‘Be careful, don’t be afraid’: Advice from StanChart CEO Naser Ezaz amid economic jitters

As a numbers-focused career banker, the multinational bank’s chief operating officer in Bangladesh was keen on the country’s current rating that outperforms its SAARC neighbors, thanks to its better economic management.

“We are not at the level of Sri Lanka, or even Pakistan. And I’ll tell you why. Internally, Sri Lanka and Pakistan have been observed by Standard Chartered Bank for some time. What is happening there did not happen overnight. The writing had been on the wall for some time. You talk to all the rating agencies, and they will tell you. Today’s situation has not happened in three months, six months or even a year.

Ezaz also doesn’t see the ongoing devaluation of the taka as a bad sign. Instead, he argues that factors such as the impact of devaluation on the economy and the manner in which devaluation is carried out must be considered to achieve the “optimal level” of devaluation depending on the state. current economy.

“A significant devaluation will have an impact on inflation. But, on the other hand, it will help exporters. So this is a model that we ran to find the optimal level. This is where the real effective exchange rate is. This does not necessarily mean that devaluation is bad per se. It’s about how it was done and how it affected the economy. That’s where you have to strike a balance,” Ezaz said.

ON EXTERNAL DEBT

Ezaz is optimistic about the direction Bangladesh is headed in terms of external debt, saying the country’s current economic ecosystem gives Bangladesh an extra cushion to fall back on if it decides to borrow more money from sources. exterior.

“External debt relative to GDP [gross domestic product] ratio for Bangladesh was quite low compared to other comparable economies. When I talk about external debt, I mean foreign currency debt, because, you know, any economy faces a bigger challenge when you have foreign currency debt. The local currency that you can print. You may have inflation, but you won’t have a supply crisis. But when you don’t have foreign currency, that’s where the problem starts,” he said.

He also drew external debt comparisons with Pakistan and Sri Lanka and highlighted three major facts: most of Bangladesh’s external debt will mature in 2057, its debt has a lower interest rate, which is 1.35%, and the amount of debt service, which is $2.5 billion to $4 billion over the next two years, is manageable.

In Bangladesh, total public debt stood at $148 billion in fiscal year 2021, or about 41% of gross domestic product, with external debt amounting to $62 billion, or 18% of GDP.

“Bangladesh started out with, I think, around 16% foreign debt to GDP. It has increased by a few percentage points. But as the economy picked up, it was collapsing. So I think that gives Bangladesh a little leeway to absorb some of the shock through additional borrowing and still hold its own.

While he agrees with government measures to clamp down on non-essential imports, non-essential travel and strict limits on spending on development projects, Ezaz warned policymakers to educate people about their “behaviors irrational,” such as hoarding dollars or pausing imports, which he says creates unnecessary “panic” in the market.

“We need to be careful, but we don’t need to be afraid. Because if you do, you risk panic buying. You see people don’t sell dollars, they don’t import things now.

“All these irrational behaviors will only make the situation worse. The way interventions are carried out may not add value immediately, but it will likely have a long-term beneficial effect,” he said, advising people to understand and assess the situation, and to act methodically.

Naser Ezaz does not see the ongoing devaluation of the taka as a bad sign

ON INFLATION AND ITS IMPACT

Ezaz, however, does not deny that Bangladesh is more integrated into the global economy than before and is under pressure due to soaring commodity prices in the global market, which has created a gap in the balance of payments.

Economic activity increased in the first quarter of the year, impacting the financial sector, export growth, import growth and the economy.

“Now, with the war between Ukraine and Russia, there is clearly additional pressure on commodity prices, which has had an impact on the balance of payments and on the current account deficit. Bangladesh n “It’s not a one-size-fits-all situation – I think it’s quite common for many countries. Every country will have its share of additional headwinds due to the global situation,” he said.

When Ezaz was asked if he thought the government’s protectionist interventions were enough to overcome the lingering sluggishness in the economy, he recommended bringing the foreign exchange conversion cycle for the Export Development Fund back to previous six months from the current year, which was introduced to give exporters some breathing room during the pandemic era, so that the gap between foreign exchange inflows and outflows can be narrowed .

He also praised several recent finance ministry mechanisms, such as controls to prevent people from buying excess savings certificates, which typically inflate interest spending in the budget, and the introduction of a central treasury account that balances state income and savings. companies held by their debts and prevents them from developing unnecessarily.

He also sees little reason to worry about the rising price of imported fertilizer due to the ongoing war in Europe, as the item is already heavily subsidized for sale in the local market. He agrees, however, that soaring fertilizer prices could force the government to borrow more.
Ezaz, however, believes that a balance must be found between demand and affordability of energy prices, especially in terms of oil and bulk electricity.

“I think from the perspective of the business community, there is recognition that there is a market factor that drives prices up, but if we increase [energy prices] as far as possible, it will have an impact on the growth of the country and it will have an impact on employment, because everything is linked. So we have to strike a good balance so that we don’t end up having a detrimental effect on the economy,” he said.

Ezaz did not want to delve into the ongoing debate over whether the inflation data released monthly by the Bangladesh Bureau of Statistics paints an accurate picture of the state of the economy, but he did. pointed out that the pinch of inflation on the retail side is taken into account, it may not be the same for a person living in an urban area than for a person living in the countryside.

“You know, if you also look at the inflation basket, the composition of the basket has an influence when you consider and calculate inflation. I don’t have all the details at the moment, but I can tell you at first glance that these factors contribute,” he said.

“Clearly, there is inflationary pressure, it may appear higher in urban areas than in rural areas. So when you get that number, and when you have 68% of the population living in rural areas, the average inflation there will be lower than in the city.

Naser Ezaz sees little reason to worry about the rising price of imported fertilizers due to the ongoing war in Europe

Naser Ezaz sees little reason to worry about the rising price of imported fertilizers due to the ongoing war in Europe

ON REMITTANCE, USD BONDS AND SOVEREIGN BONDS

When asked if he was worried about the growing global trend of declining remittances, Ezaz said, “I think a lot of work needs to be done in terms of refining the certification of prior learning so that we can send more skilled workers abroad. Another thing we need to consider is how we can get non-resident Bangladeshis with white collar jobs to send their money [remittances] return.”

Expanding on the subject, Ezaz said the government needs to raise the interest rate on the US dollar investment bond to make it more attractive to non-resident Bangladeshis, or NRBs.

At the moment, the terms and conditions of these bonds are not favorable to buyers if they compare them to other rates in the international market, he said.

“The NRBs know that if they invest now, it will lock them in for three years. And the opinion so far is that the interest rate [on investment bonds in the international market] in the next two years may increase by 1.5 [percentage points] higher than it is now [2.5 percent], and reached 4%. Why would someone invest and lock in dollars for three years at 2.5-3.5% when rates are going to rise to 4%?

While discussing the possibility that Bangladesh may choose to issue sovereign bonds in the foreseeable future, Ezaz admitted that due to the current economic stagflation, now might not be the best time to issue such bonds. . However, he strongly defended SCB’s position for Bangladesh to open up in principle to sovereign bond issuance as he believes this will reduce the costs of confirming letters of credit as Bangladesh will have more liquidity. on its assets, and this will lead to more foreign direct investment. investment in the country.

“When we talk about issuing sovereign bonds, we are not talking about tens of billions of dollars, we are talking about 1 to 2 billion dollars in a country where you have about 68 billion dollars of external debt and a GDP of $424 billion now Sovereign bonds will create a benchmark price.

Currently, Bangladesh suffers considerably from the brand image of the country. “The only news rated overseas is rather negative as analysts don’t follow Bangladesh closely. If you issue sovereign bonds, all those analysts will start following the market and start generating quarterly reports that will include everything, good or bad. Then you will have more interested investors,” he said.

ON THE PADMA BRIDGE

When Ezaz was asked what economic benefits the soon-to-open Padma Bridge would bring to the economy, the seasoned banker said, “It shows the resilience of the country and honestly a lot of people didn’t have the same level of confidence. like our Prime Minister did at the time. But that Bangladesh can deliver on its promises is a strong and bold statement. So I think it will definitely add to the economy because the southern region will be connected.

“I really believe the bridge will add a lot of value to this part of the country. Dhaka and Chattogram account for over 50% of the country’s GDP. This will gradually change if we can harness the potential that awaits us on the other side of the bridge,” he said.

[Written by Adil Mahmood and edited by Shoumik Hassin. StanChart CEO Naser Ezaz was interviewed by Arun Devnath]