Capital flight puts strain on economy

The UK-based research organisation CEBR (Center for Economic and Business Research) has declared Bangladesh as the 41st largest economy of the world, predicting the country will emerge 24th in the list by 2033 if it can retain a 7 per cent GDP growth.

Bangladesh has stepped ahead of Pakistan to second rank in South Asia according to this assessment. CEBR also estimates India as the fifth largest economy in the world while Pakistan ranks 44th. Bangladesh has surpassed Pakistan in per head GDP (Gross Domestic Product) too as its population is 2.5 million less than Pakistan. Prior to this, it exceeded Pakistan in the human development index about a decade ago.

In the 1968-69 fiscal erstwhile West Pakistan had a per capita GDP of 99.58 dollars whereas for East Pakistan it was 40.34 dollars. The Bangladesh Bureau of Statistics estimated a per capita GDP of 1,751 dollars for Bangladesh in the fiscal 1917-18. Referring to the International Monetary Fund, Wikipedia says Bangladesh's per capita GDP was 1,602 dollars in 2017 and for Pakistan it was 1,541. According to IMF, in 2017 Bangladesh exceeded Pakistan for the first time in nominal GDP.
This means, if the present stream of development is not hampered, Pakistan will never be able to beat us.

Bengal was the most rich agriculture economy in the Indian subcontinent before the defeat in the 1757 War of Plassey. It was also a famous region for exporting small industrial products. But over the next 100 years the British East India Company virtually ransacked the country, looting and smuggling out capital. Historian Brooks Adams said after 1757, transfer of assets via ships increased on such a scale that the ships waited in line for even up to three months before being unloaded at the London port.

Historians call this period of pillage as 'The Bengal Loot'.

And now 9 billion dollars are being siphoned off from the country per year by some quarters, according to a 2013 study by the New York based GFI (Global Financial Integrity). Earlier, the International Labour Organization said the amount was 5 billion dollars in 2011.
As no stricter policy was implemented between these years, it is not surprising that the amount has increased even more in 2019.

Though a section of the businesspersons and industrialists associated with export and import trade were known as the main perpetrators of this capital flight, politicians, bureaucrats, army officials, and other professionals do not lag behind either.

These new culprits are busy siphoning off funds from the country, aiming to eventually relocate themselves and their families in developed countries. Over invoicing or fake invoicing during imports is the most common method for capital flight. Under invoicing and stashing export earnings abroad instead of locally are the most 'popular methods' for draining capital out.

Using 'hundi' (illegal money transfer) as a method of sending remittance home by Bangladeshi immigrants has helped the illegal capital smugglers more.

Bangladesh Bank says remittance worth 15.53 billion dollars came to the country in 2018 via official channels. It was said that this was more than the preceding year. But the actual foreign currency exchanged via 'hundi' can never be assessed accurately.
The families receive a large portion of the 'hundi' money and this is being invested also. Coming in either through formal channels or informal ones, the overall economy is benefitted by the remittance. The the huge deposits from remittance has salvaged the banking sector from falling into a major crisis, afflicted as it is with huge default loans. These remittances also are a crucial alternative to FDI (Foreign Direct Investment). Our failure of draw foreign investment is made up by the remittance flow and it also has caused surprising leap of the GDP.

But who are buying the 'hundi' dollars which remain abroad? The whole process of capital flight is associated with this. The biggest customers of such money are the businessman from Bangladesh who uphold the 'culture' of default loan and who are the owners of black money. Many of the upper middle and upper class families are involved in capital flight. The 'second homes' in Malaysia or Begumpara in Toronto are emerging from such wealth.

Most of the default loans will not be returned as the money is actually being trafficked abroad. These loan defaulters and businessmen who siphon off funds through their foreign trade businesses, are enemies of the nation. Had the 9 billion dollars siphoned off from the country been invested in productive sectors here, the GDP growth might have risen to 9 to 10 per cent.

*Moinul Islam is a former professor of economics at Chittagong University. This article originally published in Prothom Alo print edition has been rewritten in English by Nusrat Nowrin.