Global recession management to remain biggest challenge in 2024
Managing the impending global recession in 2024 remains a challenge, and effective recession management is crucial for minimising economic crises
In our country's current economic landscape, foreign and local currencies are under considerable pressure, a trend expected to persist in 2024. The imminent challenge for the economy in the coming year revolves around adeptly managing the global economic recession. Swift and effective recession management will be pivotal in mitigating the economic crisis.
A prolonged downward trend in interest rates on customer loans, initially capped at 9% during the peak of the Covid-19 pandemic in April 2020, has persisted. Despite various economic shifts, the lending rates remained unchanged until mid-2023, when the central bank lifted the cap, marking a significant departure from long-standing rules.
As of July 2023, customer borrowing rates are now fixed at the six-month weighted average treasury rate (SMART) plus 3%, with treasury bill rates experiencing an upward trajectory until November due to several policy rate hikes by the central bank. Simultaneously, the SMART Plus rate has been expanded to 3.75%.
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Throughout 2023, the pressure on foreign and local currencies intensified, culminating in a lending rate approaching 12% by year-end. Customer deposit rates and government borrowing from scheduled banks have also risen, contributing to heightened liquidity pressure in the banking sector.
With the government borrowing over 182 days of treasury bills at an interest rate exceeding 11%, banks are collecting deposits at rates between 9-9.5%. This trend, coupled with the increasing government borrowing rates, could potentially impact consumer credit and reduce private-sector investment.
The upcoming election adds additional pressure on the country's investment climate. Despite this, managing the impending global recession in 2024 remains a challenge, and effective recession management is crucial for minimising economic crises.
Post-election, the government must prioritise policy guidelines, focusing on boosting exports and addressing the persistently lacklustre performance in European markets. Challenges also persist with the Ukraine-Russia war and attacks on Red Sea container ships, creating disruptions in shipping routes, particularly the Suez Canal, leading to increased transport costs and potential inflation.
To address these challenges, several measures can be taken.
Post-election, it is essential for the government to limit loans from scheduled banks to avoid stifling private sector credit growth, thereby revitalising economic dynamism. Then, increasing export earnings and remittances is imperative to counteract foreign currency pressures.
Emphasis should be placed on active participation in the capital market and attracting FDI. Additionally, addressing the financial account deficit requires a strong focus on collecting foreign funds, promoting FDI, and ensuring an active capital market.
Moreover, strengthening revenue generation through the NBR and improving corporate governance are essential steps for economic stability. And finally, implementing the new Banking Companies Act and further reforming the banking sector will be crucial for stimulating economic growth.
The author is the managing director and CEO of Mutual Trust Bank.
