Dr. Jamaluddin Ahmed holds the position of Chairman for Janata Bank Ltd., Chairman of Maksons Spinning Mills Ltd. and Chairman of Emerging Credit Rating Ltd. He is also General Secretary at Bangladesh Economic Association, Member of British Accounting Association, Member of American Accounting Association, and IAS Specialist at Central Bank of Bangladesh and on the board of 5 other companies.
Professionally a Chartered Accountant and the fellow member of the Institute of Chartered Accountants of Bangladesh (ICAB) since 1990; he has been awarded Ph.D. in Accounting from Cardiff Business School, University of Wales, under Commonwealth Scholarship in 1996, and secured First Class in Masters Degree and Bachelors with Honors from Accounting Department of Dhaka University. Dr. Jamaluddin Ahmed has many years of experience in the financial sector of Bangladesh and has used his expertise and experience to carry out numerous research work and publications. He is the Audit Engagement Partner of 10 banks and leasing companies, 4 energy companies, 10 listed non-bank companies, and tax advisor for many local and multinational companies.
The InCAP: Dr. Jamaluddin Ahmed, what do you think is the biggest challenge in Bangladesh’s economy in recent times due to COVID-19?
Dr. Jamaluddin Ahmed: COVID-19 is an invisible enemy not limited by the borders of countries. It has adversely affected the economic, social, and political aspects of human life. The running of the “Economic Machine” through the creation of billions and trillions of financial transactions, has surrendered to the COVID related lockdown cast on the people of Bangladesh. Bangladesh has been at the mercy of the disease since March 2020. Before that, we have experienced natural calamities such as floods and cyclones. Cholera, Malaria, Polio, and many other diseases have been overcome, but COVID-19 has created panic in our public health system, and social life has come to a halt.
Unlike Europe and other industrialized countries, our nation is built on strong familial bonds, and the joint family system has influenced all aspects of everyday life such as the education system, professional life, business practices, and economic management. This makes our way of life quite unique. The virus has created large barriers and disruptions to our way of life, such as not being able to attend the Janaza of friends and family who have sadly passed away because of it. This means that we cannot perform our day-to-day activities following the religious and familial values in the way that our parents and ancestors have before us.
It seems that the biggest challenge of overcoming the coronavirus is that we have to reorient our social, cultural, economic, and political activities. If we think back to earlier this year, we had to abandon all public functions celebrating our Independence Day on the 26th of March. Bongobondhu’s 100-year birthday celebration, our Bengali New Year celebrations, and even the Holy Month of Ramadan have also fallen mercy to COVID-19.
Most importantly, from an economic perspective, our Economic Machine has been locked for the last four months, and we have lost around BDT 4-5 Lac Crore. We do not know how to recover this amount, and at the same time, we are yet to predict the future losses or how long the disease will continue to hamper our economic progress.
The government is claiming that Bangladesh has joined the developing country category. But the criteria on which Bangladesh will get this recognition will be observed until 2024, and only then will Bangladesh be considered a developing country. Do you guess the COVID-19 Pandemic will be a barrier in this projected way?
Obviously, COVID-19 will adversely affect our graduation to a developing country. However, the magnitude will depend on the continuation of the virus and also the ability of the Global Scientific Community to create a vaccine to challenge it’s spread and growth. The faster we get the vaccine, the quicker we proceed with our development programs and unlock our Economic Machine to reach pre-COVID era output. The adverse impact of the Pandemic on our graduation process cannot be denied, but we can overcome this. We must estimate our recovery process using short, medium, and long term categories and revise the graduation plan by creating alternative scenarios and options.
According to the Bangladesh Economic Association’s research, 60 million people have become poor in Bangladesh during the last 66 days of lockdown. As the General Secretary of Bangladesh Economic Association, we want to ask you how you came to this conclusion, and what is the way out of it? If this trend continues, where will the poverty rate reached in Bangladesh?
This year, the Bangladesh Economic Association (BEA) presented its Alternate Budget Document 2020 on the 8th of June 2020 over a Zoom conference. This presentation has been an annual practice since the fiscal year of 2015-16. This year, the COVID-19 impact was discussed from different angles. This Zoom Conference was attended by 43 different districts of Bangladesh, including Dhaka, our capital.
Section 7.2.4 of the BEA Alternate Budget 2020-21 elaborates on the Pandemic’s impact on poverty. The lockdown has halted the smooth operation of Bangladesh’s Economic Machine, which has ultimately increased unemployment. The BEA attempted to compare the pre and post COVID class structure of Bangladesh population routing from Pandemic, and the findings are listed below:
Table-1 of the BEA Alternate Budget 2020-21 (page 41) describes the pre-COVID (Feb 2020) condition and post-COVID (31 May 2020) impact on the different classes of the Bangladesh social system structure. The class structure is divided into the following; total poor (10%) including the ultra-poor (5%), the middle class (70%) – subdivided into the lower middle (30%), the mid-middle (20%), and the high-middle (20%) class. The rich class (10%), including the super-rich (5%). The poor (20%) share total household income in the pre-COVID period (Feb 2020), which has increased to 40% of households in post-COVID. In the case of the Ultra Poor (10%), the percentage of households has increased to 25%. In the case of the lower middle class of pre-COVID, the number of households (30%) fell to 14% while the upper-middle class (20%) fell to 13% at the same time. Regarding the richer groups, there is no reduction percentage in terms of households, but it shows an increase in household income share from 38.09% to 46.09%.
Most significantly, the Gini-Coefficient Ratio and Palma Ratio in the pre and post COVID is 0.482 and 0.635, 2.92, and 7.53 respectively, which is a clear symptom of rising inequality in the Bangladeshi Social Class Structure.
Policymakers in such a situation must carefully monitor to take necessary measures to overcome such a situation. The social class ladder transformation should be looked at in a very thorough manner. Depending on the length of continuation of COVID, the transformation of the social class ladder may increase more. If the COVID is sorted out quickly, then the damage may be reduced. However, the damage could also increase if not remedied soon.
How effective is the GOB incentive package?
The Government’s initial response to the problem is encouraging through the declaration of the incentive package. GOB decided to flow the funds to the garments workers through banking channels and mobile financial services. The GOB monetary package to the industrial borrowers, declared through the central bank, also deserves credit through the series of the declaration to the banks. It also ensured that this is the beginning and not the end.
However, with the grace of automation and reliable electricity and the grid system, we are hopeful of deriving the benefit of keeping the Economic Machine functioning. The challenge remains to Banks who are in the front line of implementing these packages. Both the Bank management and Board are required to monitor the effective implementation of these packages in the most diligent and reliable manner. If we can efficiently implement these programs, Bangladesh will survive from the damages incurred thus far within the targeted time frame.
What initiatives have been taken by the Janata Bank for the affected people during this Pandemic, especially toward startup companies?
We are in close contact with the District Chamber of Commerce and the FBCCI as well as other chamber bodies such as the Women Entrepreneur’s Association alongside our existing clients. All the GM offices, Area Offices, and Branch Managers have been instructed to support the new starts and existing ones within the GOB framework instructions. Supervision and monitoring from the highest to the lowest level are ongoing. We are hopeful for positive results.
We sincerely want to know your opinion regarding Bangladesh Budget 2020-2021.
This year’s budget preparation has a different perspective because of COVID. The country is in a war-like situation because of the appearance of the Pandemic in China since early January 2020 or late 2019. Bangladesh was not aware of the severity of COVID. Budget preparation in our country has been following a practice used since the times of the British East India Company and the Mughal Emperor Akbar. Because of the British rule of 190 years and the Pakistani rule of 23 years, Bangladeshis could not enjoy the budget preparation on their own terms. For the first time after the victory of 16th December 1971, Bangladeshis had the opportunity to prepare their own National Budget. Every year, we prepare the budget following the practices inherited from previous colonial rulers.
If we compare the GOB budget with the corporate budget, we observe that the capital expenditure ratio of corporations is higher than the revenue expenditure in the Government budget. We observed that the proportion of operational expenditure is higher than the Development expenditure. Bangladesh is currently following a Revenue to Development expenditure in the manner of a 60:40 ratio. This should be reversed to a ratio of 40:60 in terms of Operational to Development expenditure to achieve decent economic development. There must be a paradigm shift in order to graduate Bangladesh to a developed country.
Historically, we see that regardless of the budget size, we implement 90% to 100% of the revenue expenditure, but we do not execute more than 40% of the development projects proposed, including both GOB and development partner financed projects. In addition, these projects are proposed by their respective Ministries (Secretary as Principal Accounting Officer and Minister as the Administrative Head).
For the yearly budget, the Finance Ministry consolidates them after the approval of the ECNEC. On completion of the Fiscal year on the 30th of June, we see that the un-implemented projects are around 40%, but no one is taking the responsibility for such continuous failure, and none is punished for such non-compliances in the last 50 years. In the case of the failure of the Revenue target, no one was made accountable for such failures and non-compliances. Last year, the budget assured that the Director of Development projects would be made accountable for any failure under the Rules of Business, which is a constitutional requirement. People do not see any evidence of such failure.
The budget should emphasize the reduction in the income/wealth inequality gap between the rich and the poor, men and women, as well as developed and under-developed areas. The collection ratio of indirect taxes should be lower than direct taxes. But in Bangladesh, this rate is higher and disproportionate under the current budgeting system. Every one of the countries which have graduated from LDC to Developing and then Developed has designed an effective financial system. We have not been able to structure a desired financial system for Bangladesh even after 50 years of our independence. This means our country must have a policy of how we could source our industrial, infrastructural, and other project financings. Existing models in academic literature indicate that a country can follow a Bank or Market-based method or even a combination of both. In the last 50 years of independence, we have yet to chalk out this crucial issue.
This is the perfect time to frame the Financial System Architecture to determine what percentage of financing should be sourced from corporate bonds, banking systems (both COMM, DFI, House Building Finance and Infrastructure), Equity markets and FDI’s. The central bank should play a developmental role rather than a conservative one. In case of the Japanese and German Central Banks, US FED, and other central banks of Europe, South Korea, Indonesia played their role after World War II and turned their economy to this height of development. We would have to change our perceptions from the colonial era to an Independent Spirit. We must shed our colonial mentality to embrace the spirit of independence required to own our destiny. To increase the flow of money generated from the Government, the treasury must be decentralized to maximize monetary transmission. The current treasury of GOB has been inherited from the creation of the Reserve Bank of India in the late 1937s from the Rule India Act of 1935. After the creation of Pakistan and India in 1947, India retained the same name for its central bank as the “Reserve Bank of India” while Pakistan named its one as the “State Bank of Pakistan.” After Bangladesh’s Liberation, the central bank was renamed “Bangladesh Bank,” only replacing the name with no major changes inside Bank Order, which we inherited from the two colonial rulers, i.e., Pakistan and British.
We should have a fresh look to reform the regulatory framework required to work as an Engine of Bangladesh’s Development. The same comments apply to the Revenue Collection System. NBR is an organization run by NBR cadre at all operational levels, yet we appoint the Chairman (Leader) from a non-NBA cadre, so there is a huge gap of knowledge between the CEO and operational levels. We have not seen any person become the Chairman of NBR from their own cadre. We should think about this important issue. Someone coming from other professional cadres could make a big contribution from the generic NBR cadre. How does the NBR chief posted to this position from other cadre can contribute when his term is only for a maximum of three years. This journey has continued as routine work since the era of Pakistani rule, and independent Bangladesh is following that even after 50 years. This paradigm should be shifted.
Moreover, the NBR should extend its network to all Upazila levels to increase visibility. At the district level, the NBR should be located at the DC office. With the separation of the Judiciary from Administration, they have GOB constructed building and judiciary vacated DC Office premises. Now, the people of NBR should enjoy the recognition that they are part of the GOB. In order to change the public perception of itself, they should consider this as a marketing approach. Once the NBR is recognized at District and Upazila levels, things will change in Revenue Collection while keeping with the highest priority of Automation within NBR. As of today, all districts NBR office is located at private houses which cast image problem at the district level. Once all these action plans are implemented, we can assure Bangladesh can present a 15 Lac Crore Budget within the next three (3) years (2025).
Julien Allard and Rodolphe (2011) in their study on private sector financing (2002-2007) “Liabilities to the Market: Securities other shares” has shown that the seven countries of Australia, Canada, Denmark, Finland, France, the UK, and the USA have been classified as market-based economies, having financing of >= 51% from Market-based sources. Out of the 17 countries, Austria, Belgium, Germany, Italy, Japan, Netherlands, Norway, Portugal, Spain, and Sweden are Bank-based economies having a source of finance from the banking system of >= 51%.
Four countries are identified strongly as market-based (Australia, Canada, USA, and the UK), and four countries are classified as strongly bank-based (Belgium, Portugal, Spain, and Austria). Michael Thiel’s (2001) study on the “Composition of financing from non-financial corporations” (Please insert the correct name of the paper in inverted commas) reported that for the Euro area in 1999, financing was shared in the following manner: long term banks 19%, medium-term bank loans 16%, short term bank loans 12%, loans from other FI’s 3%, Debt securities 10%, Quoted Shares 24%, Un-quoted shares 13%, and venture capital at 3%. The time has come for Bangladesh to decide on the design of the structure of sourcing finance non-financial operations of the country.
Dr. Jamaluddin Ahmed, you’ve seen the corporate world with your extraordinarily talented and sentinel eyes. Professional people consider you as their leader and mentor. Because you’re the inspiration of thousands of hearts, say something to them.
In the COVID pandemic, Janata Bank employees are working for distressed people through 911 branches across the country in a manner similar to the Health Department, physicians, Army, BGB, Police Administrative personnel, and Journalists. Risking their lives, our managers and officers at the branch level are engaged in providing banking services with the utmost dedication. To boost morale and confidence, we have held Zoom meetings with branch managers, senior-level managers, CEO, and DMDs and thus increased the communication among the officers at different levels. We discuss our day-to-day work, including short, medium, and long-term strategic planning. Discussions are done on value addition and non-value addition jobs as well as techniques on how to reduce duplication of work through the application of ICT. Plans have been made to increase the number of the banked population from its current level of 40% to 50%, 60%, and even possibly 70%. This increase would reduce corruption by the same proportion.
This means that the Bangladesh National Payment under an automated or digital banking financial system can reduce the cost of doing business by reducing corruption. SME’s and CSME’s are the priority of the current government, and these bankers can contribute to the rural economy. We suggest that the employees of the branches calculate the loan deposit ratio and then calculate the cost of funds daily. Regarding the implementation of core banking, the managers can make bank transfers of money when the velocity of money significantly, which would number of transaction ultimately increase the country’s GDP. Bank managers working at the branch level can contribute to GDP by making digital financial transactions. Our country will go a long way only if people of any professional work properly from their own position.