Default loans pose risk, economic sector needs overhauling
THE International Monetary Fund on Friday said the rising defaults on loans poses the biggest risk for the Bangladesh economy that stands to grow at a remarkable pace. As of June, the total defaulted loan in the banking sector was Tk 1,12,425 crore, up 19.71 percent from December last year, according to data from Bangladesh Bank. The percentage of defaulted loans is around 11 percent, means a good amount of fund was not paid back to the banking sector. For this reason, the country's private sector is not getting required loans, the IMF observed.
Anne-Marie Gulde-Wolf, Deputy Director of IMF's Asia Pacific Department said the high level of defaulted loans is "a very big issue" for Bangladesh and the trend will have to be arrested to ensure future growth. She singled out the state banks, which are saddled with high levels of defaulted loans. This has narrowed Bangladesh's capacity to give out credit to businesses that required an urgent improvement in corporate governance in state banks.
Economic reforms are essential to make the Bangladesh economy more vibrant and ensure the ongoing trend of growth in the years ahead. In its recent edition of the World Economic Outlook, the IMF upgraded Bangladesh's growth projection for 2019 from 7.3 percent to 7.8 percent, the third highest in the world. As Bangladesh has been enjoying a good GDP growth for the last few years, financial sector's sluggishness lagged the country behind.
The IMF forecast that the trend will continue this year as the country saw a notable foreign direct investment flow in recent months. Furthermore, the ongoing global trade tensions did not have a negative impact on the Bangladesh economy. Rather, it had a quite positive impact on the economy in the form of trade diversion. Bangladesh needs to reform the entire financial and banking sector to accelerate the growth sustainably.