International Finance Corporation Country Director for Bangladesh, Bhutan and Nepal Martin Holtmann discusses the future of Bangladesh’s economy in an exclusive interview with the Dhaka GrandstandThis is Abu Sayeed Asiful Islam.
Bangladesh’s financial markets have a long way to go to develop. What did we do well and what should happen next?
Bangladesh is a classic example of successful development – it has made huge strides in generating income, reducing poverty and improving indicators of well-being for the population.
The credit goes to several factors.
First, the government has provided a sound macroeconomic environment.
Second, Bangladesh has a world class of entrepreneurs and social entrepreneurs.
Third, the country has a large domestic market – next to India, it is the largest market in the region.
Fourth, Bangladesh’s success in industrialization, led by its world-class RMG sector.
Bangladesh has a very stable financial sector. In fifty years of existence, the country has never experienced a bank failure – at least not to my knowledge.
But the ratio of bank credit to GDP is very low by international standards. Why? The country has a very fragmented banking sector.
I expect consolidation to take place over the next two decades. There are strong economies of scale in banking.
Many banks currently have assets between USD 3 billion and USD 6 billion; I expect Bangladesh eventually to have banks with assets of $50 billion to $100 billion. There should be two or three players of this size.
Tell us about IFC’s vision for the transport sector in Bangladesh?
In a recent meeting with business leaders in Chattogram, they told me that in the 1960s it took 5 hours to get from Chattogram to Dhaka. Now it takes 5-7 hours!
Although there have been some impressive projects like the Padma Bridge, I think the transport infrastructure has lagged which has led to traffic jams and underinvestment in the railways. It’s a space IFC and the World Bank are working on with government and the private sector.
Ports are a historically strong endowment: the challenge is to diversify it and build more terminals.
In light of the global food supply shocks, do you think it is time to increase support for the agribusiness and cold storage sectors?
This is at the top of the World Bank Group’s priorities, especially since the outbreak of war in Ukraine. We have already engaged in two transactions to stabilize the supply of crops to the Bangladeshi market – wheat is one of them. We helped de-risk a transaction that likely covers up to 50% of wheat imports into Bangladesh, to ensure a stable supply.
Where there is a crisis, there are opportunities. Bangladesh has world-class agribusinesses like Pran and City Group and a sizable domestic market – if it weren’t sitting next to India, Bangladesh would have the biggest market in the region.
We are seeing financial failures, global inflation and soaring energy and food prices. How isolated is Bangladesh from all of this?
No country is completely immune to possible macroeconomic failures. Germany, where I come from, has not always been so economically successful. The same country that now has one of the cheapest borrowing costs in the world experienced the highest inflation – on record – in the 1920s.
Bangladesh has always managed its macro-economy very carefully. Successive governments have managed external debt very carefully: Bangladesh has one of the lowest external debt ratios in the world. The public deficit has also been very well managed over the years.
Would you be in favor of liberalizing the exchange rate regime?
No, I certainly wouldn’t say now is the best time to liberalize exchange rates. But as economies follow a growth trajectory, we generally see exchange rate regimes that are more aggressive than a controlled float.
You have very capable policy makers here and they will know best how much the opening up of the economy can be sustained – looking perhaps at a twenty or thirty year perspective.
How is IFC supporting a climate-friendly program for Bangladesh?
Bangladesh has learned to deal with extreme weather better than many others – in terms of preventing harm to its people, Bangladesh has better flood management than almost anywhere in the world.
Collectively, we must do more – both to reduce greenhouse gases and to mitigate their impact.
We green all of our investments, including financial investments. We help our clients with climate-smart strategies. We have invested here in the green bond market. We have committed $250 million to climate investments here. And we encourage regional trade in renewable energy – for example by importing energy from Bhutan or Nepal.