Photo: Messenger
Country’s entrepreneurs and business leaders have expressed concerns over potential challenges to private sector investments in the country, arising from obstacles to the opening of Letters of Credit (LCs) due to the prevailing dollar crisis.
Moreover, the discouragement in importing capital machinery, the prevailing energy crisis impacting the industries, and a reduction in credit growth within the private sector are further compounding the apprehensions faced by the business community.
Consequently, the nation's overall economy is poised to suffer adverse effects, while simultaneously, the threat to employment looms large.
Business leaders have asserted that the government's current policies are poised to induce a business slowdown this year, subsequently diminishing government revenue. The reduction in revenue, coupled with increased dependency on banks for executing current expenditures and development projects, is contributing to a liquidity crisis within the banking sector.
Consequently, the private sector is experiencing a decline in credit availability, further exacerbated by the recession, which has concurrently weakened entrepreneurs' capacity to secure loans.
As per a recent report from the Central Bank, the banking sector is undergoing mixed trends in recent times. Anticipated in the coming year is a dollar crisis within the banking sector, consequently escalating the liquidity crisis. The surge in the prices of daily commodities is expected to lead to a shortfall in savings. Additionally, the prevailing economic recession will curtail entrepreneurs' capacity to repay loans, contributing to an anticipated increase in the level of defaulted loans.
According to the central bank's report, the private sector is obligated to pay a total of 220 crore dollars, inclusive of interest, in the current year towards its long-term debt. Within this amount, the principal debt comprises 178 crore dollars, while the remaining 42 crore dollars accounts for accrued interest. The challenge lies in the global context, where rising interest rates necessitate a higher payment against the debt's interest component.
Simultaneously, as the dollar's value rises, additional funds must be allocated for its purchase, thereby escalating the cost of loan repayment for entrepreneurs. Furthermore, within the private sector, the short-term loans amount to 1,500 crore dollars, necessitating a payment of at least 1,200 crore dollars. Compounding this, certain loans tied to imports have been extended until the following June, intensifying pressure on reserves during the repayment of these loans.
When asked about this, FBCCI president Mahbubul Alam told The Daily Messenger that entrepreneurs and businessmen have become disoriented due to multifaceted crisis. The dollar crisis has created various barriers to imports. As a result, many are unable to import capital machineries for industries.
Furthermore, industries have been grappling with a prolonged shortage of gas and electricity for several months. The inadequate supply has resulted in the successive closure of various factories, leading to a substantial decline in production. Should this situation persist, industrial production is at risk of plunging into a profound crisis, impacting businesses and inflicting hardships on millions of workers. The potential closure of factories or delayed salary payments could result in widespread unemployment, exerting additional pressure on the country's economy.
As per reliable sources, the country has been grappling with a dollar crisis for approximately one and a half years, leading to stringent control measures on imports. This has resulted in a notable reduction in the import of industrial machinery and raw materials. Specifically, the import of raw materials crucial for export-oriented industries has witnessed a decline of 24 percent. Additionally, the import of fuel is experiencing a downturn owing to the persisting dollar crisis.
Consequently, industries are grappling with an inadequate supply of gas, electricity, and fuel oil, failing to meet the demands. Simultaneously, there is a scarcity of machinery and raw materials, resulting in a significant reduction in industrial production. The impact of this crisis is particularly acute in small and medium-sized industries. Projections from the International Monetary Fund (IMF) and the World Bank align with expectations of a continued dollar crisis this year. Consequently, there is a pressing need to further control import costs, indicating that the challenges faced by the industrial sector may persist throughout the year.
Entrepreneurs and businessmen said, the crisis in the industrial sector will become more pronounced as a result of extensive import controls. Pursuing a contractionary monetary policy to control high inflation rate will further reduce the flow of money in the market and increase the interest rate on loans. This will hamper investment and slow down the pace of new employment.
In this context, Dr Zahid Hussain, the former chief economist of the World Bank’s Dhaka Office, told The Daily Messenger that the dollar crisis will persist in the country’s economy this year as well. This will result in devaluation of money. As a result, import costs will increase. And the price of imported goods will increase.
He further emphasized the necessity of curtailing the money flow to manage the surge in inflation, which is anticipated to lead to an increase in interest rates. Such an escalation in interest rates is likely to elevate both the cost of conducting business and the prices of products. This, in turn, could lead to a contraction in economic activity, ultimately diminishing the prospects for new employment opportunities.
In the recent monetary policy announcement on January 17, Bangladesh Bank Governor Abdur Rouf Talukder underscored concerns regarding investment and employment reduction. Governor Talukder disclosed that private sector credit growth has experienced a decrease, declining from 11 percent to 10 percent. Simultaneously, public sector credit growth has been curtailed from 31 percent to 27.8 percent. Despite these adjustments, the policy rate has been raised by 25 basis points to 8 percent. The governor also highlighted the delicate balance, stating that if internal debt reduction measures are implemented to mitigate inflation, it may adversely impact investment and employment.
In this context, Ahsan H Mansur, the Executive Director of the Policy Research Institute (PRI), conveyed to The Daily Messenger that substantial reforms are imperative for the economy this year. He noted that while the immediate consequence of such reforms might entail increased pressure on the economy, the long-term benefits are expected to restore order and stability.
Additionally, he pointed out that the recently unveiled monetary policy, aimed at controlling inflation, has resulted in a reduction in credit growth within the private sector. This, he emphasised, is likely to have adverse effects on both private investment and employment. As a result, he urged a cautious and measured approach in dealing with this economic scenario.
Messenger/Disha
