Bangladesh’s stock market reeled on the $100
million cyber-theft from the central bank resulting in the resignation of
long-serving governor Atiur Rahman, as other South Asia MSCI components
Pakistan and Sri Lanka were down 5% and 10%, respectively, through February.
Two deputies were also removed for failing to take action after the breach was
spotted, as the Finance Minister tried to assign partial blame to the New York
Federal Reserve for fund release.
The incident came at a delicate time for the three countries in various
stages of IMF adjustment programs, internal political violence, and external
terrorism. Foreign investors acknowledge economic stabilization progress and
low labor cost competitive advantage, but remain wary of lingering banking
sector and governance lapses illustrated by the spectacular heist likely to cap
market performance throughout this year.
Bangladesh just exited a Fund arrangement with mixed results, according
to its February Article IV report. It cited 6% economic growth on headline
inflation at the same number, international reserve buildup to $25 billion for
six months imports, and a steady public debt ratio at 40% of GDP. However tax
revenue and state bank cleanup lagged, and tensions endure between the main two
political leaders aggravated by a war crimes tribunal convicting Islamic party
figures of abuses. Infrastructure and regulation are “crippling” and private
credit expansion, although in double digits, has slumped from its long-term
trend.
Garment exports slowed in fiscal year 2015 with industry restructuring
and lower foreign demand, and tax collection is poor even for low-income
countries at just over 10% of GDP, leaving a chronic budget gap. The review
criticizes weak bank balance sheets and outright scams, with non-performing
loans at one-fifth the total.
Executives have been replaced at the worst-performing government
institutions, but regulators do not enforce of Basel III standards being phased
in or auto and mortgage exposure limits. Banks retain residual holdings in the
equity market that were to be severed after the 2012 crash, and lack legal and
practical tools for loan recovery. Both industrial and agricultural clients are
at further risk from climate change which has already sparked natural
disasters, and borrowing for clean energy transfer and land and facility
adaptation should be priorities, the IMF advised.
Pakistan
on China road
Pakistan has received $5 billion to date from its Fund program that
expires in September, and China outlined $45 billion in power and
infrastructure projects under the “One Belt, One Road” scheme in the coming
years.
Prime Minister Nawaz Sharif has reduced the severity of daily business
and household electricity cuts, although distribution companies continue to
operate with heavy losses as state firm customers accumulate arrears. He has
given the military freer rein to crack down on terrorism at the same time his
party has distanced itself from conservative clerics to promote women’s rights,
partially due to daughter Maryam’s influence as a possible successor.
GDP growth is estimated at 4% this fiscal year, and the current account
is almost in balance on lower oil import costs. However, foreign direct
investment fell by half and remittances increased by only single digits last
year, and reserve coverage is precarious at less than four months imports.
In the banking sector, government borrowing continues to crowd out the
private sector, with less than 10% of small and mid-size firms with access,
according to official surveys. Monetary policy may be too loose after interest
rate drops, and the central bank should move to inflation targeting, the IMF
recommended. The privatization timetable through stock market sales has also
slipped, although state-owned airline, insurance and steel listings are slated
by year-end.
Sri Lanka
reserves down
Sri Lanka, despite 6% economic growth post-civil war from agricultural
exports, reconstruction and tourism and regularly oversubscribed external
sovereign bonds has returned to Fund assistance. Foreign reserves are down to
$6 billion, barely enough to cover 2016 credit repayment and the current
account deficit after the central bank abandoned currency defense and allowed
10% depreciation against the dollar last year. Fitch Ratings just downgraded
the country to “B” as the sub-region maintains limited success in repelling
attacks on debt and financial system discipline.
Gary N. Kleiman is an emerging markets specialist who runs Kleiman International in
Washington, D.C.
No comments:
Post a Comment