How the prevailing crisis can be overcome

In its 2018 election manifesto, Awami League had pledged to take up 'zero tolerance' against corruption. But over the past four years, this pledge has proven to be nothing but rhetoric. From the year 2001 to 2005, Bangladesh had topped Transparency International's list of most corrupt countries. In the first year of those five years, Awami League had been in power. The next four years saw the BNP-Jamaat alliance at the helm. Then in the two years that followed, due to the stern stand against corruption taken up by the caretaker government, Bangladesh managed to shrug off that stigma. But when the present government came to power in 2009, it was as if they strangled that anti-corruption drive in a carefully planned manner. As a result, for the nine years from 2014, Bangladesh has been second only to Afghanistan when it comes to corruption in South Asia. According to Transparency International's global ranking in 2022, Bangladesh ranks as the 12th most corrupt country in the world.

Quoting the government's Criminal Investigation Department (CID), on 19 September 2022 the media reported that Tk 750 billion (Tk 75,000  crore) was siphoned out of the country on average every year by means of 'hundi' alone. That means this money was being taken out of the country through this illegal means of money transfer and deposited as foreign exchange in the overseas bank accounts of the money launderers. Along with hundi, if the over-invoicing of imports, under-invoicing of exports, not bringing back export revenue to the country, and other such factors are taken into account, this capital flight will probably exceed (Tk 1.5 trillion) Tk 1,50,000 crore in foreign exchange. That means, on average USD 15 billion to USD 16 billion is being siphoned out of the country annually, half of this through hundi. According to IMF calculations, Bangladesh's foreign exchange reserves have fallen from USD 48.6 billion in August 2021 to USD 24.52 billion in 2023. And according to the government, there is USD 32.52 billion in reserves. This downturn is alarming.

There is a seven to eight taka gap between the dollar price in the kerb market and the rate recognised by Bangladesh Bank. This large gap itself has kept the hundi business thriving. According to the finance minister, around half the remittance enters the country by means of hundi. That means if USD 21 billion to USD 22 billion enters as remittance annually, another USD 22 billion at least enters by means of hundi.

The main beneficiaries of this money laundering are corrupt bureaucrats, engineers, military officials, unscrupulous politicians, businesspersons and bank borrowers

Four major means of capital flight are responsible for the present unfavourable predicament of Bangladesh's economy: 1. Sending money out by means of over-invoicing in the guise of extensive import growth, 2. Laundering money by extensive under-invoicing in exports, 3. Instead of bringing export revenue back to the country, keeping it overseas and buying homes and investing it in business abroad, and 4. The groups controlling bank loans in the country are providing funds to the hundi-walas so the dollars of the equivalent value are sent overseas. The government must attach top priority to the matter of capital flight.

Over the past one year, the value of Bangladesh's currency taka has fallen by around 24 per cent. Unless the trend of plummeting reserves can be stemmed, it will not be possible to stop the upward curve of the dollar rate in the kerb market and rapid devaluation of the taka. This calls for the government to take up genuine and effective preventive measures against capital flight.

The main beneficiaries of this money laundering are corrupt bureaucrats, engineers, military officials, unscrupulous politicians, businesspersons and bank borrowers.  The lion's share of the Tk 750 billion, which the CID says has been laundered, is of this coterie. It will be impossible to resolve the money laundering problem if the 'zero tolerance' policy remains ineffective. No matter how much the government may deny it, the perception of the general people now is that the corruption during the rule of the present government exceeds by far that of the BNP and Jatiya Party government eras.

The talk of the past one year has been the crash of Sri Lanka, once a strong economy of South Asia. It is hard to tell how long it will take the country to recover from this blow. The per capita GDP of Sri Lanka in 2019 had reached nearly USD 4000. But due to the prevailing economic recession, Sri Lanka will probably not be able to increase its per capital GDP from 2020 in the next five years at least.

In the meantime, even though Bangladesh is having to tackle the slump in foreign exchange reserves and the fall of the taka value, it has been able to maintain the positive trend in growth of the GDP and GNI. IMF, the World Bank and ADB have predicted that in the current 2022-23 fiscal, Bangladesh's GDP growth will remain between 5.2 per cent and 6 per cent. In the 2022-22 fiscal, Bangladesh's import expenditure had increased by around 33 per cent to USD 85 billion, mostly due to the increased prices of LNG, oil and other petroleum products, edible oil, sugar, wheat and fertiliser, in the international market. Also, money laundering by means of over-invoicing in import LCs was also a major factor behind this.

With the government enforcing stringent import control measures since August 2022, the rate of opening LCs has fallen by around 9 per cent in the past five months. Also, as Bangladesh Bank has strengthened its LC over-invoicing monitoring system, there are signs of over-invoicing decreasing somewhat. If the government puts its 'zero tolerance' policy into effect and takes stern measures against money laundering and such devious means, I feel that Bangladesh's economy will be able to overcome the balance of payment crisis.

According to estimates of the finance ministry and Bangladesh Bank, Bangladesh's foreign exchange reserves will reach USD 37 billion by July. However, no explanation was offered as to how this will come about. I feel this will only be possible if the mentioned issues are prioritised. In the meantime, with the arrival the first installment of the IMF loan, USD 476.27 million (USD 47 crore 62 lakh 70 thousand), the downward trend in foreign reserves will slow down to an extent. And if stern measures like shutting down the exchange houses for a few days are taken, remittance through formal channels will pick up again over the next few months. If this can be done, by 30 June 2023 our GDP growth will cross 6.5 per cent. Over the next two years if Bangladesh can achieve a GDP growth of 6 to 7 per cent, then in the 2024-25 fiscal Bangladesh's average per capita national income will exceed that of Sri Lanka.

* Mainul Islam is an economist and retired professor of economics of Chittagong University.

* This column appeared in the print edition of Prothom Alo and has been rewritten in English by Ayesha Kabir