Interest rates and dollar exchange rates must not be fixed

At what stage is Bangladesh's economic crisis? Some say Bangladesh will face the same predicament as Sri Lanka, some say its economy is dynamic. What are your observations?

In post-Covid times, various countries face all sorts of challenges. And added to that now is the Russia-Ukraine war. Bangladesh too faces external and internal challenges. The country's economy has reached a satisfactory level. But there is the matter of taking it ahead and making it sustainable. The situation hasn't reached a point of turning into a crisis as in Sri Lanka, but rather than basking in complacence, appropriate measures must be taken. If not, our challenges will push us towards a critical juncture. Our economy is much bigger than that of Sri Lanka. The economic sectors are extensive and the economic activities haven't come to a halt, though have slowed down in certain areas.

Amid this crisis, the finance minister will be presenting the budget for the new financial year. What issues do you think should be given priority in order to tackle the crisis, particularly in the financial and banking sectors?

As I said, there are many challenges. The main areas of concern are the trade deficit, fall in forex reserves, inflation, disparity in income and wealth, employment, health, education and social security. The budget is coming at a distinctive time. This calls for a special budget outside of the conventional income-expenditure calculations. It will not be possible to resolve the problems in one year, but the budget must contain specific implementable policies and strategies to tackle the problems and the challenges. Focus must be placed on accelerating economic activities, equitable development, improving people's living standards, ensuring economic stability and laying the foundation for sustainable development. The efficiency, integrity and initiatives of all government organisations, regulatory authorities and development-related institutions must be increased. The market, banks and other financial institutions must be more efficient, dynamic and supportive of development.

Lack of good governance in the financial and banking sectors, irregularities, corruption and money laundering have created huge problems at present. It is imperative to ensure proper monitoring, good governance and, above all, certain essential reforms. The problems in the finance sector are like a contagious disease spreading to the productive sector, trade and commerce, everywhere, slowing down the wheel of economy, and can even bring it to a halt. Timely, appropriate and tangible measures must be taken. Bangladesh must take more initiative. Political commitment is a must.

One scam after another is emerging in the financial sector. Recently nine persons including the former MD of Sonali Bank were convicted for a financial scam in the bank. Should we call this conviction a good precedence or a rare example where major scams are normally never brought to justice?

One after the other scandal is taking place due to no accountability and no speedy administrative or legal action. Criminal persons and those with criminal propensity are encouraged by the lack of monitoring and the delays in taking due action. That is unwarranted. The Sonali Bank MD and others have been convicted. That is good, but it took over a decade. And there are so many more persons who have not been brought to justice. The trials of many others remain unfinished. With delayed investigations, the incidents are soon forgotten. Speedy trials are required now with provision for punishment where due.

How much authority does the central bank have over the financial sector and how strong is its monitoring of the sector? The central bank reserves were stolen, and former officials of the central bank were involved in the PK Halder scam...

Due to the excessive number of banks and financial institutions and the rather slow process of the bank, the central bank's monitoring of the financial sector is not up to the mark. Its monitoring has to be stepped up. The audit, inspection, vigilance, on-site and off-site departments should take more timely action. If there is any irregularity or discrepancy in any bank, the central bank must take speedy action. The reserve heist is being investigated, but to the apparent eye it seems that the central bank's monitoring and vigilance was weak. After the matter came to light, it was imperative to coordinate with the concerned authorities and take action. The measures were taken later on and we are having to wait for the results.

The government is considering relaxing the banks' 9 per cent-6 per cent interest rate again. Many banks are not complying with the 9 per cent-6 per cent interest rate. So was the previous decision a mistake?

In a market-based economy, it is not correct to enforce interest rates or any exchange rates. We emerged from this system two decades ago. So we must move away from this fixed interest rate. Similarly, there is a plan to fix the dollar exchange rate against the taka. I think that is not correct either. If that is done, it should be just for a very brief period as an emergency measure.

While the corona pandemic couldn't do significant harm to our economy, it has become difficult to overcome the impact of the Ukraine war. The price of almost all essential goods has increased. Do you think the government was adequately prepared? If not, where were the shortcomings?

At present, along with the rise in the prices of essentials, costs of other commodities, such as services and commute, are also increasing. The increase in prices is a lot due to supply. It is natural for prices to increase locally when prices increase in the global market. However, the price hike in the local market is much higher than the rate of increase in prices of imported goods. In the case of local goods, there may be an understanding between the wholesalers and retailers in the supply process. Then there is toll collection at various points, commission extracted by the middlemen, transport costs, etc.

The government's monitoring was weak and timely steps should have been taken. Simply observing the situation and discussing with the traders is not enough. Mobile courts, inspections by the national consumer rights protection directorate, are not long term solutions. There must be constant monitoring of the demand for commodities, supply, stock, import and how much stock there is in government storage.

The value of the dollar is increasing against the taka. How much impact has this had on the commodities market? Do you think the government measures to control inflation have been adequate or not?

With the rise in the value of the dollar, the price of all products we import is increasing and this is having an impact on the products produced in the country and those imported. As to what steps have been taken, I replied to that already. The steps are inadequate. The falling value of the taka against the dollar needs to be reined in. This calls for control on imports, monitoring of the use of foreign currency, and increasing remittance and export earning into the country. If necessary, a drive can be taken to bring in dollars to the country though FD schemes.

Had the value of the taka against the dollar been artificially inflated all these days?

Bangladesh Bank should have been alert beforehand about the dollar value. Certain temporary measures have been adopted like stimulus to bring in export earnings, remittance, etc. But the time has come to look into demand, supply, inflation and the currency value of countries related to our overseas trade, and correctly reassess the value of the taka. I do not think that anything has been done with the dollar value to display an inflated per capita income.

In recent times the industrial groups have forged an alliance among themselves, exempting each other from interest on loans in each other's banks. It is alleged that the central bank is giving them this scope too. How do you view this?

The governance, transparency and accountability of Bangladesh's banks are not satisfactory. The appointment of their directors, their policies and recommendations are not always neutral or based on information. That is why in many instances, granting loans, exempting interest and such are not justified. The managing directors and their colleagues often face interference from the directors and from outside. The owners of many industrial groups are on the boards of banks. They may not take facilities from their own banks, but can take this from other banks.

Most importantly, the central bank must monitor whether its financial and management regulations are being followed or not. It is important that the central bank adopt a stern stance.

It is said that if there is a problem in any one of the following rates -- inflation, exchange rates, growth rates, interest rates -- pressure mounts on the economy. In which area is Bangladesh the weakest and how can this be overcome?

Four indicators certainly have an impact on the economy. At present, the inflation and the exchange rate is a matter of concern for us. I have already said how to overcome this. Development of the banking sector, effectiveness of the currency market, justification of government borrowing from the banks will bring the interest rate to a reasonable level. It will not be right to keep it at a fixed rate. The growth rate is more or less satisfactory, but these above mentioned factors must be given due importance to keep it that way. Growth rate is just an indicator, not the only determinant of a person's living standards. Social development-equity indicators are also important along with growth.

The government expects revenue collection of Tk 4.33 trillion (Tk 4 lakh 33 thousand crore) in the next financial year. We note that in one decade alone, Tk 4.25 trillion (Tk 4.25 lakh) crore has been siphoned off overseas. So, eventually, how successful will this revenue collection actually be?

In our budget, revenue collection is always a big problem. Spending is no matter at all, it is done through certain processes. We have to see how far we can use our sources of income. Indirect tax, that is VAT, can be collected easily. It is direct taxes, that is, income tax, that is not collected properly. Our tax collection is lower than that of India, even than Nepal. People here evade income tax. Businesspersons in particular do not pay taxes properly.

Waste of money is another matter. Money is being siphoned off, but also excess funds are being spent on huge projects. The term of five-year projects are extended to ten years. Time extensions mean increased costs. Padma bridge construction was supposed to have cost Tk 100 billion (Tk 10,000 crore). That has been increased to Tk 300 billion (Tk 30,000 crore). I have no idea what will eventually happen about the Rooppur project. So if revenue is to be collected successfully, all these matters must be taken into cognizance.

The government is taking steps in the next budget to bring back money laundered abroad. But why couldn't we stop money laundering? Has the central bank been able to carry out is responsibilities in this regard?

The reason that money laundering has not stopped is mismanagement in the financial sector, corruption and lack of monitoring. Above all, another reason is no action being taken despite information about the money being siphoned off. The prevailing laws of the country, international laws, direct communication with foreign countries and legal measures are all essential factors. With integrated and speedy efforts of the government, the central bank, BFIU, the law enforcement and the Anti-Corruption Commission, money laundering can be prevented and the laundered money can be brought back. But more attention should be paid to preventing money laundering. That is basic. How will you being back the money of those whose names have appeared on Panama Papers? There is a matter of international laws. Unless you make a list of those who have laundered money and identify them, the laundering will not stop.