Bangladesh faces a pressing need to shore up capital in its private sector and banking system if policy changes are to take hold, Finance Minister Amir Khosru said on Thursday.
Speaking at an Atlantic Council event held on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington, Khosru stressed that strengthening balance sheets must come first. "The first thing to be approached is to replenish the capital deficit that is there in the private sector, replenish the capital in the banking sector," he said. "Without this, talk about any other reforms is not going to get us anywhere."
Khosru described the nation's capital shortfall as "serious" and said the private sector is under significant strain. "The private sector now needs to be salvaged. This is a big challenge," he said, adding that "a lot of banks are practically bankrupt."
Alongside balance-sheet pressures, Khosru identified a sharp rise in energy costs as another major challenge for the economy. He attributed the spike in prices to the conflict in the Middle East and highlighted Bangladesh's heavy reliance on imports for its energy needs. The minister noted that the country of 175 million people depends on imports for about 95% of its energy, and that state-run agencies have increasingly procured supplies on the spot market.
"We have been procuring from all over the world, and mostly spot buying, and when you go for spot buying, you know the pricing of the product goes up so many times," Khosru said. He estimated the additional expenditure related to energy procurement at nearly $2 billion so far. "So basically, if we add it all up, the kind of expenditure on the energy sector, we are out of pocket by nearly $2 billion already. And if it continues, I don't know what will happen at the end."
The finance minister linked this energy-driven spending surge to weaker revenues stemming from subdued business activity. He said energy spending is "bleeding the exchequer of the government, and on top of that, your tax to GDP is not increasing because of the businesses' stress."
Last month, the government indicated that it would seek over $2 billion in external financing to secure fuel and liquefied natural gas imports. Khosru's remarks framed these financing needs and the capital shortfall as immediate preconditions for any effective reform agenda.
Bottom line: The minister emphasized that replenishing capital in the private sector and banking system is a prerequisite for progress, while surging energy import costs have intensified fiscal strain and reduced tax revenue growth amid stressed business activity.