Global uncertainty adds to economic pressure

Mashrur Arefin, Managing Director of City Bank, believes that restoring business confidence requires not only domestic improvements but also an easing of various global uncertainties. The Russia–Ukraine war, the economic aftershocks of the Covid-19 pandemic, the recent crisis in the Middle East and tensions surrounding Iran have all placed sustained pressure on businesses. These challenges have been compounded by prolonged volatility in the US dollar–taka exchange rate and persistently high inflation.

The Chairman of the Association of Bankers, Bangladesh (ABB), which represents the managing directors of commercial banks, said that Bangladesh Bank’s policy interest rate is directly linked to inflation. As a result, efforts to control inflation have necessitated relatively high lending rates, limiting businesses' access to low-cost financing.

Nevertheless, he remains optimistic about the outlook. According to Arefin, Bangladesh Bank’s recently announced stimulus package of nearly Tk80,000 crore could prove to be a “game changer” for the economy. If businesses are able to access financing from these funds at fixed and affordable interest rates, private-sector credit growth could increase, giving fresh momentum to investment.

He also stressed that resolving problems in the energy sector is essential to strengthening the country’s industrial and investment climate. In his view, the government is capable of addressing the sector’s challenges if it chooses to do so.

Arefin said that while the current situation is undoubtedly challenging, there are sufficient grounds for optimism. He believes that the central bank’s stimulus programme, combined with a gradual return of macroeconomic stability, will help restore business confidence and stimulate investment and economic activity.

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Challenges keep mounting

Although investor confidence in Bangladesh’s business environment has not yet fully recovered, he expressed confidence that it will improve over time. He noted that private-sector credit growth is currently below 6%, the lowest level in the past two decades. However, he cautioned against viewing this figure in isolation.

According to Arefin, when credit growth exceeded 15% in previous years, a significant portion of those loans consisted of anonymous or irregular lending. Given the large volume of irregular loans that has recently come to light in the banking sector, he believes that actual or effective credit growth was not as high as the headline figures suggested. In real terms, he estimates that credit growth was probably between 6 and 7%.

The writer is Managing Director of City Bank