Author Topic: Spiralling imports a matter of grave concern: CPD  (Read 65 times)

Offline tokiyeasir

  • Hero Member
  • *****
  • Posts: 755
  • Test
    • View Profile
Spiralling imports a matter of grave concern: CPD
« on: June 04, 2018, 10:23:49 AM »
(The think-tank shares its recommendations for fiscal 2018-19's budget)
 
Mustafizur Rahman, a distinguished fellow of the CPD, speaks at a press meet in Dhaka’s Brac Centre Inn yesterday. Debapriya Bhattacharya, another distinguished fellow, and Fahmida Khatun, executive director, are also seen. Photo: Star
Star Business Report. Funds are siphoned off from Bangladesh under the guise of import payments, whose spike in recent times has caused the trade imbalance to balloon, said the Centre for Policy Dialogue yesterday.

The widening imbalance in trade and the current account will weaken the taka against other currencies and thus fuel import-induced inflation, create pressure on wages and lead to a spiral in interest rate. “The situation of the external sector is very worrying,” said CPD Distinguished Fellow Debapriya Bhattacharya at a media briefing held at the capital's Brac Centre Inn.

The think-tank organised the briefing to share its observations about the current state of the economy as part of its independent review of Bangladesh's development. The CPD's observations come as trade imbalance rose to a record $13.2 billion in the first nine months of the fiscal year in the face of 24 percent growth in import payments during the period.

Export earnings and remittance inflows grew 6 percent and 17.7 percent respectively in the first ten months of the fiscal year, but they were inadequate to counteract the current account imbalance. In July-March, the overall current account balance was $7.08 billion in the negative, while the balance of payment deficit was $1.4 billion, the lowest since 2010-11.

The likelihood of pressure on reserves will be high in the near-term, the CPD said. Bhattacharya went on to call for careful monitoring of imports. If necessary, import of luxury goods should be discouraged temporarily, he said, while calling for monitoring of import of zero-duty items through which there is scope for capital flight. “We have a strong belief that capital flight is taking place through false declaration of imports. And we have shown repeatedly that capital flight takes place ahead of any election,” he added. While economic growth has accelerated in recent years, it has not created adequate jobs, the CPD said. It said the fiscal framework continues to be weak amid continued failure to hit targets.

The high amount of bad loans and poor compliance in the banking sector are also concerning along with inflationary pressures. Subsequently, Bhattacharya advised a restrained approach in macroeconomic management. The CPD also warned that the government's increased borrowing through sales of high-interest bearing savings certificates to finance the budget deficit will pile on the interest burden. Total interest payment soared 2.15 times to Tk 32,114 crore in the five years to 2016-17, the think-tank said.

“This is creating pressure. Relatively, the rich are buying savings certificates by opening accounts in their own or fictitious name,” said CPD Distinguished Fellow Mustafizur Rahman while presenting its reading on the overall state of the economy. The budget financing strategy should be changed, he said.

The amount of bad loans in the banking sector is Tk 64,618 crore, which is 87 percent of the total classified loans, according to the think-tank. “This is a bad sign,” Rahman said, while recommending the authorities modernise the legal framework, including Money Loan Court Act 2003 and Bankruptcy Act 1997, and increase the number of judges to deal with non-performing loans.

The CPD urged the policymakers to show zero tolerance in cutting down the NPL ratio and refrain from issuing licences for new banks. Instead, mobile banking should be encouraged to promote financial inclusion, it added. The think-tank also welcomed the government's move to form a banking reform commission. 

When it comes to the banking sector, the policymakers focus more on the symptoms of the disease instead of the cure, Bhattacharya said. “Liquidity crisis is not a crisis. The main problem is the absence of good governance in the whole banking sector. It is a perverse political economy.” He went on to come down hard on the central bank and the finance ministry.

“They are supposed to safeguard the interests of depositors. Instead, they are protecting the interests of those with ill motives,” Bhattacharya added. Recommendation for budget for fiscal 2018-19 The CPD suggested a hike in the tax-free income limit to Tk 300,000 for 2018-19, after which a 7.5 percent tax can be applicable but up to a certain limit.

It recommended an economy-wide impact study before reducing the corporate income tax as a cut doesn't guarantee an increase in private investment. “A reduction of corporate tax is effective in attracting private investment only when the overall investment climate is conducive for business.” The think-tank recommended increased allocation for education, health and social protection sectors. Stay updated on the go with The Daily Star News App. Click here to download it for your device.