economic growth trajectory of Bangladesh and to assess to what extent policy measures were taken over the first 100 days of the incumbent government.
"We have seen lack of effort, enthusiasm and initiative [from the government] during its first 100 days,” said CPD Distinguished Fellow Debapriya Bhattacharya.
Criticism of growth estimate
Citing inconsistencies of various economic indicators, CPD analysts questioned the current fiscal year’s (FY19) gross domestic product (GDP) growth estimate of 8.13%.
“The projected GDP growth in FY19 is largely driven by the growth of the manufacturing sector, followed by the services sector," said the speakers, urging to ensure proper calculation of economic growth. Distinguished fellow of CPD Professor Mustafizur Rahman said if the government did not look at the reducing discrimination, "growth may slow down.”
CPD's analysis found that incremental growth in private investment had not contributed significantly to economic performance. In FY 2019, private investment was expected to rise by 7.47% (provisional)—lower compared to previous years.
Towfiqul Islam Khan, senior research fellow of CPD said in his presentation: “Despite attempts to attract FDI [foreign direct investment], overall FDI inflow has increased only at a modest pace.”
He added that the capital market also remained in a weak state over the last decade and failed to emerge as an alternate source for financing industries.
Refuting the central bank's relaxed loan classification policy which extended time for repayment to bring down the huge amount of default loans in the sector, CPD analysts said that there was no logic for giving such benefits to defaulters.
"Reform in the banking sector is an unfinished agenda as the banking sector suffers from several acute problems due to poor governance for a prolonged period of time," said Debapriya.
Some of the measures announced or taken during the first 100 days of the government included awarding licences to new banks; removing single borrower exposure limit, which prohibits banks from lending more than 35% of their total capital to a single borrower; new facility for bank defaulters in terms of getting an additional six months time.
CPD’s analysis revealed that average interest rate on loans provided to agricultural sector was as high as that provided to the industrial sector, even though the average rate of non-performing loans (NPLs) in the agricultural sector was lower than that in the industrial sector.
“Recapitalization of loss-making banks should be stopped. This public money can be invested in the social safety programs,” the think tank said.
The Centre for Policy Dialogue found that number of new companies listed as well as the amount of capital raised by them was on the decline.
They also found allegations of submitting false information in initial public offerings (IPOs) proposals and poor quality financial reporting of the newly listed companies.
Criticizing the government's election manifesto—which focused on further inflow of capital to the ailing market—analysts said the market would not be able to stabilize and thrive unless the Bangladesh Securities and Exchange Commission (BSEC) was able to ensure "full transparency and accountability" in the involvement of all stakeholders.
Khondaker Golam Moazzem, research director of CPD said the capital market lacks good governance.
"As people are not punished for malpractice, irregularities are being encouraged in the market," he said.
Moazzem also said the market had started to make a turnover before election, but started falling just a month later.
CPD recommend that the capital market needs major reforms with regard to ensuring transparency and accountability of the operations of both bourses and BSEC.
BSEC’s regular oversight activities need to be more efficient. Bond markets should be developed in order to create new investment opportunities.
Recommendations for the FY20 national budget
The upcoming budget should allocate adequate funds for setting up an independent banking commission, recommended CPD.
"It is a unique opportunity for the government to initiate much needed policy reforms in the area of public finance management, given that the upcoming national budget is the first from the incumbent government’s current term," the organization said.
CPD proposed gradually converging the VAT rate to a uniform 12%.
The next budget should provide a clear timeline for converging the multiple VAT rates to a single rate of 12% in a staggered manner over the medium term, with a reassessment of VAT exemption provisions, the analyses revealed.
They also recommended special attention on sectoral polices and targeted and predictable incentives.
Well-packaged infrastructural facilities for different categories of enterprises, and regulatory and institutional reforms to ensure rule of law were also suggested.
CPD recommended that while aiming for its commitment of raising public investment–GDP ratio to 9%, the government should adequately emphasize the country’s needs in the social sectors.
Timely completion of mega infrastructure projects should receive priority consideration in view of the next budget and a clear plan to this end needs to be set out immediately, the CPD analysis found.