Public should not pay for bank mismanagement: Mustafizur Rahman

Centre for Policy Dialogue distinguished fellow Mustafizur Rahman, in an interview with Prothom Alo on Friday, spoke about the forthcoming budget, various aspects of the economy and the predicament of the banking sector.

Prothom Alo: The finance minister AHM Mustafa Kamal will present the 2019-20 budget on 13 June in the Jatiya Sangsad (national parliament). As we are at the final stage of emerging out from LDC status, how does CDP feel the budget should be?

Mustafizur Rahman: We are about to see the budget of a new finance minister after 10 years. I think there will be a continuity. It would be unreasonable to expect any radical change overnight. However, given the state of Bangladesh’s economy, there is a growing need for a fresh formulation of the budget.

The steady achievements that the macro-economy had seen -- the control on the budget deficit and inflation, increase in government investment, positive balance in transactions – are now somewhat at risk. And this will be the last budget of the seventh 5-year plan. This budget should have link with the development and growth trends to be part of the planning for the eighth 5-year plan. 

 Prothom Alo: Bangladesh is doing well in many sectors, but all this may be pitched into risk. That is why there is a talk of sustainable development. Should the budget have some safety initiatives in place?

Mustafizur Rahman: On average we are doing well, but from the angle of socially inclusive development or sustainable development, this development has to be three dimensional -- of economic growth, social inclusion and environment friendly.

There has been serious discrepancy in distribution and in alleviating inequalities. After 2024 when we emerge from the LDC status, we will have to enter a more competitive market. So the challenge for the budget will be to invigorate the private sector through increased investment and enhanced capacity for supply and competition.
Prothom Alo: What is to be done to decrease the inequity?

Mustafizur Rahman: Income, expenditure and redistribution are the three aspects of the budget. There have to be changes in the budget concerning income and expenditure. When it comes to income, our direct taxes are one third of the total taxes. And personal taxes are one third of the direct taxes. In other countries of the world, it is absolutely the opposite. That is, the government collects funds through the budget and invests it.

Again, the laws pertaining to loan defaulters and tax defaulters are not being implemented properly. Corruption too leads to inequity.
Prothom Alo: Is capital flight also contributing to inequity?

Mustafizur Rahman: Yes, it is. There is a law against money laundering. The National Board of Revenue has a transfer pricing cell. A global report every year points out that the amount of money being siphoned out of Bangladesh every year, is more than our foreign earnings and investment. NBR and Bangladesh Bank have to work jointly to thwart this capital flight. There is a transfer pricing cell but no investment has been made for it.
Prothom Alo: Which sector should be given priority in the budget? Will the income and expenditure layout remain the same?

Mustafizur Rahman: The government has to restructure its expenditure. For example, expenditure in the education sector constitutes less than 2.2 per cent of the GDP. This should be increased to 4 per cent. The health sector is less than 1 per cent. This should be doubled at least. It is said that the budget allocation for the social security sector is 3 per cent of the GDP, but if pension is left out, it is actually 1.7 per cent. There are inequities in our policies too. These must be cleared up.
Prothom Alo: Do you have any new advice for the banking sector?

Mustafizur Rahman: The banking sector is very sensitive for the economy. The private investment has almost come to a standstill. There have been certain initiatives in recent times regarding loan defaulters. Instead of punishing loan defaulters and money launderers, they are being rewarded. This will not bode well. From beforehand, there had been steps to allow four members of one family to be on the board of directors in a bank and they could remain on the board for 9 years at a stretch. This is not good.
Prothom Alo: What specific advice do you have?

Mustafizur Rahman: The crux of the problems has to be addressed. Year after year public taxes are being paid to the banks. The public should not pay for the mismanagement and institutional weaknesses of the banks. This is simply a nationalisation of the damage.

CPD had recommended that a commission be formed for the banking sector. The finance minister at the time, AMA Muhith had agreed too. The government in its own interests should allow the central bank to function freely. That is internationally known as ‘enlightened self-interest’.
• This interview, originally published in Prothom Alo print edition has been rewritten in English by Ayesha Kabir