No need to buoy 'dysfunctional' banks by printing money: Ahsan H Mansur

Economist Ahsan H Mansur has criticised the government’s policy regarding the banking sector and particularly noted that it is unnecessary to keep the dysfunctional banks afloat by printing money. 

He came up with the statement while addressing a seminar on the banking sector hosted by the Economic Reporters Forum (ERF) in Dhaka on Saturday.

Highlighting negative effects of overprinting money, he said, “Inflation would rise even if printing of money continues to protect the Islamic banks. At the same time, it would not be possible to rein in high inflation if money is overprinted and lent to the government. It is a must to stop printing money in the greater interest of curbing inflation.” 

He noted that the forex reserves are now being ballooned through borrowings from other countries, but the policy would not sustain in the longer run. It needs to increase the foreign currency reserves through sustainable means, like export earnings, remittances, and prevention of money laundering.

“The current incentive on remittance should be stopped, since the dollar price is now market-based. Some Dubai-based institutions, in collusion with a vested quarter, are benefiting from this incentive,” he mentioned. 

Recalling the election-time promises for financial reforms, Ahsan H Mansur said,  “It was said before the elections that massive reforms would be done in the financial sector. But nothing happened though six months have already passed. Financial reforms are imperative in the interest of the country.” 

He continued, “It is good that the International Monetary Fund (IMF) provided loans to Bangladesh. Still, we need reforms in our interest. We have eaten up our deposits, how long will the banks survive this way? It needs to publish a whitepaper on the banking sector, and it should be done by the government, not the Bangladesh Bank. It needs to find out the reasons behind the current situation in the banking sector.”  

Expressing concerns about certainty on bank deposits and rising interest on loans, he said, “There have long been no reforms in the financial sector of Bangladesh, and the market here did not develop as a consequence. Now, questions arise over the certainty of bank deposits."

"Loan interest rates have been rising. In fact, all these issues could not be fixed if the outflow of resources persists. Hence, there is no alternative to political will to combat the crises in the country’s financial sector,” he added.  

Ahsan H Mansur pointed out the government’s growing dependence on debt and its diminishing borrowing capacity, saying that it had to return from India with disappointment, while China did not respond either. 

“On the flip side, the government is failing to collect adequate revenue. Therefore, the government now lacks the taka or dollar required to implement the budget. It is struggling to pay bills of energy and other sectors, while foreign companies are not being able to repatriate their earnings,” he noted.   

Taking a cue from recently disclosed discrepancies in export data, he expressed suspicion over the government’s other financial estimates. “Default loans are claimed to be 11 per cent, but the actual figure is 20 to 25 per cent. If the real information is concealed under the carpet, it will surely smell a stench.”

The economist shed light on the regulator’s assistance in irregularities at Islami Bank.

He said, “Instead of realising loans, the Islami Bank is showing loan interests as its earnings and posting inflated profits. It is also paying dividends and taxes from the  profit. Actually, the bank has no income, and some groups are looting its deposits. They have been empowered with government assistance, and they are the reasons behind the current chaos in the financial sector.”

ERF general secretary Abul Kashem moderated the programme, with its president Refayet Ullah Mridha in the chair.