The dollar crisis in the economy has not abated. Increased import expenditure has led to increased trade deficit. Inflation is on the rise as well. What is the way out of the situation? Ekushey Padak winning economist and former teacher of Chittagong University's department of economics, Muinul Islam, talks to Prothom Alo about ways to overcome the situation and other aspects of the predicament.
Q :
Why did the dollar crisis exacerbate so suddenly?
To the apparent eye it may seem that the dollar crisis emerged simply because of increased expenditure in imports. But that is not so. It is true that after the corona crisis, the price of commodities had increased globally. After the Russia-Ukraine war broke out, the prices of fuel oil, liquefied natural gas (LNG), edible oil, wheat and many other commodities shot up. This pushed up import costs. But the increase in import costs cannot be solely blamed for the dollar crisis.
No one takes two factors into consideration here. During the corona outbreak, the 'hundi' (illegal money transfer) had more or less come to a halt. After corona came under control, the 'hundi' business is back in full swing. Capital is being siphoned out of the country by means of 'hundi'. Also, taking advantage of increased prices of commodities worldwide, funds are also being sent out of the county by means of over-invoicing. So along with increased import costs, these two factors are also major reasons behind the dollar crisis.
Q :
Decrease in remittance and increase in import costs has also pushed up the trade deficit. What impact could this have?
There may be a deficit of 30 billion dollars (3000 crore dollars) in import-export trade in the current account this time. With the increase in 'hundi' it will not be possible to make this up through overseas remittance. Even taking capital account into consideration, I apprehend a 5 billion dollar or 500 crore dollar deficit at the end of the year. In 2001 our reserves had fallen to 1.9 billion dollars (190 crore dollars). From there it has increased to 48 billion (4800 crore dollars0 in August 2021. This was followed by a downward trend and reserves fell to 41 billion dollars (4100 crore dollars). It now has gone up and exceeded 42 billion dollars (4200 crore dollars).
If the trade deficit is to be decreased, strict control on imports must be enforced. Also, the difference between the price of dollars in the kerb market and that fixed by Bangladesh Bank must be reduced. This difference in no way must exceed three or four taka. The wider this difference grows, the more the propensity to send remittance through informal channels will increase. It must be noted that alongside controlling import expenditure, if the trade deficit can be met with overseas remittance, Bangladesh will not fall into danger.
Q :
The government is taking several measures. It has imposed additional taxes in the import of non-essential and luxury goods. It has widened the margin in the case of opening letters of credit (LC). How do you evaluate these measures?
Stern control must be imposed in the import of luxury and non-essential commodities. The National Board of Revenue's decision to increase duty on luxury items is very good. More steps like this must be taken. The margin for opening letters of credit for certain items has been increased, but that is not enough. This was to be extended further. Any measures can be taken to control imports strictly to overcome the dollar crisis for the time being. Again, attention must be paid so that there is no over invoicing in import trade. It won't do to think that adopting one of two measures will fix everything. Capital flight must also be strictly controlled.
Q :
What can the government do to bring a halt to capital flight?
The main destination of our capital flight is the US, UK, Canada, Australia, UAE, Singapore, India, Malaysia and Europe. We know about PK Halder smuggling out funds. There are many such big businesspersons, civil servants and politicians who are siphoning off funds. They are draining foreign currency out of the country. The foreign minister once remarked that more than the politicians, it is the bureaucrats who have smuggled out more money to Canada.
It is very easy for them to siphon off funds. The big businessmen have full control over bank loans. They take loans from the banks and sent this overseas. In fact, a large chunk of default loans have been siphoned off abroad. Then of course money is sent out of the country also by showing inflated import costs. According to the Washington-based Global Financial Integrity (GFI), the illicit flow of money out of Bangladesh amounts to 9 billion dollars, that is around 75,000 crore taka, annually. Then there is under-invoicing in the readymade garment sector too. The finance ministry and Bangladesh must put strict monitoring in place to ensure that they bring their export earnings back into the country. The government does not attach due importance to this.
The government can bring a halt to capital flight if it wants. It can send an investigation team of the Anti-Corruption Commission or the finance ministry to the countries to where the money is being sent. They can gather then the identity and all details of the money launderers and take action. Once this initiative is taken, it will be revealed that many persons still in service are involved in this money laundering. It will be easy to take action then.
Q :
What is the link between money laundering and default loans?
The actual details about default loans are not coming to the government records. In August 2019, the International Monetary Fund (IMF) has estimated default loans to stand at Tk 2.4 trillion billion (Tk 240,000 crore). They didn't make any estimates since then. Added to this will be the loans that have been written off, which amount to Tk 540 billion (Tk 54,000 crore). So default loans stand at Tk 3 trillion (Tk 3 lakh crore). I would say that by now this has exceeded Tk 4 trillion (Tk 4 lakh crore). Even if default loans increase, the banks won't be affected because we have no shortage of deposits. The inflow of deposits is fine. Even if remittance is coming in through illegal channels, it ultimately ends up in the banks. The finance minister has adopted all sorts of measures and swept the default loans under the carpet. Big defaulters have slipped out of the default list by repaying 2 per cent of their loans. A large portion of these default loans will ultimately never be recovered because much of this has gone overseas.
Q :
There is no obstacle now to bring in as much remittance as one wants in one go. Bangladesh Bank even issued a circular in this regard. How far will this measure help in overcoming the dollar crunch?
Remittance will certainly go up because of this decision, no doubt, but it will also give scope to whiten money made through corruption. The government has made this easy. Now those who are embroiled in corruption are bringing in their money from outside through their relatives living abroad. They are paying for it in the country with their ill-gotten earnings. The black money of corrupt persons is being whitened. Even so, this decision will lead to an increase in remittance coming in through legal channels during the crisis. However, more steps like increasing incentive for overseas remittance should be taken. Presently there is a 2.5 per cent incentive. This can be increased by another 1 per cent. But care must also be taken so that the exchange rate of the dollar in no way differs by more than three or four taka between the kerb market and the banks.
Q :
You have spoken about suspending unnecessary big projects in the present circumstances. What is your reason for this?
I have spoken about suspending projects with which the loan installments can be paid. I said this so that the repayment of our loans along with interest does not become a huge burden. We need to be alert from now. In the present situation, we have to repay foreign loans of 4 billion dollars in 2025. When domestic loans are added to this, then we will need a budget allocation of Tk 1 trillion (Tk 1 lakh crore) to repay the loans with interest. That means there can be no allocation for other sectors. Our foreign loan-GDP ratio is increasing. We can suspend certain unnecessary projects so that does not become unbearable.
The project for a railway line on Padma bridge with Chinese credit is one such project. Then there is the Dohazari-Cox's Bazar railway line with ADB funding. The Dohazari railway line was to be connected to the Bangladesh, India, China and Myanmar BCIM economic corridor. But with India leaving that project, it has lost importance. This railway line won't go up to Myanmar and Kunming. This project is okay for long term, but not for now. The revenue from these two projects will not pay for the loan installments.
The bullet train project is also not right. Presently the Dhaka-Chattogram railway route takes a 63 mile detour around Akhaura-Bhairab. If this can be reduced to 150 miles, then it will be possible to travel from Dhaka to Chittagong in three hours. So why should so much be spent on the bullet train project?
The plan to take up Payra port as a deep sea port was illogical. I have said that repeatedly. It is very good that the government finally moved away from that. It can be a sea port, but it is not appropriate for a deep sea port. The deep sea port at Matarbari in Maheskhali of Cox's Bazar and the bay terminal in Patenga, Chattogram, are both good projects. These will have a good impact on import-export trade. Similarly the China-funded Teesta river dredging project and the Farakka Ganges barrage projects were good projects, but could not materialise due to objections from India. Once the Shahjalal third terminal is done, will there be any need for another airport just 50 miles away? There is also no justification of having an airport in Noakhali.
Q :
The US and other countries are trying to control inflation by increasing interest rates. What should we do here?
In economies which do not have syndication and behind-the-scene understanding, it is fine to take measures like increasing interest rates. In our economy, such steps will not be effective at all. As it is, commodity prices are rising in the global market. Traders should be strictly monitored so they cannot take advantage of the situation. The existing monitoring must be stepped up. The competition commission must also be activated. If these measures are taken in monitoring the market, these can help in keeping inflation in control.