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Businesses warn of slowdown

Entrepreneurs on Wednesday warned of slowdown in investment and other economic activities saying none will dare to invest as banks are charging up to 21.5 percent interest on loans while massive depreciation of taka is increasing import costs.

Many are not getting loans on time, even at high interest rates, due to a liquidity shortage in banks, giving rise to a fear of a slowdown in economic growth, said the entrepreneurs at a discussion where they demanded easing of credit flow by cutting interest rates.

They also warned that the government might not be able to meet its revenue collection target of Tk 92,000 crore for the current year if the trend continues.

Finance Minister AMA Muhith however said he is ready to sacrifice a part of the economic growth to ensure overall macroeconomic stability. It is linked to interest rate and inflation, he said.

“Macroeconomic stability is important. The prospect of Bangladesh will be jeopardised unless there is macroeconomic stability,” he said, advising businesses not to expect high growth of credit.

Muhith said an expansionary policy last year buoyed private sector credit growth. “It raised expectation. Don’t expect too much this time,” he said adding that 18 to 19 percent credit growth in the private sector will be good for the economy.

He also admitted that a problem of lack of confidence has emerged. Muhith however said the crisis is not as acute as the way it is being portrayed by the media and the civil society.

Muhith made the remark in response to the entrepreneurs’ fear of an economic slowdown.

The discussion on the overall situation of the economy was organised by the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) in its office.

Some economists also spoke at the discussion.

“The economy is now facing a crisis. Banks are not providing loans. Even if they provide, they are charging up to 21.5 percent interest. With this high interest, none will dare to invest,” said FBCCI President AK Azad.

How the entrepreneurs will use the electricity added to the national grid through rental power plants, if they cannot even invest due to the rising cost of doing business, Azad said.

“If we are asked to swim after being bound, how can we swim?” he questioned fearing that the rising cost of doing business will hurt competitiveness on the global market, and negatively affect domestic market oriented small and medium enterprises.

Chairman of the National Board of Revenue Nasiruddin Ahmed tried to dispel the fears and said the government’s revenue collection will be higher than the target this year.

Lawmaker Hafiz Ahmed Mazumder, also chairman of Pubali Bank Ltd, said although the government has control on the banking sector, still for reasons unknown the sector seems uncontrolled.

“Banks are not playing a responsible role,” he said, suggesting reintroduction of caps on interest rates on loans and deposits.

Bangladesh Garment Manufacturers and Exporters Association President Shafiul Islam Mohiuddin said the global recession has slowed down the growth of apparel export.

He said prices of apparels have dropped due to a fall in demand. But cost has increased due to taxes, and hikes in wages and utility costs, he added.

Policy Research Institute Executive Director Ahsan H Mansur said imposition of a cap on the interest rate on loans by the central bank earlier was a wrong decision. Low interest rates resulted in bubbles in the stock and real estate markets, he said favouring a tightened credit growth in the private sector.

It appears that there is a lack of confidence, although the real economy is in a good shape, said Mustafizur Rahman, executive director of the Centre for Policy Dialogue.

He said when inflation is at double digit mark people will not deposit in banks at 12 to 13 percent interest rates, so the banks have increased interest rates on deposits which in turn has pushed up the interest rates on loans.

“The main problem is inflation. If we can bring down the inflation, we can reduce interest rates on both lending and deposits,” he added.

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Spectator

I welcome you all to my blog, a place where I share reports, articles and images of events taking place in Bangladesh and elsewhere in the world, which I think may be of interest to others. Please drop a few words if you feel like.
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