‘Be careful, not fearful’: StanChart CEO Naser Ezaz’s advice amid economic jitters

Naser Ezaz, the chief executive officer of Standard Chartered Bank in Bangladesh, has dismissed notions that Bangladesh policymakers need to worry too much about the current state of economic affairs.

As a career banker focused on the numbers, the top man of the multinational bank’s operations in Bangladesh was intent on the country’s current rating that outshone its SAARC neighbours, thanks to its better economic management.

“We're not at Sri Lanka’s level, or even Pakistan’s. And I'll tell you why. Internally, Sri Lanka, and Pakistan, were being observed by Standard Chartered Bank for quite some time. What’s happening there didn't happen overnight. The writing was on the wall for quite some time. You talk to any rating companies, and they’ll tell you. Today's situation has not come about in three months, six months, or even a year.”

Ezaz doesn’t see the ongoing devaluation of the taka as a bad sign either. Instead, he argues that factors – such as how the devaluation is impacting the economy and how the devaluation is being done need to be taken into consideration to reach the “optimum level” of devaluation based on the current state of the economy.

“Significant devaluation will impact inflation. But, on the other hand, it will help exporters. So that's a model that we have run to find the optimum level. That's where the real effective exchange rate is. It doesn't necessarily mean devaluation is bad on its own. It's about how it was done and what impacts it has on the economy. That's where you have to have a balance,” Ezaz said.

ON EXTERNAL DEBT

Ezaz is optimistic about where 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 external sources.

“The external debt to GDP [gross domestic product] ratio for Bangladesh has been quite low compared to other comparable economies. When I say external debt, I'm talking about foreign currency debt, because, you know, any economy faces a bigger challenge when you have foreign currency debt. The local currency you can print. You may have inflation but you will not have a crisis of supply. But when you don't have foreign currency, that's when the problem starts,” he said.

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

In Bangladesh, the total public debt stood at $148 billion in FY2021, about 41 percent of gross domestic product, with external debt accounting for $62 billion, or 18 percent of GDP.

“Bangladesh started with, I think, around 16 percent external debt to GDP. It went up by a couple of percentage points. But as the economy grew again, it came down. So, I think that provides Bangladesh with a little headroom to absorb a bit of shock through additional borrowing and still sustain.”

Although he agreed with the government measures to crack down on non-essential imports, non-essential travels and strict limits on the spending on development projects, Ezaz cautioned policymakers to make people aware of their “irrational behaviours”, such as hoarding dollars or putting a pause on import, which he believes creates unnecessary “panic” in the market.

“We need to be careful, but we don't need to be fearful. Because if you do, you may end up making panic purchases. You see people are not selling dollars, they're not importing things now.”

“All this irrational behaviour will only aggravate the situation. The way the interventions are being done may not add value immediately, but it will probably have a beneficial effect in the long run,” he said, advising people to understand and assess the situation, and act methodically.

Naser Ezaz doesn’t 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 with the global economy now than it was before and is under pressure because of soaring prices of commodities in the global market, which has created a gap in the balance of payments.

There was increased economic activity in the first quarter of the year, which had its impact on the finance sector, export growth, import growth and the economy.

“Now with the Ukraine-Russia war, clearly there is some additional stress on commodity prices, which has impacted the balance of payments and impacted the current account deficit. Bangladesh is not in a unique situation -- I think it's quite common for many countries. Every country will have its share of additional headwinds because of the global situation,” he said.

When Ezaz was asked if he believes the government’s protectionist interventions are enough to overcome the ongoing sluggishness of the economy, he recommended bringing down the conversion cycle of foreign exchange transactions for the Export Development Fund to the previous six months from the current one year, which was introduced to give exporters a little breathing space during the pandemic era, so that the gap between the inflow and outflow of foreign exchange can be reduced.

He also praised several recent finance ministry mechanisms, such as checks to prevent people from buying excess savings certificates, which usually causes the interest expenses in the budget to balloon, and the introduction of a central treasury account which balances the revenues and savings of state-owned enterprises with their debt and prevents them from expanding unnecessarily.

He also does not see much cause for concern about the rising price of imported fertilisers due to the ongoing war in Europe, as the item is already heavily subsidised for sale in the local market. He, however, does agree that the upsurge in fertiliser prices may force the government to borrow more.
Ezaz, however, believes a balance needs to be struck between demand and affordability of energy prices, especially in terms of oil and bulk electricity.

“I think that from the business community perspective, there's an acknowledgement that there is a market factor which is driving up prices, but if we increase [energy prices] to the fullest extent, it will have an impact on the growth of the country and it will have an impact on employment, as everything will is connected. So, we need to achieve a great balance so 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 published by the Bangladesh Bureau of Statistics each month paints a true picture of how the economy is faring, but he pointed out that the pinch of inflation on the retail side is taken into consideration, it may not be the same for someone living in urban areas as those in the countryside.

“You know, if you also look at the basket of inflation, the composition of the basket has an influence when you consider and calculate the inflation. I don't have the full details right now, but I can tell you off the top of my mind that these factors contribute,” he said.

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

Naser Ezaz does not see much cause for concern about the rising price of imported fertilisers due to the ongoing war in Europe

ON THE REMITTANCES, USD BONDS, AND SOVEREIGN BONDS

Asked whether the growing global trend of lower remittance inflows worries him, Ezaz said: “I think significant work needs to be done in terms of upskilling the certification of prior learning so that we can send more skilled workers overseas. Another thing we need to look at is how we can get the non-resident Bangladeshis with white-collar jobs to send their money [remittances] back.”

Expanding on the subject, Ezaz said that the government needs to increase 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 such bonds are not favourable to the buyers if they compare them with other rates in the international market, he said.

“NRBs know if they invest now, it will lock them in for three years. And the view so far is that the interest rate [on investment bonds in the international market] in the next two years can rise 1.5 [percentage points] higher than what it is now [2.5 percent], and hit 4 percent. Why would someone invest and lock in dollars for three years at 2.5 to 3.5 percent when the rates are going to go up to 4 percent?”

While discussing the possibility that Bangladesh may opt to issue sovereign bonds in the foreseeable future, Ezaz conceded that due to the present economic stagflation, it may not be the best time for issuing such bonds. However, he strongly defended SCB’s position for Bangladesh to open up to issuing sovereign bonds in principle, as he believes it will reduce the confirmation costs of letters of credit as Bangladesh will have more liquidity on its assets, and it will lead to more foreign direct investment in the country.

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

 

Currently, Bangladesh is suffering significantly from the country’s branding. “The only news that is noted abroad is of the negative variety because analysts do not follow Bangladesh closely. If you issue sovereign bonds, all these analysts will start following the market, and start generating quarterly reports that will include everything, good or bad. Then you'll have more interested investors,” he said.

ON PADMA BRIDGE

When Ezaz was asked what economic benefits the soon-to-be-opened Padma Bridge would add to the economy, the seasoned banker said: “It shows the resilience of the country and, honestly, many people did not have the same level of confidence as our prime minister had back then. But the fact that Bangladesh could deliver is a strong and bold statement. So, I think this 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 that part of the country. Dhaka and Chattogram account for more than 50 percent of the country’s GDP. This will gradually change if we can tap into the potential that lies ahead 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]