The targeted 14. 8 percent private sector credit growth will not be enough to achieve the desired GDP growth.
Today’s economic growth is driven by private sector investment. And it depends on the availability of credit. Economists and business leaders fear that the credit growth target will impact private sector investment due to shortage of funding.
“The private sector is the key driver of economic growth,” said Abul Kashem Khan, the former president, Dhaka Chamber of Commerce and Industries (DCCI).
“The private sector credit should get priority in the monetary policy. It has, unfortunately, been slashed to below 15 percent.”
The new monetary policy will slow down private sector investment, he commented.
Abul says that private sector credit growth should be more than 16 percent in order to achieve the private sector investment and employment target.
Non-performing loan (NPL) is causing cost of funding to go up. As NPLs are on the rise, the banks are raising the interest rates to make up for this loss.
Bangladesh Bank (BB) should make sure the bad borrowers do not get loan while the good ones get fund at reasonable interest rates, the former DCCI president suggested.
“The financial sector is suffering from a liquidity crisis,” said Hafizur Rahman Khan, former president, International Business Forum of Bangladesh.
“So the policy must focus on keeping money flow available to the private sector.”
The 14.8 percent private sector credit growth will not be achieved, he cautioned.
“To achieve the 8.2 percent GDP growth target, 14.8 percent private sector credit growth is very low. It should have been 17 to 18 percent,” said Zahid Hossain, former lead economist of World Bank, to the Business Standard.
“The monetary policy is contractionary because Bangladesh Bank has set 12.5 percent money supply growth target. 14.2 percent is the nominal GDP growth target now,” he added.
BB termed the monetary policy, unveiled on Wednesday, for the current fiscal year “cautiously accommodative."
The private sector credit growth ceiling has been brought down 1.7 percentage points to 14.8 percent. In the FY19, it was 16.5 percent.
BB claims that the monetary policy gives scope for providing adequate supply of quality credit to support the growth and inflation targets.
The monetary policy has not addressed the financial and stock market risk, said Zahid.
“In recent years, the crisis in financial market, including NPL, loan rescheduling and writing off, has not been addressed in the policy.”
The Monetary policy could be useful to keep inflation in control but not to stabilize financial market and exchange rate, commented Zahid.
“14.8 percent private sector credit growth is not achievable now,” said Ahsan H Monsur, executive director, Policy Research Institute (PRI).
The 24.3 percent public sector credit growth target will not affect private sector credit. The government will get it from BB through treasury bond, he added.