Bangladesh's macroeconomic situation has remained overall stable, mainly with our fiscal policy not having offered a big stimulus support. There is a big surplus in the balance of payments too. All in all, the economy is not in crisis.
But what is about growth? We all are of course worried about that. If we look at finance- and trade-related indicators, our economy has not rejuvenated that way.
Credit expansion is a little higher than inflation, which is 8%. In terms of quantity, it has a similar expansion just as stimulus packages. There is no credit expansion outside it. This is a matter of great concern.
Does it mean that we have only used stimuli all year round? Can we achieve 7%-8% economic growth with that? I doubt it.
Secondly, investment is a big part of domestic demand – it is 30% of GDP. If 30% of investment is reduced, where will investment come from?
The term loan is double-digit negative. Imports of capital machinery also see double-digit negative growth. Considering all these, we cannot say our investments are making a comeback.
Revenue has so far increased by a little over 7%. But the actual revenue growth is 2-3%, excluding the 5.5% inflation.
These numbers are solid. There is no way of estimating such numbers. If we go beyond, we will have to talk based on assumptions.
Based on that, overall, our economy may be growing a bit. This is also a good aspect because not achieving growth in this situation is not unusual.
Many industries have turned around even amid the pandemic. The export sector has also bounced back to some extent although it is yet to return to pre-Covid levels. They are ready for expansion if demand increases. So, there is a bright side to it.
The government also has a positive role to play.
There is also a positive effect of the Tk7,500 crore stimulus package for the RMG sector. We have been able to retain our workers with this money. The layoffs did not happen that way. We have also been able to maintain workers' productivity.
Overall, we are a little down, but close to the previous position. The stimulus has been useful as a whole.
But, it is a failure when we look at the SME sector. There could have been millions of borrowers from the sector, but many cannot be given loans. And, the stimulus package amounting to only Tk20,000 crore has not been disbursed either.
There is stability in the macroeconomy. We will not face a crisis – I see no reason for that. We have good forex reserves. We have stability in the balance of payments, for the wrong reason, but it is strong.
The wrong reason means our balance of payment is strong because of low imports, low domestic demand and low economic growth.
When it comes to remittances, there are many things out there. Remittances somehow came and its inflows created some internal demand. Besides, forex reserves have increased. There has been liquidity expansion that eventually helped credit expansion.
Now, our path of recovery is still uncertain. At first, I thought we would be able to recover in January-February. Later it seemed that recovery was possible in June-July.
My expectations fell when the second wave of Covid-19 spread to various parts in America and Europe. It seemed that there would be a recovery in September-October.
Now, we are grappling with the second wave, it looks like recovery is possible in January-February next year if the third wave does not come and if we can stem infection or keep it at a tolerable level.
Where is the downside risk? Our biggest downside risk is India's and our position.
Indians say India, a big power, is now heavily dependent on others. The country has to get help from outside to keep us alive. Such a radical change in a few weeks is an incredible psychological shock for any economy. Its negative impact is bound to fall on any economy. We do not want to fall into such a situation.
Our government's biggest responsibility is to address this risk. The budget must give great importance to this issue. It will have to pay huge attention to the health sector to mitigate it and it has to be done very quickly. A lot of time has been wasted.
Regarding vaccination, we took a risk by depending on a single source. No strategic decision should ever be one-centric. I have long been saying we made a mistake in this regard.
The second mistake we made is that we did not give permission for internal vaccine development, monitoring and testing. We got an offer but we did not accept - that was a big mistake. We have to learn from that.
We need to develop our own vaccines. We need vaccines from multiple sources locally because Covid will stay with us. We need a lot for now, which we cannot do without a domestic source. Risk mitigation should be strengthened to this end.
We have worries over the financial sector. I myself am associated with a bank. There is no denying the fact that the pandemic will deal the financial sector a heavy blow worldwide.
We have been asked that if a person cannot repay a loan, he cannot be shown as a defaulter. Everyone is unclassified and regular. But they are not really making repayments. This regulatory facility ended in December.
So data that will come from April after March will show some qualitative changes.
What actually was needed, many are not doing, is provisioning. Bankers have nothing special to do.
For example, we have kept a provision of Tk500 crore in Brac Bank. We did not increase profits and dividends.
We have made 100% provisioning against loans as per requirements. We have 170% provisioning for classified loans. What have others done?
I do not think that they have done much. If they have not, they have made a big mistake. What will happen then? Political pressure will come. The Bangladesh Bank will give regulatory facilities.
We do not keep provisioning. Instead, we will create a balance sheet nicely by creating pressure and making regulatory provisions through the Bangladesh Association of Banks and others.
Our government and Bangladesh Bank have to change this tendency. The central bank has done some work. They said dividends cannot be paid without 1% provisioning.
Even after that there is the issue of window tracing here.
Ahsan H Mansur, is the Executive Director at Policy Research Institute