While announcing the monetary policy, Bangladesh Bank Governor Fazle Kabir said its prime target is to rein in inflation. But what should have been done was lift the interest rate ceiling. This would increase the interest rate on loans and eventually translate into reduction in the amount of loans. This would have made it possible to rein in inflation.
But the central bank is failing to intervene in the process as the interest rate is set by the government. The average interest rate, according to Bangladesh Bank, is still 7 per cent, but most of the borrowers, in reality, pay interest at a rate of 9 per cent. The interest rate on loans taken by some big clients cannot be considered as the actual rate.
The governor claimed that the Bangladesh Bank is independent to take any decision and it enjoys an absolute autonomy. Then the entire responsibility for the prevailing crisis in the banking sector goes to him (the governor). He has to take all responsibility if he possesses all the authority. Persons accused of murder, notorious money launderers, defaulters – are all now bank chairmen.
The problem is deteriorating due to the way Bangladesh Bank is raising the dollar price. It requires big steps, not small ones. If the current trend continues, the dollar price will reach Tk 120.
The main challenge of the new fiscal is a huge revenue deficit. Besides, the government subsidy has increased to a great extent and it will increase further in the future.
To address the budget deficit, a large amount of loans need to be brought in from abroad. The government has already started talks with the World Bank and the International Monetary Fund. But it requires major reforms to get overseas loans. The revenue sector needs to be the top priority in the reform process and the banking sector, interest rate and bank ownership come in the following phases.
Metro rail and Karnaphuli tunnel will be launched in the new fiscal year and the Padma Bridge has already been launched —these all are potentials. The government will start getting revenue from these projects.
It will be a year of economic recession, so I do not expect too much. If we can control the dollar price, in addition to containing inflation, it will be better for the people.
* Ahsan H Mansur is Executive Director, Policy Research Institute (PRI)