Pandemic intensifies personal stability risks
The ongoing pandemic has exacerbated Bangladesh's financial stability risks due to high degrees of non-performing loans, weak capital buffers, poor bank governance and risk control, the World Lender said in its most up-to-date report.
"Reduced profitability, weaker asset top quality, and lower credit progress can have large second-round repercussions in the real economy," the report predicts.
The Washington-based loan company published the report titled "Bangladesh Development Update - CONTINUE: Connectivity and Logistics to Strengthen Competitiveness" yesterday.
The fragile outlook for the global economical recovery adds external risks if it impacts demand for RMG products and employment of Bangladesh's abroad workforce.
"Despite the uncertainty created by Covid-19, the outlook for Bangladesh's economy is positive. Much of the tempo of recovery will be based upon how fast mass vaccination may be accomplished," stated Mercy Miyang Tembon, nation director of the World Bank, in a news release.
The report said the countrywide shutdown implemented from March to Can in 2020 to contain domestic transmission led to severe supply-side disruptions in all sectors of the economy.
GDP growth decelerated sharply, right down to around 2.4 per cent in FY20. Industrial expansion slowed, with a sharpened decline in readymade garment making output.
The services sector development also decelerated because of disruptions in transfer, retail, hotels, and eating places.
Early signals of recovery emerged on the first 50 percent of FY21 just after movement restrictions were progressively lifted.
According to the report, in FY21, growth will be supported by a recovery in production as export require strengthens, a rebound in engineering supported by accelerating open public investment, and robust assistance sector growth while the vaccination plan progress.
Inflation is projected to stay near Bangladesh Bank's 5.5 % target, and the fiscal deficit is projected to remain at 6 % of GDP.
The report said although Bangladesh was not fully aligned to international standards ahead of Covid-19, the Bangladesh Bank has further relaxed bank loan classification requirements and allowed banks to freeze mortgage loan classifications.
"Such extraordinary measures may have results in the short-term but have harmful consequences over the moderate and long-term, unless they are carefully implemented and carefully monitored," it stated.
Contingent liabilities from excessive non-performing loans and insufficient capital on banks could bring about higher open public domestic debt, the WB stated.
The report recommended creating a data infrastructure to track the impact of foreseeable future shocks on households and firms that will help inform the policy response to near future crises, strengthening resilience.
Underscoring the necessity for prioritising the hard work to create data collection more agile and fast within the national stats system, the report stated this might entail institutionalising rapid data collection systems in the Bangladesh Bureau of Figures.
Resolving longer-term structural challenges may accelerate the post-Covid-19 recovery, the report explained.
It discovered the structural reform priorities, including building institutional capacity, increasing authorities revenues, diversifying exports, resolving financial sector vulnerabilities, rebalancing urbanisation, and bettering the business environment.
"Organization climate reforms and adjustments to the insolvency framework could help firms recover more quickly."
Bangladesh rose by eight places to 168th in the 2020 CONDUCTING BUSINESS index, due to reform momentum accelerated, the survey.
"However, the country still lags comparator countries found in the dimensions, including enforcing agreements, trading across borders, paying taxes, and protecting minority buyers."
