Central Bank Governor Abdur Rauf Talukder expects that if confidence in Bangladesh increases after the election, investment will come from abroad, foreign debt will be discounted, and short term credit and trade credit of Bangladesh will increase if the US interest rate decreases, then the economy will start to bounce back.
Bangladesh Bank expects positive changes in the economy after the upcoming national parliament elections and the economy will recover by the end of the current financial year.
About the current economic crisis, the Governor of Bangladesh Bank said, ‘Our economy is going through a crisis now. I have never seen such a crisis in my 36 years of civil service and public service.’
However, Central Bank Governor Abdur Rauf Talukder expects that if the confidence in Bangladesh increases after the election, investment will come from abroad, foreign debt will be discounted, and short term credit and trade credit of Bangladesh will increase if the US interest rate decreases, then the economy will start to bounce back.
The Governor and Finance Secretary of Bangladesh Bank said these things in an exchange meeting with the Economic Reporters Forum on Monday. In that three-hour long meeting, they informed about the latest situation of the country’s financial and monetary sector and various plans of the government. Secretary of Financial Institutions Department and several Deputy Governors of Bangladesh Bank were present in the meeting.
Besides, the point-to-point inflation rate will be reduced to 8% by December and will be reduced to 6% by June, said Finance Secretary Khairuzzaman Majumdar.
The governor said that the second installment of the IMF loan will be released on December 13 despite the failure to collect foreign exchange reserves and revenue as per the condition of the country’s economy.
And if the economy bounces back, Bangladesh Bank will introduce the ‘crawling peg’ system in terms of exchange rate. Besides, if the foreign exchange reserves are normalized, the exchange rate will be fully market based.
Abdur Rauf Talukder said that the government will not invest a single dollar in local development from foreign exchange reserves.
Economy in crisis with triple deficit
Abdur Rauf Talukder said, “We have always discussed twin deficit (current account deficit and fiscal deficit) management. Last financial year current account deficit, financial account deficit after 14-15 years.
“Before the last financial year, the financial account was 15 billion dollars positive, last fiscal year it has become 2 billion dollars negative. In other words, 17 billion dollars have been reduced in one year, which has never happened.’
“We are now in dire straits with this triple deficit. When he became governor on July 12 last fiscal year, the current account deficit was $18 billion, which is 4% of GDP. It is now positive,’ he said.
But it never occurred to us that the financial account could be negative. When it turned negative at the end of last year, we faced another crisis,’ added the governor.
‘FDI has become almost zero. As the US raises policy rates, everyone is keeping money there. Another is our election. No one is coming to invest now. Short term credit and trade credit are also negative. Even our ODA disbursement is lowest this year in last three years. None of these four are under the control of Bangladesh Bank. These are beyond the control of the government.’
“When we realized the crisis was coming, we went to the IMF first. I went before the crisis. Sri Lanka and Pakistan approached the IMF after their crises. The IMF has said, we don’t have a fundamental problem,’ he said.
Dr. Zahid Hossain, former Chief Economist of the World Bank’s Dhaka office expressed concern over the current economic situation, saying it seems to have gone ‘out of touch with reality’.
Bounce back after election
When asked about the reason for the normalization of the country’s economy after the elections, the Governor of Bangladesh Bank said that the main reason is trust.
He also said that foreign FDI has become negative compared to last time. Because everyone is waiting for the election. Investment decisions will be made based on what happens with the election situation. Now nobody is coming to invest.
‘The development partners with whom the loan is signed, their money is supposed to be released. They are also waiting now because of the elections. And now the situation is worse. The strike, the blockade is going on. This time, foreign consultants will not come, money will not be released,’ he said.
He said, ‘US interest rates are now stable. This indicates further reduction in interest rates. At the World Bank and IMF board meeting held in Maracas, US Treasury Secretary and Federal Reserve Bank Chairman said, the interest rate will drop to 2.5% by the end of this year and it will drop to 2% by next March.
“From their statement, we assume that the SOFR rate will come down from March onwards. And once the SOFR rate starts to come down, the US dollar will start coming to us here. Then our trade credit will continue to increase’ – said the governor.
“So we are very sure that FDI will come after the elections. Our ODA disbursement will increase after the elections. Bangladesh’s short-term credit and trade credit will continue to increase after March if the US interest rate falls. So from March our financial account will start becoming positive. We are very optimistic, our financial account will become positive at the end of this financial year,’ he said.
Stop taking loans over money
Finance Secretary Khairuzzaman Majumder said, “It is very difficult for the Ministry of Finance to stop taking loans from Bangladesh Bank by printing money, but we have taken this tough decision in the interest of the country and to control inflation.” Recently, Bangladesh Bank has completely stopped giving loans to the government by printing money.
He said, ‘Monitoring policy and Bangladesh Bank alone cannot control inflation. Even if Bangladesh Bank takes tough decisions, inflation control will not be possible if the government releases money in the market. For this, coordination between Bangladesh Bank and Ministry of Finance is needed. As Bangladesh Bank is increasing interest, we are also taking fiscal measures.
‘Buying a car, training abroad, limiting wholesale spending, stopping land acquisition. We have done demand side management. Increased OMS to address supply side issues. I have closed OMS for the time being as the inflation rate is coming down a bit. If it increases again, OMS will be activated. The target has been taken to bring inflation below 8% by December. That’s why market monitoring has been strengthened recently,’ he said.
Debtors’ rewards are being withheld
Bangladesh Bank has started implementing the new Bank Company Act. According to this law, any defaulting individuals and organizations will be considered ineligible for receiving Rashtriya Padak. Applying this provision, names of loan defaulters are being excluded by verifying the list of President’s Industrial Development Award given by the Ministry of Industry.
“Many big businessmen will not get the award this year due to competition. I don’t look at the names of defaulters. No matter how big the name, no one can take any advantage from me,’ said the governor.
Acknowledging the increase in defaulted loans, the governor said, ‘After I became the governor, the limit of debt restructuring has been fixed. Earlier there were 5-6 reschedules without any down payment. I have given a limit of four times, no loan can be rescheduled more than four times. Then it defaults and the bank sues. Therefore defaulted loans are increasing. We are very strict about this.’
1300 Bangladeshi companies in Dubai
The Governor of Bangladesh Bank said, ‘money laundering has taken a very bad shape. Especially trade based money laundering. At least 10 times more money than Hundi has been laundered through over invoicing. We have seen that a LC of $300 has been issued to import a product worth $100. A $40 LC is opened to purchase $20 worth of goods. In this way money has been smuggled out of the country.’
There are 13,000 Bangladeshi-owned companies in Dubai. It took at least 5 crore rupees to make each company. This money was smuggled from Bangladesh to Dubai. In the last two years, 2,500 Bangladeshis have taken citizenship in Portugal. Each of them had to invest at least 5 lakh euros. This money has also been smuggled out of this country – he said.
We have zero tolerance to stop this trade based money laundering. I have blocked LCs of people who did not even think that their LCs could be blocked by Bangladesh Bank. They have gone to the highest level (Prime Minister), let me approve their LC. Even there they could not understand, because at the highest level I said that this is how money is laundered,’ said the governor.
He said, ‘Our imports used to be 8 billion dollars a month on an average. Now that’s down to an average of $5.5 billion. Of this, 1-1.5 billion dollars were smuggled. So actually our imports are down by $1 billion.’
I told the banks, ‘Bangladesh Bank has no restrictions on LC opening. However, dollar support will be provided from Bangladesh Bank only to meet the government’s import expenses. Private sector import costs have to be met from banks’ own dollar inflows. Now banks are doing that. LC opening also increased as remittances came in last month.’
Interest rates are market based
The governor said that currently the floor and cap have been removed from the deposit rate. Now many banks are offering rates ranging from 9% to 11% on deposits.
But I have linked the lending rate with the reference rate. Lending rate cannot be more than 3% with smart system. We have made the interest rate market-based,’ said the governor.
Exchange rate is not related to reserves
The governor said that the exchange rate does not depend on how many dollar reserves there are.
He said, ‘Japan’s reserves are about 2 trillion dollars. Still their currency is getting devaluation every day. That is, exporting countries deliberately devalue to maintain their competitiveness. The exchange rate is determined on the inflow and outflow of foreign currency in the short term.
“Right now our net outflow is much higher than our net inflow. Now if the exchange rate is market based, the price of the dollar will continue to rise. No one can say where it will stop,’ he said.
The new Nikash software will be launched on November 12
Bangladesh Bank officials have developed Nikash software. It will cost 2-3 million dollars to buy it.
The governor said that the new software will be launched by canceling the previous software on November 12.