A new Finance Minister has assumed responsibility for the country's finance division amid a weakening economy marked by high inflation, dwindling reserves, substantial foreign loans, a dollar crisis, an IMF loan, a decline in remittances, and the looming prospect of global challenges in the RMG (Ready-Made Garments) sector exports.
Abul Hassan Mahmood Ali, the newly appointed Finance Minister, will grapple with these challenges as he takes over from AHM Mustafa Kamal, who departs after five years at the helm of this crucial ministry.
"The new Finance Minister steps into a role where there is no room for hesitation. Immediate action is imperative; the urgency is palpable," said economist Zahid Hussain to the media.
However, Mahmood Ali faces the toughest challenge among his peers, given that the economy is undergoing one of the worst periods in recent decades, influenced by both external and internal factors.
High Inflation:
According to Bangladesh Bank data, Consumer Price Inflation (CPI) in Bangladesh stood at 9.42 as of November 2023.
Prices of almost all essential commodities have surged, making it exceedingly difficult for the general population to meet their daily needs. The spike in essential prices has critically impacted the poor and middle-income segments of the country, forcing many to resort to open market sales (OMS) conducted by Trading Corporation of Bangladesh (TCB) trucks to purchase commodities at lower prices.
While curbing inflation is the responsibility of the central bank, the Bangladesh Bank, headed by top bureaucrats for the past seven years, has not implemented effective measures, possibly due to a lack of operational independence or significant influence from government policies.
Dwindling Reserves:
Foreign exchange reserves have plummeted from a high of $41.7 billion in August 2021 to just over $20.18 billion on 10 January. The key reasons for this decline are higher outflows of foreign currencies, coupled with an elevated level of imports against moderate export and remittance receipts.
The prevalence of hundi, meaning remitters' dollars are not entering the country, and capital flight has further contributed to the decline in forex reserves.
Import restrictions imposed by the central bank have led to a decrease in letter of credit (LC) openings, potentially affecting the country’s production capacity.
Instability in Banking Sector:
One glaring failure of the finance ministry in recent years has been the persistent indiscipline in the financial sector. Despite the widening reach of the financial sector with more branches, agent banking outlets, and mobile financial services, irregularities in the financial sector have deepened. Non-performing loans in the banking sector surged to Tk 1,56,039 crore in June, reaching an all-time high.
Faced with scandals, the banking sector's situation turned so dire in the past two years that even many depositors withdrew their funds, leaving banks in a serious fund crunch.
A lack of good governance, relaxed policies by the central bank, political interference, and irregularities have largely contributed to the upward trend of non-performing loans. However, the finance ministry has not taken significant steps to halt the accumulation of distressed assets. Wrongdoers in the non-bank financial sector, insurance sector, and capital market have not been held accountable.
Moreover, the Bangladesh Bank does not have full control over state-run banks, which hold the majority of bad loans.
Low Earnings in Revenue:
Another major failure for the finance ministry has been the inability to raise enough taxes to sustain government operations without resorting to borrowing. This situation has limited the country's flexibility to spend when needed the most.
For the 11th consecutive year, the National Board of Revenue has missed its tax target, leading the government to turn to the central bank and commercial banks to meet the budget deficit. However, such borrowing has fueled inflationary pressures and crowded out the private sector.
Crisis in the RMG Sector:
The Ready-Made Garments industry in Bangladesh faces several challenges, including rising labor costs, intensified competition from low-cost nations, and the imperative to improve working conditions and sustainability practices, as reported by LightCastle Partners, a prominent national management consulting firm.
The RMG industry is expected to undergo a significant transformation in trade benefit regimes by 2029 as the GSP moratorium ends, coinciding with Bangladesh's LDC graduation in 2026.
According to the World Economic Forum's Global Risk Report 2024, top executives in Bangladesh perceive energy shortages, elevated inflation, economic downturn, growing inequality, mounting public debt, and unemployment as major challenges in the next two years.
According to the World Bank, the country's Gross Domestic Product growth is projected to slow to 5.6 percent in 2023-24. If this forecast materializes, it would represent the lowest economic expansion in over a decade, excluding the Covid-impacted 2019-2020 period.
The new Finance Minister must propel the economy towards higher growth, steering it from the current downward trend to position Bangladesh as a higher-middle-income nation by 2031 and a developed nation by 2041.
Who is the new finance Minister:
Abul Hassan Mahmood Ali held the position of Foreign Minister from 2013 to 2019 and also served as the Minister of Disaster Management and Relief from 2012 to 2013.
Born on February 6, 1943, in Daktarpara, Khamar Bishnuganj (Tangua Post Office), Khansama, Dinajpur, Ali completed his BA with Honours in 1962 and earned an MA degree in economics the following year from Dhaka University.
From 1964 to 1966, he served as a lecturer in economics at Dhaka University.
In 1966, Ali joined the erstwhile-Pakistan Foreign Service and was posted as the Vice-Consul of Pakistan in New York City in 1968.
During the Bangladesh Liberation War in April 1971, Ali actively participated and was appointed as the representative to the United States from the provisional government of Bangladesh at Mujibnagar in May 1971.
