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Atiur-Rahman-33On December 30, 2014 Bangladesh Bank issued a brief overview of the Bangladesh economy in 2014. Here I would like to dwell, in somewhat greater detail, on the economy’s attainments in 2014 and its prospects in 2015.

In 2013, normal economic activities suffered substantial disruptions from blockades and hartals during political unrests in the run up to national elections, and uncertainties in investment and output activities loomed large in worries about prospects for 2014. The government and Bangladesh Bank took various supportive steps to keep the wheels of economy in motion. These steps and the post-election restoration of stability quickly restored momentum back into investment and output activities in 2014. Financial sector indicators in 2014 have shown mixed trends, but with significant improvement on many counts.


Bangladesh Bank adopted pragmatically cautious but output friendly monetary and financial policies supportive of the country’s inclusive growth aspirations. Inclusive financing helped uphold broad-based domestic output activities, and incremental employment and income followed. Signs of recovery in investment momentum showed up clearly in the later quarters of 2014, with the Taka and US dollar liquidity overhang in the local market being used up and BOP current account balance turning round to negative.

Increase in output in step with increasing demand has helped keep inflation low and declining. Exports and remittance inflows have taken foreign exchange reserves to a record new height. Lending interest rates have remained on slow but clear declining trend. Movements of trends in social sector indicators including poverty incidence, life expectancy, per capita income etc. are in the desired positive direction.

Macroeconomic Trends

Resilience is one of the great characteristics of our people.

Annual real GDP growth rate has reached 6.12 percent in 2013-14 from 5.14 percent of 2008-09, averaging 6.14 percent over last five years. In 2014-15, this growth rate can be expected to exceed the 6.12 percent level by a substantial margin, subject to continuation of the current stable environment.

The 12-month average CPI inflation has come down from 7.7 percent of end-June 2013 to 7.4 percent by end-June 2014 and to 7.1 percent by end-November 2014, in trend of steady decline. Imports have risen to $37 billion in 2013-14 from $23 billion of 2008-09, with around 10 percent annual average growth over the last five years. For 2014-15, import growth is projected to be over 10 percent. Strengthening growth trends in import of capital machinery and production inputs in the latter half of 2014 have created the platform for stronger growth in output activities over the coming months. Export earnings amounted to $30 billion in 2013-14, against around $16 billion in 2008-09. Export growth is likely to remain modest (in single digit level) in 2014-15, due to sluggish demand in European and North American markets. Workers’ remittance inflows reached $14 billion in 2013-14, against $10 billion of 2008-09.

Based on current trends, growth in remittance inflows in 2014-15 is expected to exceed 10 percent. Sustained growth in exports and remittance inflows have driven phenomenal rise in foreign exchange reserves, the current balance exceeding $22 billion is enough to cover about seven months’ import requirements. The reserve build up has kept the Taka strong and stable in exchange rate, at levels somewhat below Tk 78 per US dollar in the interbank market. Increase in real income of the population has raised per capita GNI to $1,190 by end June 2014, doubling over the last six years. Daily wages of a day labourer can now buy 10-11 kg of rice, against at most 3 kg six years back. With daily consumption need of around three kg, the day labourers can now use the rest of their income on various other needs. Their standard of living has thus improved substantially.

Banking sector

The capital base of the banking sector has been strengthened as a result of transferring a big portion of banking profits into capital. The banks were able to preserve 11 percent of risk weighted assets as capital. At the end of 2008, the amount of reserve capital stood at Tk 210 billion ($2.7 billion), which climbed up to Tk 650 billion ($8.33 billion) in September 2014. Classified loans stood at 10.8 percent of the outstanding loans in 2008. The figure rose to 12.8 percent in 2013 and then slid slightly down to 11.6 percent in the third quarter of 2014.

Taka-33Actually new rules of loan classifications satisfying the global standard has pushed the figures up. Bangladesh Bank sees these figures as hazardous and has already taken some corrective measures to clamp down on classified loans. We hope to see their descent soon. Banks have to take strong measures to recover these loans and if not, take hit in their balance sheets for these irregularities. Bangladesh Bank will not be lenient in this regard. While the cases of the credible borrowers with potential for better businesses will be reviewed, the central bank will not hesitate to take any stern measures against the habitual defaulters and bad borrowers with a track record of persistent delinquencies.

Bangladesh Bank facilitated investment in both local and foreign currencies. Lending rates are on the downward slide, though slowly. The average lending rate fell by 1 percentage point in a year and came down to almost 12.5 percent in October 2014. The deposit rate has not fallen that much and hence the spread remains around 5 percentage point, whose further reduction is on the agenda.

Private sector credit has grown at 12 percent in 2014 as opposed to 11 percent in 2013. From 2009 to 2014 the country received $6.2 billion as overseas borrowing with lower single digit rate of interest which saw exponential growth in 2014 when almost $2 billion was approved to inflow. The central bank played crucial role in bolstering in this inflow.

Daily wages of a day labourer can now buy 10-11 kg of rice.

Excess liquidity including investment in treasury bills and bonds amounted to Tk 1200 billion ($15.4 billion) in October 2014. But idle money was only Tk 3 billion ($38.4 million). Pressure on liquidity increased around the end of 2014 because of increased demand for capital machinery and industrial loans. Hence, the interbank call money rate, which was softer up to the middle of 2014, began to rise at the end of same year, suggesting the absence of looseness in the money and credit markets. The call money rate on December 23 of 2014 was 8.3 percent. This only means business in picking up of late.

At the end of October 2014, total deposits grew annually at a 13 percent and stood at Tk 6930 billion ($88.8 billion), which is almost 60 percent of GDP. Now the government is taking less amount of loan from the banking sector than before Ñ a sign of improved fiscal responsibility. At the end of October 2014, the government loan from the banking system has increased by only 2.5 percent which was 17 percent in corresponding period one year ago. At the end of September of the current fiscal year, the long term industrial loans stood at Tk 128 billion ($1.64 billion) which was 44 percent higher than previous corresponding period.

Financial Inclusion

In the tradition of the last five years, Bangladesh Bank continued its financing programmes on corporate social responsibility (CSR), agricultural credit, supporting small and medium enterprises, and other environment friendly projects. Besides, the central bank undertook other financial inclusion activities targeted to the low income people of the society. Consequently, domestic demand is on the rise. In September 2014 the number of bank branches rose to 8,849 whose 57 percent are situated in rural areas. The growth of bank branches has been 17 percent over the last five year on average.

The central bank has implemented a system of 10-Taka account opening for the farmers, hapless freedom fighters, garments workers, and the poverty-stricken people. This system has created a renaissance in the history of banking. The total number of accounts under this program has risen to as high as 14.3 million whose 70 percent belong to farmers. This programme has been extended to the distressed street children who work for survival in 2014. We have also undertaken a refinancing scheme of Tk 2 billion ($26 million) for the 10-Taka account holders. 31 banks have signed an memorandum of understanding to avail this fund. Another inclusion program called ‘School Banking’ registered 800 thousand account holders whose total amount of deposits stood at Tk 6.12 billion ($78.5 million) in September 2014.

The 10-Taka bank account programme was extended in 2014 to distressed street children who work for survival.
The 10-Taka bank account programme was extended in 2014 to distressed street children who work for survival.

The amount of agricultural loans disbursed in 2008-09 was Tk 93 billion ($1.2 billion), which rose to Tk 160 billion ($2.1 billion) in the last fiscal year, displaying 12 percent growth. Previously sharecroppers were not eligible to borrow from the banks. To address the issue Bangladesh Bank undertook a special project of Tk 5 billion ($64.1 million) to extent the credit facilities to the deprived sharecroppers. Over the last five years, Bangladesh Bank has given Tk 15 billion ($192.3 million) to almost one million sharecroppers across all the districts of the country.

The central bank has expanded SME financing to create new entrepreneurs and employment opportunities in addition to empowering women. During the period from 2010 to 2014 we have extended SME loans of Tk 3340 billion ($42.8 billion) to 2.2 million entrepreneurs whose 5 percent represents women. In addition, 15 percent of SME refinancing facilities have been devoted to form the ‘Women Entrepreneurship Fund.’ The SME loan program has provided Tk 500 billion ($6.4 billion) to more than 250 thousand new entrepreneurs who in turn created around 1.5 million new employment opportunities.

Mobile financial services, an innovation of the central bank, brought a new revolution in electronic transactions of inland remittances. The number of accounts under mobile banking has doubled in one year to reach the figure of 23.3 million. 19 banks have been servicing this program through their 519 thousand agents. The working people of urban areas can now remit their income to their family members living in rural areas through the system of mobile banking which records transactions of more than Tk 3 billion ($38.5 million) per day. The central bank has been laurelled the ‘Alliance for Financial Inclusion Policy Award’ in 2014 for its policy support to mobile financial services.

Agricultural loans have grown by 12 percent from 2008-09.

Bangladesh has started a new fund in the name of ‘Green Banking’ consisting of Tk 2 billion. The objective of the fund is to encourage the projects of renewable energy and environment friendly initiatives. Tk 1.64 billion has been refinanced from this fund up to November 2014. We have formed another fund of Tk 4 billion under the financing of the Asian Development Bank to the environment friendly brick fields. In 2014 the central bank initiated ‘Agent Banking’ to spread technology based banking service to each and every corner of the country. So far we have approved five commercial banks to shoulder the service of Agent Banking.

Bangladesh Bank has inspired all financial institutions to participate in CSR programs. The initiative amounted to Tk half a billion in 2009, and it augmented eight times in the last five years to reach almost Tk 4.5 billion ($57.7 million). Under the new guideline of the central bank, 30 percent and 20 percent of total CSR expenditure has to be spent for education and health, respectively. Punitive steps will be taken should any CSR expenditure sponsors terrorism or violence. Anti-money laundering drills will be fully enforced in such cases. We have also established a new initiative called ‘Bangladesh Bank Disaster Management and Social Responsibility Fund.’

Digitisation and Smart Banking

Expanded SME financing has created new entrepreneurs and employment opportunities in addition to empowering women

The central bank has been endeavoring to develop itself as a fully digitised institution to support the government’s dream of building a ‘Digital Bangladesh.’ A big portion of banking services have also been digitised. Almost 90 percent banking services nowadays are technology based. The examples include online CIB (Credit Information Bureau) services, automated clearing house, the electronic fund transfer network, e-commerce, and internet banking while RTGS (Real Time Gross Settlement) remains in the queue. Liberalisation has been scaled up for foreign exchange transactions related to foreign travel, training, education, treatment and so on. A foreigner and non-resident Bangladeshi now can easily open and operate foreign currency accounts. The size of the Export Development Fund has been increased to $1.5 billion. Any foreign professional now can carry out all transaction services such as hotel booking, payment of charges, various fees, purchase of software and apps through international credit cards. Even ordinary people who do not hold international credit cards can avail these services of online payments and purchases.

Strengthening Supervision

The central bank has taken various steps to improve supervision so financial frauds can be minimised if not eliminated entirely. Digital technology has been deployed to investigate big financial transactions and loans in order to stop the repetition of banking irregularities. Electronic dashboard is an example in this regard.

Bangladesh Bank is devoted to improve financial stability in the economy through development and inclusive programs across the board. As a result, in the face of recession in Europe, America and Japan, and domestic political maelstrom, Bangladesh has continued its economic success without deviation. Recently, the IMF has termed Bangladesh’s economy as ‘Stable’ and has labeled the financial sector as ‘Strong.’ If internal demand, which has begun to stimulate in the later part of 2014, is continued in the same pace through 2015, it will not be hard to achieve a growth rate of 6.5 percent or more. Some risks, however, still remain for three reasons. These include the new pay scale, the possibility of oil price hike because of political tension in the Middle East, and finally, the demand pull impact on the price level because of output growth. Bangladesh Bank will keep these risks in mind and design the upcoming monetary policy accordingly so the targeted 6.5 percent inflation is achievable.

In the face of recession in Europe, America and Japan, and domestic political maelstrom, Bangladesh has continued its economic success without deviation.

The economy had some scopes of improving infrastructure and mobilising revenue which should be addressed in 2015. Different ministries will enjoy the reduction in the deficit of their budget programs owing to a fall in oil prices. But it should not entail a room of complacency. Rather, revenue collection has to be enhanced to support the ever-augmenting government investment and expenditure. We need further revenue income to support the building of the mega projects such as the deep seaport, four-lane highways of Dhaka-Chittagong and Dhaka-Mymensingh routes, and the metro rail and many other large infrastructures. The National Board of Revenue can be digitised and strengthened to expedite revenue collection. Attention must be given on the development of power and energy. Traffic congestion must be addressed with priority, because the megacities work as ‘Growth Centers’ for an emerging economy like Bangladesh.

Additionally, Bangladesh Bank will help boost investment confidence by improving banking governance. One of the main targets of the financial sector will be to increase the purchasing power of the lower and middle income people. The way the external sector is performing convinces us that macro stability in 2015 will be improved to a greater extent.

Resilience is one of the great characteristics of our people. They have the capacity to adjust any adverse situation and to stand up again and again. This is the main strength of our nation, and we got its testimony many a times in the past. For example, Bangladesh achieved a growth rate over 6 plus percent even in FY2014 after facing all political odds during 2013 and also by nullifying all negative comments of the foreign agencies about our prospects. If stability prevails, our upward trend in growth will become a shining example to the globe as most countries are now experiencing uncertainties, particularly in terms of their tumbling foreign exchanges. But Bangladesh currency remains strong and stable.

I believe our economy will be more consolidated and stable in 2015. Happy new year!


Dr. Atiur Rahman is the governor of Bangladesh Bank.

Atiur Rahmanis an economist and a former governor of Bangladesh Bank.

One Response to “Towards strength and stability”

  1. Farhad Faisal

    Given the prevailing international economic climate and the internal political weakness, it is an impressive progress report. It shows a significant increase in growth for 2014, after a weak 2013. More significantly it affirms the continued positive growth trend of the national economy around 6 percent for the last several years. The BB and its dynamic leadership deserve our praise for their numerous innovative and proactive contributions towards facilitating this growth. Can the nation come through the bottleneck that prevents its potential for a two-digit growth rate next?

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