Govt to support SMEs more, regulate banking sector: Finance minister

The Bangladesh economy is striving to bounce back from the initial shocks induced by the coronavirus and movement restrictions. Robust export earnings, inflow of remittances and food production have helped the nation stand out as a success story in Southeast Asia and in the world.

But as the pandemic is to last long, it may slow down the pace of the recovery. Finance Minister AHM Mustafa Kamal spoke with Abul Kashem, special correspondent of The Business Standard, ahead of the budget for FY2021-22, shedding light on how the government averted adverse impacts of Covid-19 and what measures are on the cards to lend more support to SMEs and regulate the banking sector for a sustained growth.

What does our economic recovery look like at this juncture of the pandemic?

Bangladesh has been showing signs of recovery. Lockdowns in other parts of the world and the subsequent 66-day public holiday in Bangladesh from March through May last year disrupted economic activities. The growth fell sharply to 5.24% in the fiscal 2019-20 from 8.15% in the previous year.

Still, our growth was much higher than most other economies in Southeast Asia. Recently, The Washington Post has published an article titled "Bangladesh economy shows early signs of pandemic recovery" where the economic policy and leadership of Bangladesh are lauded.

The announcement of the recovery programme from Prime Minister Sheikh Hasina last year was instantaneous and timely to overcome adverse impacts of Covid-19. Comprehensive stimulus packages of more than Tk1,24,441 crore, equivalent to 4.6% of our GDP, were designed to ensure that most people benefited from them.

The current economic trend in Bangladesh reflects that Bangladesh has weathered the Covid shocks well. Exports have shown a better than expected performance since July 2020 though the pandemic continued to affect major destinations.

Inward remittance grew remarkably at a rate of 40% in the first 10 months of the current fiscal year. Foreign exchange reserves stood at $45.1 billion on 1 May, which is the country's highest.

The production of food grains in FY20 was around 4.15 crore tonnes, a 1.3% increase from the previous year. The use of gas and electricity has risen, indicating an increase in industrial activities. Container movement through the Chattogram port has gone up too.

All these are signs of a well-functioning economy.

Why do you think Bangladesh clocked growth when the rest of the world was reeling from pandemic shocks?

The World Economic Outlook of the IMF published in October 2020 identified 22 countries only, including Bangladesh, which will have a positive growth this year. According to the International Monetary Fund, Bangladesh is also one of the three countries to register a high positive growth amidst the pandemic.

It said Bangladesh will achieve 7.5% growth in the next fiscal year.

The first and foremost reason why we have been successful in containing the spread of the virus and helping the economy rebound is the extraordinary leadership of Prime Minister Sheikh Hasina. Every decision made by her was ahead of most of the other world leaders.

The second factor is the resilient, hardworking, honest and compassionate people of our country. Third, our agricultural sector, including fisheries and livestock, played a pivotal role in securing food supply and the revival of the rural economy.

Fourth, the stimulus packages brought relief to businesses, from large farms to microenterprises, boosting the economy.

Fifth, export and remittance, two important drivers of our economy, have performed well in the throes of the pandemic.

Inward remittances have huge positive impacts on our rural economy and have sustained the demand for domestic consumptions, influencing other economic sectors in turn, especially small and medium industries.

Finally, our expansionary fiscal policy and monetary policy have created enough liquidity to support the private sector credit flow along with increased government expenditures.

SMEs are a major contributor to our growth. But why did they not get as much support as they needed?

In terms of the amount given in loans at low interest rates, you may find that SMEs have received less support, but at present the implementation of stimulus packages meant for large enterprises and SMEs is almost the same, about 75%.

More than 90,000 entrepreneurs, male and female, have received low interest SME loans.

Initially, there was a bottleneck regarding the disbursement of loans to SMEs. The Bangladesh Bank took measures, such as, motivating banks and introducing a guarantee scheme to accelerate distribution of loans to cottage, micro, small and medium industries.

We have been continuously identifying the new areas that need attention. We organised a series of dialogue in November and December to get suggestions and recommendations from stakeholders and think tanks. On the basis of their recommendations, the government recently adopted two new packages – one is an extension of low interest credit through microcredit institutions to boost rural economic activities and the other is 100% coverage of social protection through old age allowances and support to widowed and divorced women in 150 ultra-poor upazilas.

Despite the pandemic, we have seen exports and remittance growing after initial hiccups. But in recent times, they showed signs of tapering as was predicted. Do you see reasons to be concerned?

In the current fiscal year, the export earning was projected at $41 billion and we have earned $32.1 billion in 10 months at a 8.7% growth rate.

I am hopeful that we will be able to reach the target by the end of the fiscal year.

Remittances received amounted to $22.8 billion at a 40% growth. None of the figures indicate any decline that we should be worried about.

Several steps have been taken to maintain growth of export and remittance, including distribution of incentive packages.

The main export driver, the readymade garment sector, has been given incentives and easy loans. And the 2% incentive for sending remittance through legal channels has encouraged our expatriate brothers and sisters to work harder abroad to make their family members happy back home.

There is a forecast that classified loans in banks will surge after the moratorium is lifted. Many borrowers have not been able to repay for a slump in business. What is your assessment of the matter? You announced a banking commission. When will it come into being? Is there any possibility of merger of banks?

When will we see a more powerful autonomous central bank, a question put forward by different quarters including lending agencies?

To uphold the interest of depositors and to ensure discipline in the financial sector, the central bank formulates various policies and issues guidelines, directives and circulars for banks and financial institutions (FIs). Off-site supervision and on-site inspection are carried out by the central bank on a regular basis to ensure good governance in banks and FIs. Moreover, the central bank takes prompt corrective measures against irregularities detected at banks and FIs. I do not think the Bangladesh Bank is not powerful or autonomous. It is performing well enough, during this pandemic situation. It has taken every possible measure to increase credit flow in the market, which has eventually brought down the interest rate to as low as 7.4% as weighted average.

We have successfully reduced the non-performing loan ratio to 7.66% from 10.30% over the last two years. In 2006, the NPL ratio was 13.15%. Hence, we should acknowledge that the inherited problems in the banking sector have been addressed in recent years. Previously, in 2013 the Bank Companies Act, 1991 was amended to legally enforce corporate governance in banks. It laid out rules and responsibilities of the board of banks, formation of risk management committee, internal control and internal audit and compliance committee, set the limit for related party transactions of banking companies, and provided for prior approval of Bangladesh Bank in appointing or removing director or managing director/CEO of the banks.

In 2019, we formed a high-level committee, headed by a deputy governor of the Bangladesh Bank, to review the five banking related laws to make those compatible with the modern day digitalised banking system.

A review report will be placed in parliament in the next session. International best practices and good governance have been taken into consideration while reviewing the laws. We are working hard to discipline the financial sector so people have faith in it and the country's image abroad is uplifted.