2AtiurRahmanPresentationCompatibilityMode.

(1)

(2)

C

ontents:

The impacts of global financial crisis on Bangladesh’s

I. financial Sector

II. real sector

Challenges for the economy

Crucial needs in avoiding prolonging of a recession

People-focused interventions

Measures initiated by the Government and the

Bangladesh Bank

(3)

Expressing at the outset my heartfelt

thanks to Bank Indonesia for offering

me the privilege of attending this

important seminar, let me begin with a

few words on how Bangladesh has

how Bangladesh has

fared thus far in the global financial

tsunami and the recession it triggered

tsunami and the recession it triggered.

(4)

I

mpacts on Domestic financial market..

Because of the limited openness of Bangladesh

economy particularly to short term capital flows, the

domestic financial market has remained free of toxic

assets and contagion from the global financial

tsunami.

Outflows from the modest non resident equity

holdings in local stock markets remained moderate,

and the decline in stock price indices were much

(5)

Monetary Aggregates (y-o-y growth in percent) June

June 08

March 08

March 09

Total private sector credit increased by taka 296.5 billion at the end of March 2009 compared to end March 2008 but growth of credit in this sector slowed a bit…

1. Net foreign assets 49.42 15.07 25.67 12.13 2. Net Domestic assets 12.57 18.08 13.93 21.13 Domestic credit 14.39 21.83 18.43 18.74 Credit to the public sector (incl. Govt.) 12.43 11.87 10.47 20.52

Credit to the private Sector 15.01 24.94 21.16 18.18 3. Broad Money (M2) 17.06 17.61 15.51 19.82

(6)

Liquidity position of the banks

(in billion taka)

Total liquid assets

Required liquid assets

Excess(+)/shortfall(-) of liquid assets

30 June 2007 448.41 305.62 142.79

(7.53)

30 June 2007 483.82 353.93 129.88

(5.92)

16 April 2009 661.61 414.98 246.62

(9.57)

Note : Figures in the parentheses indicate excess liquid assets as percentage of total deposit liabilities of the banks.

(7)

Liquidity and credit availability remain normal,

with no episode of any bank run or credit

crunch.

Rather than themselves needing to be bailed

Liquidity and Credit Conditions in Banks

Rather than themselves needing to be bailed

out, banks in Bangladesh are in a sound

banks in Bangladesh are in a sound

position to help the real economy

position to help the real economy cope with the

fallouts of global recession triggered by the

(8)

I

mpacts on the real economy…

Selected Indicators (y-o-y growth in percent)

FY06

FY07

FY08

(July-March)

FY09

(July-March)

March) March)

Export

21.6

15.9

12.3

12.4

14.5 Import

12.2

16.3

26.1

23.9

12.4 GDP

6.6

6.4

6.2 -

5.9*

Note : FY = Financial year (July-June). * Projection for the year.

(9)

(

Contd

.)

20 25 30

Growth of export and import

0 5 10 15

FY06 FY07 FY08 FY09

(July-March)

rce

(10)

The impact of global economic recession

on the real economy has so far remained

moderate.

Export growth has slowed somewhat, but

(Contd.)

Export growth has slowed somewhat, but

is still in double digits (14.5 percent y-o-y in

the first three quarters of FY09), thanks to

sustained growth in apparels exports.

(11)

(

Contd

.)

Domestic demand has also upheld well in

FY09, with good output response in agriculture

and manufacturing.

Real GDP is projected to grow by 5.9 percent in

FY09, against the 6.2 percent growth of FY08.

A declining trend in capital machinery imports

in FY09 signals slack in investment momentum

however, with implication for growth, going

(12)

Selected External sector Indicators

(in million US dollar)

FY07 FY08 FY08 (July-March)

FY09 (July-March)

Workers’ remittance 5979 7915 4841 6148*

(Contd.)

Current account balance

936 672 299 816

International reserves

5077 6149 5303 5872**

*Worker remittances for July-May, 2008-09 period was US$8765 million ** International reserves stood at US$6764 million on June 8, 2009.

(13)

Migration of workers to job markets abroad has

slowed, and there are sporadic episodes of return

of laid off migrant workers. However, workers’

remittance inflows are still buoyant, growing 22.4

percent y-o-y in first eleven months of FY09.

(Contd.)

BOP current account balance and overall balance

are in a surplus over the past nine months resulting

in an improvement in the international reserves.

In the foreign exchange market, taka US dollar

exchange rate has remained stable.

(14)

C

hallenges for the economy…

Unless the global economy recovers rapidly, FY10 is

likely to be more challenging for the Bangladesh

economy:

Export growth may further fall with some redundancies

in the export production sectors;

return of migrant workers laid off in recession-ridden

host countries may continue;

Workers’ remittance inflows and investment

momentum may weaken, dampening domestic

demand and output.

(15)

Even with the recent sustained stock

price gains in global markets signaling

some positive outlook for global recovery

(Contd.)

some positive outlook for global recovery

in H2 FY10, observers are projecting a

slower FY10 real GDP growth of around

5.5 percent for the Bangladesh economy.

(16)

C

rucial needs in avoiding prolonging of a

recession…

Basic subsistence safety net and opportunities of

alternative employment for the laid off workforce

are crucial needs in avoiding prolonging of a

recession.

While sounding self evident, the need for primary

focus on people hurt by failures of markets and

institutions often lose out to the clamors for

(17)

(

contd

.)

Prompt interventions helping the laid-off workforce

and other vulnerable population segments may

restrain downslide of domestic demand; whereas

deploying all resources for hurried bailouts of failed

markets and institutions can encourage temporary

quick fixes rather than the needed more fundamental

reforms, leaving seeds of future instability while also

prolonging human distresses from recession.

(18)

P

eople-focused interventions…

The government and the central bank (Bangladesh Bank) in Bangladesh are committed to people-focused interventions; co-opting initiatives of the financial system including

microfinance NGOs.

About a third of the government's annual budgetary outlays are typically allocated for pro-poor social sector expenditure including safety net programs for the weak and vulnerable population segments, and also for financing self-employment loan programs of nominated microfinance NGOs.

(19)

(

contd

.)

Despite resource constraints, the still rudimentary

social safety net programs are being expanded

steadily in coverage.

With the looming risks from global recession, the

FY10 budget will provide substantially larger

allocations for programs of income support from

temporary jobs in maintenance and expansion of

rural and urban public infrastructure.

(20)

(

contd

.)

SMEs being typically less capital intensive and short gestation options for creation of new employment and output, the financial sector in Bangladesh (including microfinance NGOs) is extensively engaged in

financing SMEs, supported by refinance from the Bangladesh Bank (BB).

MDBs like the WB and ADB are also co-financing the refinance pool in BB.

(21)

Credit to SME sector by banks and

financial institutions

30 June 2008 31 Dec. 2008 30 March 2009

Outstanding credit to SME sector (in billion taka)

350.37 434.39 757.71

(contd.)

taka)

Outstanding credit to SME sector as

percentage of total outstanding credit (%)

(22)

(contd.)

The government and BB has placed special

emphasis on the agriculture sector in generating

new employment and output;

BB has made engagement in agricultural

financing mandatory for all banks, with refinance

support available if and where needed.

(23)

Trends in agricultural credit

(in billion taka)

Target Disbursement Recovery

FY06 55.4 55.0 41.2

FY07 63.5 52.9 46.8

(contd.)

FY07 63.5 52.9 46.8

FY08 83.1 85.8 60.0

FY09 (July-March) 93.8* 69.1 60.6

(24)

(contd.)

BB has also acted to heighten awareness of corporate social responsibility in the financial sector to promote its spontaneous proactive engagement in programs

helping out population segments hurt by natural

disasters, social iniquities or man made debacles like the current global recession.

(25)

O

ther

ther measures initiated by the Government

measures initiated by the Government

and BB to mitigate global financial crisis…

Safe investment of reserves : In the context of global

financial crisis, BB made arrangement for shifting reserves invested in the international commercial banks to different central banks.

central banks.

Relaxation of loan rescheduling policy : Rescheduling

without necessary down payment has been allowed up to September 30, 2009 on the banker customer relationship for the affected export oriented industries especially Frozen

(26)

(contd.)

Re-fixation of rate of interests: The rate of interest on loan for

financing in the Agriculture, Term and Working Capital Loan to Large and Medium Scale industries, Housing Loan, Trade Financing has been lowered and fixed to a maximum at 13%.

Rationalization of service charges: Bangladesh Bank has issued

necessary instructions for rationalization of different service charges

necessary instructions for rationalization of different service charges received by banks.

Capital adequacy of the banks: With a view to strengthening the

capital base of banks and making them prepare for the

implementation of Basel-ll Accord, banks are required to maintain Capital to Risk-Weighted Assets ratio of 10% at the minimum with core capital not less than 5% effective from December 31, 2007.

(27)

Additional allocation in FY09 : Additional allocation of taka

34.24 billion as fiscal stimulus has been made in the current financial year to support the recession hit sectors as under:

taka 25.50 billion as additional subsidy (of which taka 4.50

(Contd.)

billion to three export sectors namely jute, leather and

frozen food; taka15.00 billion to agriculture sector; and taka 6.00 billion to power sector.

taka 5.00 billion for agricultural loan recapitalization, and taka 3.74 billion for social safety net (food).

(28)

(Contd.)

Lending from the Export Development Fund has already been raised to 150 million US dollar. Single borrower

credit limit from this fund has been increased from 1.0 million to 1.5 million US dollar.

Following special funds under the supervision of BB has

Following special funds under the supervision of BB has been enhanced:

- The SME Fund increased by taka1.00 billion to taka 6.00

billion, and

- The House building Fund increased by taka 2.00 billion to taka 5.00 billion.

(29)

C

oncluding

Remarks

…

People-focused approach in stimulus packages for rapid recovery from recession is more a matter of social sensitivity than of

resources.

We have seen reports of laid-off debt ridden jobless in affluent USA taking refuge in motels and 'tent cities', losing homes in mortgage foreclosures.

mortgage foreclosures.

While West European countries have done much better in ensuring basic shelter and subsistence for their citizenry, and far less

generously endowed Cuba is reputed for the quality of its social safety nets.

Post socialist market economies are yet to come up with anything comparable with their past comprehensive social safety nets; and

(30)

Heightened awareness and discussion of any issue is a pre-requisite in reinforcing the willpower for concrete action

thereon, which is why I wished to raise the issue in this regional discussion forum today.

I would like to conclude with sincere thanks to Bank

Indonesia, for giving me an excellent opportunity to share my views with this august forum.

(contd.)

Indonesia, for giving me an excellent opportunity to share my views with this august forum.

While I am confident that wellwell--designed and properly designed and properly coordinated policies and stimulus packages

coordinated policies and stimulus packages will help global

economy bounce back from Global Recession, let us also

ensure that the population segments which were hurt by the ensure that the population segments which were hurt by the failed markets and institutions do not lose out

failed markets and institutions do not lose out in priority to

(1)

O

ther

ther measures initiated by the Government

measures initiated by the Government

and BB to mitigate global financial crisis…

Safe investment of reserves : In the context of global

financial crisis, BB made arrangement for shifting reserves invested in the international commercial banks to different central banks.

central banks.

Relaxation of loan rescheduling policy : Rescheduling

without necessary down payment has been allowed up to September 30, 2009 on the banker customer relationship for the affected export oriented industries especially Frozen

(2)

(contd.)

Re-fixation of rate of interests: The rate of interest on loan for

financing in the Agriculture, Term and Working Capital Loan to Large and Medium Scale industries, Housing Loan, Trade Financing has been lowered and fixed to a maximum at 13%.

Rationalization of service charges: Bangladesh Bank has issued

necessary instructions for rationalization of different service charges necessary instructions for rationalization of different service charges received by banks.

Capital adequacy of the banks: With a view to strengthening the

capital base of banks and making them prepare for the

implementation of Basel-ll Accord, banks are required to maintain Capital to Risk-Weighted Assets ratio of 10% at the minimum with

(3)

Additional allocation in FY09 : Additional allocation of taka

34.24 billion as fiscal stimulus has been made in the current financial year to support the recession hit sectors as under:

taka 25.50 billion as additional subsidy (of which taka 4.50

(Contd.)

billion to three export sectors namely jute, leather and

frozen food; taka15.00 billion to agriculture sector; and taka 6.00 billion to power sector.

taka 5.00 billion for agricultural loan recapitalization, and taka 3.74 billion for social safety net (food).

(4)

(Contd.)

Lending from the Export Development Fund has already been raised to 150 million US dollar. Single borrower

credit limit from this fund has been increased from 1.0 million to 1.5 million US dollar.

Following special funds under the supervision of BB has Following special funds under the supervision of BB has been enhanced:

- The SME Fund increased by taka1.00 billion to taka 6.00 billion, and

- The House building Fund increased by taka 2.00 billion to taka 5.00 billion.

(5)

C

oncluding

Remarks

…

People-focused approach in stimulus packages for rapid recovery from recession is more a matter of social sensitivity than of

resources.

We have seen reports of laid-off debt ridden jobless in affluent USA taking refuge in motels and 'tent cities', losing homes in mortgage foreclosures.

mortgage foreclosures.

While West European countries have done much better in ensuring basic shelter and subsistence for their citizenry, and far less

generously endowed Cuba is reputed for the quality of its social safety nets.

Post socialist market economies are yet to come up with anything comparable with their past comprehensive social safety nets; and governments in recession ridden host countries have generally

(6)

Heightened awareness and discussion of any issue is a pre-requisite in reinforcing the willpower for concrete action

thereon, which is why I wished to raise the issue in this regional discussion forum today.

I would like to conclude with sincere thanks to Bank

Indonesia, for giving me an excellent opportunity to share my views with this august forum.

(contd.)

Indonesia, for giving me an excellent opportunity to share my views with this august forum.

While I am confident that wellwell--designed and properly designed and properly coordinated policies and stimulus packages

coordinated policies and stimulus packages will help global

economy bounce back from Global Recession, let us also

ensure that the population segments which were hurt by the ensure that the population segments which were hurt by the