Price For Uncheck Spending

Amid growing concerns,NPL keeps rising. Goods pile up due to ongoing fighting. Lack of credit and weak consumer activity Hit hard a firm's profitability.

Costs of high deficits are shockingly visible. Chaos in financial institutions provoked by Non Performing Loans(NPL) could be one of those. For a long time,I have not seen commercial banks’ ad in media on consumer loans. The obvious reason is that govt borrows money heavily from these banks,leaving little for private investors to finance their projects.

These big loans,distributed often by political or evil motives and not by project's rate of return or other technical parameters, were supposed to yield good return.However, they ended up in wrong hands and yet to go back to the banks' coffers. Their failed performance earned them the name NPL.

Last week,a news report says one of the conditions set forth by IMF is that NPL,which is 28.66% of total credit, should be lowered to 10% within the next two years(Source:“Khelapi Rin Komatey Hobey DUI Bochhorey(NPL Should Be Lowered In Two Years)”,Fakhrul Islam,Daily Prothom Alo,P-1,November 22,2022).This is an uphill task and in an election year a difficult task to comply. In fact,NPL keeps rising. Nevertheless, govt is optimistic about improving the situation by June next year.So everyone is wondering how govt could lower NPL to that desired level.

Meanwhile, interest rate rise,war in Ukraine have raised uncertainty and deteriorated financial positions of many firms. In Chattogram,exporters reported delay in shipments,increase in stocklot and low workorder.Some exporters have been stocking their items for more than 3 months(Source:"Gudamey Jomchhey Ponno,Dushchintao Barchhey(Stocklot Increases In Warehouse, Worry Grows)”,Masud Milad and Shuvonkar Karmakar,Daily Prothom Alo,P-9,November 25,2022). This delay in shipments and cancellation of orders have the risk of putting them into precarious position.

Though lending rate is hovering around 9% officially,central bank last week nodded to a rate of 12% for new lending,which is a bit high amid low consumer activity.There are reports that more and more consumers bank on savings to cope with the rising cost of living.

Despite official projection of a lowering inflation,price levels at the consumer level have yet to reflect it. News of arrival of wheat ships from Turkey or rice cargo from Myanmar and Vietnam have yet to lower the prices of wheat.Rising oil price and ongoing war on Ukraine used as pretext to raise the price of wheat in short span of time.When oil price has come down to $80/barrel and grain ships keep coming,prices of essentials are not coming down at the same pace.

Slash in consumption and inadequate credit,which is hard to access,for private sectors hint that rejuvenation of economic activity will not be easier. In this context,it is not clear how the government intends to curb on NPL. It is evident that ordinary people and honest investors pay the price for unregulated spendings in the past few years.

Winter Is Coming!

Showroom, school fill empty factory space,
Vans with sold-out machine rob smile from owner's face.
Vibrant street market becomes thinner.
Winter money making comes under scanner.

1.
The pockets of textile/garments zone of Dhaka have become quiet. I am a frequent visitor to one such pocket. I see rickshaw vans flank the key road of that textile zone. Vegetable vendors, fruit sellers, utensil sellers, snack vendor, mobile beautybox sellers shout cheap prices for their articles at the rushing column of garment workers going home in a hurry to prepare the meal before they go to bed.

Nowadays that column becomes thinner, so does the number of shouting vendor.But this time around the winter, factories are packed with workers to make sure owners deliver the goods in time to super stores and brands in western hemisphere.And the street I am talking about is abuzz with people giving an aura of village fair. That is gone. A subdued activity occupies the street instead. Something bad is happening.The virus attack is unleashing its ugly face on Bangladesh's hard earned currency.

Across the street, arrays of grocery shops also catch the sombre mood. Months after months, shop owners lent workers rice, lentils and other essentials, hoping in good time they would be able to clear the dues.But the good time is still at the far end of the tunnel. Many lost jobs. Many found it difficult to pay the rent of the room they coshared with others. Landlord's patience worn thin.Some vacated house and left for the village or the mofussil district. Vibrant street market goes quiet, it will be quieter in the weeks down the line.

2.
More than a week ago, president of Bangladesh garments exporters' platform, BGMEA, wrote a letter to the government seeking moratorium on credit repayment. In the wake of COVID-19 crisis, government unveiled a Tk 50 billion credit package, which later rose to Tk 91.88 billion,for the garments sector to pay the salaries of the workers provided that six months later exporters would start repaying the instalment.In January, rebate on repayment ends. Since end of November,second wave of COVID-19 has been sweeping across the European and North American countries. First wave already cost 18% less export in the previous fiscal year, a news report claims. Current fiscal year started with optimism.However, some of the big retailers and brands that regularly imported clothes from abroad went bankrupt. The names include Primark and Debenhams. Local staffs of Debenhams Bangladesh even held press conference demanding their dues.

Major destinations of Bangladeshi exports also portray a grim picture: there is a surge in job cut in US in December; UK has gone into lockdown; France has shut all retail stores but the ones selling essential items; Germany has declared lockdown till 31st March. Shrinking income does not translate into buying more clothes. And social security benefits are never used in buying clothes. When uncertainty grips , people save money,slash consumption. More bad news and bad times coming for Bangladeshi exporters.

3.
In the first two quarters of current fiscal year,Bangladesh has exported $19.23 billion worth of goods, according to a news report. The sum is 36% lower than what it exported in the previous year. Lockdowns during the second wave will make further dent in the earnings. Since demand for Bangladeshi apparel items depends a lot on foreign household spending , significant reduction in foreign household income and consumption inevitably augurs ill for Bangladeshi apparel items.

Government support package so far is restricted to clearing the salaries of the workers. Even it is not controversy free. Sporadic protests were staged across the industrial areas, hinting irregularities in the salary payment through mobile financial service.

When it comes to supporting the initiative of creating demand for Bangladeshi apparel goods, government did little.In one of my earlier pieces, I elaborated how to create demand for Bangladeshi goods at home and abroad.Our annual development program (ADP), PM's relief fund could easily support development projects in other friendly countries. If our development program could accommodate uniform purchase program for police, school children in foreign countries or road building projects in other countries then demand for Bangladeshi goods will be created.By increasing the reach of our ADP program, we explore new markets where Bangladeshi goods have potential to enter.

By the same token, government can finance purchase of school dress for 50 million school children in Bangladesh. Or, it can provide incentives to government employees to buy Bangladeshi shirts. This indirect incentive will keep running the factories for at least couple of months and will help easing the employment crisis.

4.
Nowadays I catch sight of vans carrying sold-out electric sewing machines on far too many occasions. Orders are drying up. Factory owners, the ones work as subcontractors, are going out of business. They are selling their equipments. Empty factory buildings in some part of Dhaka are turning into school, private clinic or showroom for home appliances.Some remain empty.

For the winter vegetable sellers on that partly-dark, partly-bright street , there are not too many workers left to shout at. Cheap vegetables remain unsold.Bad time is really contagious. The industry that sustains the economy, logistics company and financial institutions is finally showing signs of weakness. In all these years, winters mean making money. Now, winter is really coming for Bangladeshi RMG industry!