Financial and economic challenges ahead

There has been a serious concern about economic growth because of the liquidity crisis, huge volumes of bad and doubtful loans, inadequate revenue collection, pressure on foreign debt repayments, declining remittances from non-resident Bangladeshis and uncertainty over export growth. Some of these challenges are beyond our control, while others, including revenue collection, debt recovery and liquidity management, can certainly be addressed through appropriate policy measures.

Bad and doubtful loans reported so far need to be categorised in a dispassionate and objective manner. A large portion of these outstanding loans resulted from fraudulent lending, with funds siphoned out of the financial sector. These are criminal offences and should be dealt with through legal action. Some loans have become bad because of adverse economic conditions, including slower imports caused by the foreign currency crisis, the wars in the Middle East and Ukraine, inadequate power supply to industrial units, rising fuel prices and production costs, weaker exports and other related factors. There is also another category comprising wilful and habitual defaulters. Even in these difficult circumstances, many borrowers continue to repay their loans regularly, demonstrating their commitment and honest intention.

Loans that have become bad because of economic factors beyond borrowers’ control warrant rehabilitation schemes in both the short and long term. Such support should follow careful review on a case-by-case basis, taking industry-specific issues into account. Working capital financing is another critical requirement for boosting production and, where applicable, increasing exports.

Unfortunately, since independence, Bangladesh has seen the persistent presence of habitual and wilful defaulters, with or without political patronage. This has seriously undermined the repayment culture, encouraged corruption and ultimately weakened economic growth. This issue should be addressed firmly, with no further incentives or concessions for wilful defaulters. Strict measures could include restrictions on business expansion, overseas travel by family members, children’s overseas education, infrastructure development and donations to institutions used to fulfil political ambitions. It is unfortunate that many wilful defaulters have never been brought to account, while a large number have escaped responsibility one way or another. This should not be allowed to continue.

Where appropriate, legal action should be initiated without further delay. Inter-company loans are another important area requiring close review. It is necessary to determine whether such funds have been extended to subsidiaries and associated entities and whether those entities have the capacity to repay them on time. It is well established that borrowers often overstate the value of their personal assets when securing loans. Subsequently, those assets may be diverted or disposed of, with or without the knowledge of banks or financial institutions. As a result, loans become effectively unsecured, exposing banks to greater risks in recovering overdue advances.

Increasing revenue collection is equally important. For many years, Bangladesh has failed to raise revenue to the expected level, leaving its tax-to-GDP ratio below that of neighbouring countries and comparable economies. Weak measures by the National Board of Revenue (NBR), inadequate digitalisation and corruption remain major obstacles. Required tax payments cannot be expected solely on a voluntary basis. Greater emphasis should be placed on credible financial statements, effective tax audits as practised in many countries, third-party verification of key financial information, adoption of a faceless assessment system and stronger action against corruption. Good governance is equally important, as poor governance encourages corruption, which ultimately undermines economic growth.

Bangladesh must overcome these challenges. Otherwise, economic growth will be seriously affected at a time when the world is already facing severe pressures from wars and continuing economic uncertainty.

The writer is a senior partner of Hoda Vasi Chowdhury & Co and former president of ICAB