The Centre for Policy Dialogue yesterday warned the government about risks of borrowing

$1 billion from the IMF, saying the conditionality-based loans would increase the costs of doing business and limit scope for strategic support to domestic industries.

The think-tank said the borrowing from the IMF (International Monetary Fund) would limit the government's fiscal flexibility and may lead to a contractionary monetary policy.

"We have to maintain policy flexibility and policy autonomy to attain faster growth," said CPD Executive Director Mustafizur Rahman at a dialogue on emerging challenges in Bangladesh on growth, inflation and monetary policy.

CPD organised the programme at the Cirdap auditorium in Dhaka. Chairman of the research organisation Rehman Sobhan chaired the discussion.

The CPD observation came at a time when the government is finalising a $1 billion credit deal with IMF which tagged a number of conditions to the loans.

The conditions include phasing-out of bank lending rate ceilings, further liberalisation of tariff level, pursuing a monetary tightening stance and putting in place new VAT and income tax laws.

The think-tank said some of the conditions such as raising CNG and furnace oil prices, establishment of a framework to monitor losses of state-owned enterprises are in line with the necessary reform agendas.

But citing the United Nation's World Economic Situation and Prospects 2011 report, Rahman said the likely consequences of the IMF conditionalities contradict the UN recommendations.

CPD also observed that Bangladesh economy is going through a turning point and some tensions are emerging.

These include the rising inflation, volatility in the stockmarket and the banks' risky exposure to the market, instability in the foreign exchange market due to a rise in import payments, and a slowdown in remittance inflows.

"If we cannot address these at this moment, it may put the economy into trouble," said the CPD researcher.

Economists also said Bangladesh might be able to attain its growth target. But it might not remain free from soaring prices of foods.

"Inflation is up. But we must not forget that there is a strong domestic demand," said Executive Director of Policy Research Institute Ahsan Mansur.

Mansur said the stockmarket is in a correction mood now. "Let's not bother about it for too long," he said.

He warned about the risk of a drop in remittance inflows. "We have to stabilise our exchange market," said Mansur who was also critical of excessive credit expansion.

Salehuddin Ahmed, a former BB governor, said danger is coming from the forex market.

He said any financial crisis usually preceded by bubble. "The central bank should be cautious about credit bubble."

Ahmed blamed the BB for raising the CRR (cash reserve requirement), saying that the timing was wrong that caused a plunge in the stockmarket.

But BB Deputy Governor Ziaul Hasan Siddiqui said the central bank increased the CRR after it observed a rising trend in inflation last year.

World Bank Lead Economist in Bangladesh Sanjay Kathuria said volatility in inflation creates uncertainty in investment and employment generation.

He said investment remains below the overall savings rate in Bangladesh. But it should be reversed, he said.

News: The Daily Star /Bangladesh/14 Feb 2011

Finance Minister AMA Muhith Friday defended the appointment of political persons as members of the board of directors of the state-owned commercial banks (SCBs), justifying their necessity in achieving the goals of the government. He was speaking to the newsmen after a meeting with the directors and top officials of three SCBs - Rupali, Janata and Basic banks. "We've appointed politically conscious people as bank directors to achieve the goals of a political government", the minister said.

The remarks came amid widespread criticism over appointing 'non-professional' bank directors for SCBs. Pointing to the agenda of the meeting, he said, "This meeting was just the continuation of the meeting of January 27". The minister met with the directors and top officials of two SCBs - Sonali and Agrani banks - at that time. "We've reminded the directors that their first duty is to protect the interest of depositors", the minister said, adding that development of the nation and economy comes to the second position as the responsibility of the directors.

"We talked about the issues of banks' performances and functions of boards today", Muhith said. Pointing to the report published about an SCB in a Bengali daily, the minister said, "That report is 'immature' and 'out of ignorance'." Governor of Bangladesh Bank Atiur Rahman, members of board of directors, chairmen, and managing directors of Rupali, Janata and Basic banks and top officials of the central bank were present at the meeting.

News: The Financial Express/Bangladesh/12 Feb 2011

The Asian Development Bank in a major move has urged Bangladesh to upgrade cross-border connectivity to set up regional link as it proposed support to 11 road and railway projects, officials said. Finance ministry officials said the Manila-based multilateral lender has assured the country of providing US$12 million funds for conducting study and preparing designs of the projects hinting at further support for the development works. "Implementing agencies are now preparing project proposals for 11 proposed schemes. After getting planning ministry's endorsement, an aid deal with the ADB will be signed," a senior Economic Relations Division official told the reporter.

He said we have already completed negotiations with the ADB for their proposed $12 million funds. The ADB has proposed to construct a railway bridge parallel to the existing Jamuna Bridge, a railway track on Dhaka-Padma Bridge-Bhanga-Jessore route, reconstruct Hardinge Railway Bridge at Pakshi, a railway link from Dohazari to Cox's Bazar and from Ramu to Gundum near Myanmar border. Besides, the multilateral donor has also assured Bangladesh of bankrolling feasibility study for constructing Phulchhari-Bahadurabad railway bridge on Jamuna River and renovation of the signalling system between Iswardi and Parbatipur railway line.

The lender has also proposed government to upgrade and construct six road links which will play a key role to establish regional links and boost the cross-border trades. The ADB will bankroll renovation works for Sonamasjid-Rajshahi-Jamuna Bridge road, Burimari-Rangpur road, Tamabil-Sylhet-Dhaka road, Chittagong-Cox's Bazar-Teknaf road for establishing cross-border communications. Besides, the Asia-Pacific lender will support the preparation of the designs for upgrading Phulbari-Banglabandha-Hatikamrul road, Benapole-Jessore-Magura-Doulatdia-Paturia-Darkhar-Akhaura road and Akhaura-Darkhar-Comilla-Chittagong road to facilitate the regional connectivity.

The ERD official said as the government is now laying more focus on establishing regional connectivity, those schemes will help to set up regional transport facilities. Experts said trade volume in the South Asian region is still very negligible compared to that with other regions in the world due to absence of good communication systems. Within the South Asia region, Nepal trades almost 35 per cent of its overall international trade compared to 10 per cent of Sri Lanka and 5 per cent of Bangladesh. The picture is embarrassingly low in case of the two big economies - India and Pakistan - which have a share of less than 3.0 per cent each of their international trade with the regional member countries. A senior planning ministry official said the government's road and railway developers have been preparing the project proposals for the ADB suggested schemes. "After getting those proposals, we will review for giving endorsement," he said.

The Bangladesh government has already discussed with India, Nepal and Bhutan for establishing transport connections for boosting trade among themselves. The Indian government has already confirmed one billion US dollar credit for the Bangladesh government to develop infrastructures for facilitating transit and transshipment to Delhi. Bangladesh has undertaken nearly 20 projects by the Indian credit, most of which are being implemented to upgrade the transportation systems between the two countries. India will be allowed to carry its products through Bangladesh territory to its impoverished north-eastern seven states. Besides, the Chittagong and Mongla sea ports will also be opened for India, Nepal and Bhutan for transporting products.

News: The Financial Express/Bangladesh/12 Feb 2011

Banks' capacity to protect depositors and promote financial stability is waning, according to a quarterly Bangladesh Bank (BB) report released last week. The report shows risk-weighted capital asset ratio (RWCAR), which is an important cushion against unexpected shocks, shrunk to 7.91 percent in June 2010 for all banks, from 11.68 percent in the same period a year ago. The present ratio is much lower than the minimum regulatory requirements of 10 percent under Basel II capital adequacy framework. RWCAR or capital adequacy ratio determines the capacity of a bank in terms of meeting the time liabilities and other risks, such as credit risks and operational risks.

Simply put, a bank's capital is the backing for potential losses that protects the bank's depositors or other lenders. Banking regulators in most countries define and monitor the ratio to maintain confidence in the banking system. Local bankers blamed the rise in risky investments on infrastructure constraints, particularly the gas crisis that has turned many lending bad. A foreign banker linked the current risky situation to a dramatic credit expansion without a corresponding increase in capital. “Banks' money borrowed by industries, which are not getting gas connections for months, became risks for those banks,” said Touhidul Alam Khan, executive vice president, corporate banking division of Prime Bank.

Latest BB data shows the RWCAR for all banks came down to 7.91 percent in June 2010 from 11.68 percent in the same month of 2009. The ratio was 11.67 percent in December 2009. State-owned commercial and specialised banks are in the worst condition in maintaining the capital ratio. For state-owned commercial banks the RWCAR has gone down to 5.67 percent in June 2010 from over 9 percent six months ago. It was negative 2.56 percent for specialised banks. The ratio for private commercial banks (PCBs) stood at 8.69 percent in June 2010, down from over 12 percent a year ago. It was 10.38 percent for PCBs in June 2004.

Although the ratio for foreign commercial banks (FCBs) still remains well above the minimum regulatory requirements, it went down to 16.71 percent at the end of June 2010 from 28.13 percent six months ago and 28.26 percent a year ago. “Any credit expansion without the corresponding rise in capital will increase the risk,” said a senior banker. He said banks' volume of lending has increased without supporting the adequate capital requirement. “The gas crisis cannot be the only reason. It has been a problem for the past few years and banks were lending considering the issue,” said the banker requesting anonymity.

Monzur Hossain, a research fellow of Bangladesh Institute of Development Studies, said: “Banks should strengthen the credit risk management, which is yet to get momentum."

News: Sajjadur Rahman/The Daily Star/Bangladesh/06 Feb 2011

Commerce Minister Faruk Khan Thursday visited the Institute of Chartered Secretaries of Bangladesh and launched its official web-site (www.icsb.edu.bd). During the opening ceremony he emphasized on the importance of ICT for Digital Bangladesh to achieve the goal of Vision 2021. President of ICSB Mohammad Sanaullah discussed at length the issues concerning the profession of Chartered Secretaries in Bangladesh as well as various development activities undertaken by the ICSB. Among others, former Commerce Secretary Suhel Ahmed Choudhury, former Secretary Feroz Ahmed, Mohammad Asad Ullah , immediate Past President & Council Member, Md. Shahid Farooqui , Senior Vice President, M. Naseemul Hye, Vice President and Md. Monirul Alam , Treasurer of ICSB along with a large number of fellow & Associate Member of the Institute were present.

The members requested the Minister for support to the Institute on its efforts towards the establishment of good corporate governance in Bangladesh. The commerce minister visited the accommodation including Office, Library, Class Rooms and Training Room & other facilities of the Institute. The Minister assured of his all possible support to the Institute and profession as well.

News: The Financial Express/ Bangladesh/04 Feb 2011