An economist yesterday warned the government of “uneasiness” in the banking sector.

“It seems the banking sector is facing some uneasiness, particularly nationalised commercial banks,” said Binayak Sen, research director of Bangladesh Institute of Development Studies (BIDS).

“For them, problems are piling up,” Sen said. “We have to be cautious right now. The cash recovery of NCBs is low. In most cases, the recovery is being shown through rescheduling. The operating profit exists only in books.”

Sen urged the government to be stringent about issuing permission for new banks.

He spoke at a seminar that focused on socio-economic development in the first three years of the grand alliance in power, organised by the ruling Awami League at the auditorium of the Bangladesh Medical Association in Dhaka.

Sen said it was not wise to allow banks to get involved in the capital market. It was a wrong decision, he added. "A limit has been enforced now, but it should have been done earlier."

He said tax exemption for large investors was not proper in respect of social justice and growth.

"I still think that proper steps should have been taken against people who were found guilty in the report submitted by the Ibrahim Khaled-led panel after an investigation,” Sen said. “There should not have been any compromise on the issue.”

Sen said the country's tax-GDP ratio should be increased by mobilising resources from domestic sources to take the investment-GDP ratio to 32 percent from 24 percent now.

"Otherwise, we will not be able achieve 8-8.5 percent economic growth to take Bangladesh to a middle-income country," he said.

"Steps have been taken, but they are not sufficient. Bangladesh has still the lowest tax-GDP ratio in South Asia," Sen said.

Keynote presenter Mashiur Rahman, economic affairs adviser to the prime minister, said it would not be possible to run the economy without long-term accountability.

"In the past, our economic policies addressed only immediate and short-term challenges. We have now made mid-term and long-term policies. We should not deviate from this."

He said it is a matter of pride that the country's reliance on foreign aid is on the wane. "But the government has to borrow from the banking sector to finance the budget deficit, which can squeeze credit flow to the private sector."

"We have to look at whether we are failing to spend foreign aid due to our limitation in implementation,” Rahman said. “We cannot borrow from the banking sector or the central bank excessively.”

"The government should enhance its capacity to use foreign aid," Rahman said.

Finance Minister AMA Muhith said the economy of Bangladesh reached a level different from 2008.

The government was unable to spend much of the $14 billion foreign aid in the pipeline, he said.

"We could spend only $2.5 billion. If we can spend more, our investment will go up. However, the capacity of spending of our ministries has increased 30 percent."

Bangladesh's exports might grow by 14 percent in the current fiscal year, Muhith said. "If it is 14 percent then I would say it is still commendable, given it is based on the high growth of 40 percent we achieved in the last fiscal year."

Moazzem Hossain, editor of The Financial Express, said Bangladesh would not be totally immune to the persisting global economic crisis, as 40 percent of the country GDP is linked with international business and trade.

The Daily Star/Bangladesh/ 1st April 2012