We need to bring in large amounts of foreign loans

While announcing the monetary policy, Bangladesh Bank Governor Fazle Kabir said its prime target is to rein in inflation. But what should have been done was lift the interest rate ceiling. This would increase the interest rate on loans and eventually translate into reduction in the amount of loans. This would have made it possible to rein in inflation.

But the central bank is failing to intervene in the process as the interest rate is set by the government. The average interest rate, according to Bangladesh Bank, is still 7 per cent, but most of the borrowers, in reality, pay interest at a rate of 9 per cent. The interest rate on loans taken by some big clients cannot be considered as the actual rate.

We need to put a brake on the rising trend of the dollar in a bid to facilitate the taka. It would have been done had the interest limit lifted. The loans would have to decrease in order to reduce the demand. This is market economy. But the Bangladesh Bank is going in the opposite direction.

The governor claimed that the Bangladesh Bank is independent to take any decision and it enjoys an absolute autonomy. Then the entire responsibility for the prevailing crisis in the banking sector goes to him (the governor). He has to take all responsibility if he possesses all the authority. Persons accused of murder, notorious money launderers, defaulters – are all now bank chairmen.

Earlier, the financial institutions wiped out, now it is a turn for the banks. The Islamic banks have especially been hit hard. The Bangladesh Bank said some 95 per cent loans of a bank are in default. Why did this happen? Who will take the responsibility? And how does the bank survive with such an amount of default loans? Why are the chairmen and managing directors not being replaced by administrators?

The problem is deteriorating due to the way Bangladesh Bank is raising the dollar price. It requires big steps, not small ones. If the current trend continues, the dollar price will reach Tk 120.

There is no initiative to stop money being siphoned off abroad. Who will catch the influential people who have bought hotels in Singapore, homes in Canada, assets in Malaysia and Dubai? And what will they show as income sources if they get caught? In fact, there is no initiative to prevent money laundering from Bangladesh.

The main challenge of the new fiscal is a huge revenue deficit. Besides, the government subsidy has increased to a great extent and it will increase further in the future.

To address the budget deficit, a large amount of loans need to be brought in from abroad. The government has already started talks with the World Bank and the International Monetary Fund. But it requires major reforms to get overseas loans. The revenue sector needs to be the top priority in the reform process and the banking sector, interest rate and bank ownership come in the following phases.

Metro rail and Karnaphuli tunnel will be launched in the new fiscal year and the Padma Bridge has already been launched —these all are potentials. The government will start getting revenue from these projects.

However, the benefit of metro rail will not be reaped to the fullest unless it is launched on all the routes. People will see it, but will not benefit from it.

It will be a year of economic recession, so I do not expect too much. If we can control the dollar price, in addition to containing inflation, it will be better for the people.

* Ahsan H Mansur is Executive Director, Policy Research Institute (PRI)