Economy under pressure for heavy liquidity crunch

Mahfuja Mukul: National Parliament election on 7th January. Before this election, the country’s economy is under various pressures. This includes the dollar crisis. Slowdown in remittance flow and export earnings. Financial sector in disarray burdened by defaulted loans. The banking sector is in extreme liquidity crisis. Most of the country’s 61 banks meet their day-to-day expenses through lending. There is no precedent for borrowing so much bank money. The transaction services of five Islamic banks are about to be stopped. 14 banks recorded capital shortfalls.
The recession is also going on in the capital market. Stagnation in investment. Imports are now controlled. On the other hand, long-term high inflation has made the living of certain, low- and middle-income people of the country expensive. Common people are disoriented by the increasing pressure of inflation. Analysts believe that the country’s economy has never seen such a difficult time before the national elections. They said that the country’s economy is facing challenges due to high inflation, foreign trade pressure, financial sector risks, weak monetary policy and exchange rate, defaulted loans, interest rate limits, imposition of duties on essential imports, poor revenue collection management. Therefore, they have suggested reforms in various sectors including the financial sector to maintain the economy of the country.
The Asian Development Bank (ADB) believes that there is uncertainty in the economy around the national elections in January.
Those concerned said that due to increase in defaulted loans, slow growth of deposits due to high inflation and sale of dollars from foreign exchange reserves, large amount of money is coming out of the market. Again, the central bank does not lend to the government for the purpose of controlling inflation.
The government has been borrowing from commercial banks, which has exacerbated the liquidity crunch. As a result, the banks are struggling to manage their day-to-day banking activities without the help of the central bank. Executive Director of Policy Research Institute (PRI) Dr. Ahsan H. Mansoor said, the economy is now facing many challenges. We have balance of payments pressure, reserve pressure. Again, there is inflationary pressure.
As a result, our overall economy is going through an unstable state. Besides, remittances and exports from abroad have decreased a lot.
Apart from this, there is also a pressure from the Europeans, including the United States, on labor and human rights issues. The economy is under pressure due to the combination of these issues.
Liquidity crunch: The liquidity crunch in the country’s commercial banks is becoming evident day by day. As a result, the amount of borrowing from the central bank to the commercial banks is also increasing. Last Wednesday, various troubled banks borrowed a record Tk 24,616 crore in short-term loans. Earlier on October 25th, the maximum borrowing was Tk 24,455 crore. As of last Wednesday, the loan status stood at Tk 70,379 crores.
Interest rate: In addition to borrowing from Bangladesh Bank, one bank is borrowing from another bank in interbank loan. Loan interest rates hit 11-year high. Last Thursday, the volume of transactions in call money was Tk 4,293 crore, with an average interest rate of 9.14 percent. Last Wednesday, the amount of this loan was Tk 3,738 crores, with an average interest rate of 9.13 percent.
Loan Interest Rate: Bank loan interest rate is increasing. Earlier the loan interest rate was limited to 9 percent. Now it has increased to more than 11.5 percent. The cost of doing business is increasing. As a result, the price of products is increasing due to the increase in production cost. This will also put pressure on the inflation rate.
Record of defaulted loans: This year, a record of defaulted loans has been created in the banking sector of the country. At the end of June quarter, the total defaulted loans in the banking sector was Tk 1 lakh 56 thousand 39 crores, which is 10.11 percent of the total disbursed loans. Till this time the total amount of loan disbursed in the banking sector is Tk 15 lakh 42 thousand 655 crores.
Meanwhile, the World Bank said that Bangladesh’s debt has increased more than two and a half times in 12 years. And last year increased by 6.59 percent.
Transactions may be stop for 5 Islamic banks: The financial transaction services of five Shariah-based banks are in the process of being stopped. In a letter to the banks, Bangladesh Bank said that the current account status of Bangladesh Bank, which has been with the banks for a long time, is negative. Former Bangladesh Bank Governor Salehuddin Ahmed is commenting that the government is ignoring the internal problems of the country’s economy. He said, banking, corruption, wastage, overspending on projects, these issues have been sidelined.
Meanwhile, in the first quarter of the current financial year (July-September), 14 banks, including 4 state-owned banks, faced a record capital deficit. According to the data of Bangladesh Bank, the capital deficit of these banks was Tk 37,508 crore at the end of last September quarter. Capital deficit is the highest in history. Earlier in the last quarter of 2021, there was a maximum capital deficit of Tk 34,640 crore.
Dollar crisis: The dollar has been reined in. Although not much impact on the market. The dollar has been devalued three times in November and December. As a result, the dollar is now being sold at a maximum price of Tk 110. Earlier it was Tk 11. In the open market, the price of the dollar rose to Tk 127, which is the highest price so far. However, even though the money changers are supposed to sell the dollar at the maximum price of Tk 116, they are not getting the dollar below Tk 122.
Remittance inflows declining: Remittance inflows declined by 4.36 percent in July-October of the current financial year. It had increased by 2.03 percent in the same period last fiscal. Inflow of remittances may decrease in future. Meanwhile, the World Bank said, the remittance flow may increase to $23 billion by the end of this year.
Reserve crisis: The country’s reserves have slightly increased due to the addition of $131 million from three organizations including $69 million for IMF loans this month. However, the reserves will decrease again when the Asian Clearing Union debt is paid in January. Foreign exchange reserves stood at $25.82 billion. However, there is an expendable reserve (BPM6) of $20.41 billion.
Export Earnings: The downward trend in exports continues. Exports increased by 11 percent in July-October last fiscal. It has increased by only 1.30 percent during the same period of the current financial year. Geo-political reasons may create a negative situation in exports in the future.
Import Expenditure: Import of raw materials for export-oriented industries decreased by 24.18 percent last July-November. LC opens rose less than 1 percent. It has a negative impact on exports. The central bank has predicted that back-to-back LCs may fall further in January. On the one hand, the revenue of the government is decreasing. On the other hand, there has been a negative impact on the production due to low import of industrial raw materials.
There should not be any program that will harm the common people, businessmen and the country. Otherwise, we will go backwards,” said FBCCI President Mahbub Alam. He said this in a recent event.