Staff Correspondent

Financial sector, the most sensitive sector for an economy, is currently in the most vulnerable state. The banking sector is at extreme risk due to irregularities, corruption and mismanagement. To overcome the situation, several sensitive sectors, including the financial sector, must be kept away from power politics, noted economist Dr Wahiduddin Mahmud has said.

Despite being the most sensitive one, the banking sector in Bangladesh has been left uncontrolled and unprotected. Various loyal groups involved in political power have been given unfair privileges by the banks. The economic management collapses, investment climate suffers and honest entrepreneurs feel discouraged in such a situation, said Dr Mahmud, a former finance adviser to the caretaker government, at a discussion on the proposed budget for the fiscal 2024-25.

Currently people have no confidence in the banks. The Bangladesh Financial Intelligence Unit (BFIU) has been established, but it is not functioning. As a result, money laundering is going on and black money is being created, he said at the programme organised in a Dhaka hotel by The Editors’ Council and the Newspaper Owners’ Association of Bangladesh (NOAB) on Monday.

“Recently there has been news about a former IGP (inspector general of police). Thousands of crores, hundreds of crores of taka are being deposited in the bank, and then they disappear from the bank again overnight. According to banking rules, a written account has to be submitted, mentioning where the money is coming from and where it is going. BFIU only notices transactions if they involve over Tk10 lakh. However, where did the money go? Why are we not looking at that or why can we not look?” he asked.

Dr Mahmud further said, “The current budget can be termed a sacrificial lamb as its hands and feet are tied and there is no opportunity to move. The current budget is stifled by internal inflation, revenue collection shortfall, export and remittance flow stagnation, capital market and banking sector disorders, rampant corruption, government expenditure irregularities, wastage, unaccountability, and pressure of interest on foreign and domestic debts.

“It was not possible to make a budget befitting the size of a country like Bangladesh due to the low rate of revenue collection. Reform in this area has been neglected. So, expenditure has to be reduced,” he continued.

He also said if inflation and foreign exchange balance were taken into account, then the deficit would be large. In this situation, money cannot be spent on social security, education, health and development. On top of this, the huge burden of subsidies and capacity charges of the power sector add to the economic woes.

He said a large part of the budget deficit had to be met with loans from banks. There were also fears over printing new money, which is dangerous.

“Besides, credit growth in the private sector is estimated at 9%. On the other hand, defaulted loans are continuously increasing. This reduces the opportunity to give new loans. In this situation, the private sector investment estimated in the budget is unrealistic,” Dr Mahmud said.

He also said, “We are gradually moving towards an unethical economic situation. We talk about making a ‘Smart Bangladesh’, but there is no economic policy. Corruption and irregularities are major issues, stemming from the political nature of power. To alleviate the crisis, certain sectors need to be kept free from political influence, even that of the people in power. Regardless of political influences, economic issues should be addressed. Political power should be kept away from certain economic matters to ensure integrity.”

“If the current situation continues, there is a risk that the budget will fall into a debt trap,” he said, adding that there is a widespread waste in public expenditure.

‘Oligarchs influence budgetary allocations’

At the programme, Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre, said, “In preparing this year’s budget, the finance minister listened to oligarchs or looters, who have risen to power through manipulation. Considering these groups, opportunities have been given to whiten black money. However, reforms in the economy and banking sector were not discussed much for considering this special category.”

To prepare the budget proposal, the finance minister listened to three groups – the International Monetary Fund (IMF), the oligarchs or plunderers and the bureaucrats, but he did not listen to the hardworking entrepreneurs and diligent workers. Bureaucracy has adopted a colonial mentality, Hossain Zillur Rahman added.

‘So many ministries unnecessary’

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the expenditure side in the budget has shrunk, but the expenditure itself has not decreased.

Raising questions about cost savings, he said, “Do we need a Ministry of Textiles and Jute? I do not think so. If the government thinks critically, there is no need for so many ministries in the country. In the United States, there are only 11 ministries, but here we have ministries numbering between 50 and 60.”

Mentioning that there are some inconsistencies in the proposed budget, he said, “It is said that investment in the private sector will increase. However, the banking sector is so weak that deposit growth is not good. Money is not being withdrawn from bank accounts. The government is not receiving money, and neither are the businessmen. Why is this happening? Who is responsible for this situation?”

“The total amount of increase in deposits will not exceed Tk1.70 lakh crore. If the government takes a loan of Tk1.37 lakh crore from there, then what will be left?” he asked.

He also said the size of the private sector in the economy is 86%, while that of the government is 14%. In the proposed budget the private sector is getting 24% of the loan and the government is getting 76% of it. Here is a big discrepancy, which is improper.

He further said the government has given enough opportunities to the power sector, and maintaining the existing capacity charges and subsidies cannot go for longer.

‘Banking Company Act amended to serve vested quarter’

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said the situation of the banking sector is becoming weaker and weaker, with many depositors complaining that they cannot withdraw their money.

She said the Banking Company Act has been amended to serve the interests of a vested quarter and new formulas have been devised to reschedule loans.

“What steps have we taken to control inflation? The rate of flow of currency in the market was not reduced. We kept 6% and 9% interest rates for four years. Sri Lanka has managed to reduce inflation from 70% due to sound and independent policies,” she said.

“When every country devalued their currency, we did not do it. As a result, there was a pressure on imports. Then the SMART rate was launched. When that did not work either, the interest rate was left to the market, but it was too late by then,” she added.

‘Defaulting loans has become a business model’

Salehuddin Ahmed, a former governor of the Bangladesh Bank, said defaulting loans has become such a common practice that it has become a business model in the country. One takes a loan from the bank, and never pays it back.

He also said the budget should be based on performance. Some organisations should be closed if necessary, while some organisations should reduce their manpower. There is no use of just throwing around the budget figures.

The size of the Annual Development Programme has been estimated at Tk2.65 lakh crore, but at the moment it should not be over Tk1-1.5 lakh crore. As many as 1,285 new projects have been taken up. If it is halved, the debt dependency of the government will decrease.