The questions unanswered

The Monetary Policy Statement (MPS) for FY2021-22 was bound to be unconventional as we are not in a business-as-usual year. The policy statement announced by the central bank has rightly recognised Covid-19 as the elephant in the room. No one will also argue against Bangladesh Bank's intentions to pursue an expansionary monetary policy, to provide the required support to small, medium and labour-intensive industries, particularly the most affected ones to bounce back, credit guarantee to CMSMEs.

It was refreshing to see the central bank recognised the need to support the education sector and further deepen financial inclusion for rural areas.

While the broad policy stances were welcoming, a number of critical elements were missing in the statement. These issues are pertinent to fully attain the policy objectives of the announced policy statement.

First, full disclosure as regards the implementation of the stimulus packages could be enlightening. The statement mentioned that as of June 2021, 85.6% of stimulus packages had been implemented. However, the details are missing.

The statement could document what lessons have been learned over the last year (FY2020-21) and what strategies are to be taken in of these during the next fiscal year (FY2021-22). Indeed, a regular full disclosure or reporting of the implementation of stimulus packages has not been considered by the central bank. Let us not forget that these credit schemes are subsidised by taxpayers money, and the people have the right to know detailed information on these.

Second, there is also no separate analysis as regards credit to the private sector outside the announced stimulus packages (which involves subsidised interest rates). This is particularly critical to understand developments in the mainstream credit market. There is also no proper reporting on term loans or private investment situations, a critical vehicle for employment generation and economic growth.

Third, there is also no clarity on the recovery rates of disbursed stimulus packages. Are the borrowers from these schemes able to pay back? Bangladesh Bank needs to provide policy direction on this to the commercial banks.

Fourth, there is also not an adequate discussion on the health of the banking sector. This is critical as the banking sector is the vehicle for implementing monetary policy support to attain the development objectives of the central bank. What is the actual scenario for non-performing loans? Will there be an end to extensions of the loan moratorium? The central bank should be confident that the banking sector is capable of delivering the MPS. The needed good governance in the banking sector cannot be undermined by the central bank as it aims to implement the announced MPS.

Fifth, it is not clear how the central bank sees the prospect of the Covid-19 pandemic in Bangladesh. On this day, very few people may expect a very quick recovery of the infection situation. The central bank will need to be flexible with the changing pandemic situation.

While the central bank's intentions are clear and the broad policy stance is an expected one, the details will perhaps need to be worked out to successfully roll out this monetary policy.

Towfiqul Islam Khan is a Senior Research Fellow at the Centre for Policy Dialogue (CPD)