Economy could eventually plunge into river: Mahbub Ullah

National Professor Dr Mahbub Ullah has warned that Bangladesh’s economy could plunge into a deeper crisis unless the state stops patronising oligarchs — a small group of extremely wealthy and influential businesspeople.

“The country’s banking sector has become extremely weak and fragile. The situation has reached such a point that the very existence of the sector is under threat,” he said.

“The economy has already been derailed. Unless effective measures are taken immediately, it may not only remain off track but eventually plunge into the river,” he warned.

Dr Mahbub Ullah made the remarks on Thursday while addressing the opening session of the second day of the 11th Annual Banking Conference at the Bangladesh Institute of Bank Management (BIBM) auditorium in Mirpur, Dhaka.

He said the banking crisis was initially viewed as a Know Your Customer (KYC)-related problem, but it later evolved into a dangerous nexus involving bankers, unscrupulous businesspeople and dishonest politicians.

“It is impossible to put the economy back on the right track while patronising such syndicates and oligarchs. We must remain vigilant against them,” he said.

Expressing concern over the structure of the economy, Dr Mahbub Ullah said Bangladesh had turned into an “extractive state”, where the benefits of exploitation were enjoyed not by ordinary people but by a small group of wealthy and influential businesspeople.

He said these oligarchs had emerged with state patronage.

According to him, most banks in the country would have disappeared by now if market rules had been allowed to take their course. Instead, efforts were being made through various means to keep them afloat, although he expressed doubts over how effective such measures would ultimately prove.

“This is an unfortunate situation for the people and the economy,” he said.

Dr Mahbub Ullah also said widespread irregularities in the banking sector had severely eroded public confidence.

“Most people have lost confidence in the banking system. However, even amid this crisis, some banks are performing well and are being managed properly. Lessons can be drawn from their experiences to determine how the overall sector can be improved,” he said.

Concern over government borrowing

The economist also expressed concern over the government’s growing dependence on bank borrowing.

He said revenue shortfalls and a weak tax-to-GDP ratio had forced the government to borrow heavily from banks. As a result, the banking sector was becoming increasingly oriented towards government financing, putting pressure on the private sector’s access to credit.

He warned that the situation could lead to a “crowding-out” effect, in which government borrowing reduces the availability of credit for private businesses.

Dr Mahbub Ullah said the government’s continued borrowing, coupled with uncertainty over the future repayment of principal and interest, represented a major warning sign for the economy.

He stressed that addressing weaknesses in the banking sector alone would not be enough, saying broader changes in the way the state operates were also necessary.

Criticising the country’s governance structure, he said those in power had treated the state as their personal property or empire rather than as an instrument for public welfare, allowing relatives and close associates to enjoy undue benefits.

Unless this “extractive character” of the state is transformed and replaced with a system focused on public welfare, sustainable development in any sector will remain difficult, he said.

Dr Mahbub Ullah also observed that although Bangladesh had witnessed repeated mass uprisings, they had failed to bring about meaningful social and cultural change, resulting in growing frustration and impatience among the public.

He argued that uprisings alone could not provide a lasting solution. What the country needed, he said, was a clearly defined ideological framework, a programme for national renewal and dedicated leadership.

The economist also expressed doubts about any quick resolution to the country’s current crisis.

He said overcoming the challenges would require time and political will, stressing that there could be no overnight or “magical” solution.

Alongside economic reforms, he called for fundamental changes to the political system and an end to the unethical nexus among bankers, politicians and businesspeople. He also stressed the need to build social resistance against corruption and deliberate irregularities.

Focus on loan recovery, good governance

Former Dhaka University economics professor Barkat-e-Khuda presented the keynote paper at the opening session.

He said the banking sector had been weakened by a mountain of defaulted loans, poor governance, capital shortages and money laundering.

“These problems have reduced the lending capacity of many banks. At the same time, while some banks are facing severe liquidity shortages, a substantial amount of money remains idle across the banking system,” he said.

To overcome the crisis, he recommended effective measures to recover defaulted loans, ensure good governance, restructure weak banks and prevent money laundering.

BIBM Director General Dr Md Ezazul Islam chaired the session, while BIBM Professor Dr Shah Md Ahsan Habib delivered the welcome address.

Source : Star News