Central bank uses lower dollar value to show high GDP per capita

TBS Report

August 14, 2022, 9:45 p.m.

Last modification: August 14, 2022, 9:54 PM

Photo: Salahuddin Ahmed/TBS

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Photo: Salahuddin Ahmed/TBS

The central bank is using a weaker dollar valuation to show higher per capita income, which is an unsustainable policy, economists said in a webinar on Saturday.

Addressing the webinar titled “Contemporary Global and National Economy: How Bangladesh Should Do It” organized by the non-profit organization Banking Sector Policy Support (BSPS), the experts said that the fixed dollar interbank rate was not not used by the market and that the resulting discrepancies make it difficult for Bangladesh to coordinate its foreign and economic policies.

They further said that the penalty imposed on six banks for charging prices above the set dollar prices has fueled fears in the market as a new direction that everyone can support is becoming the need of the hour.

During the webinar, Executive Director of the Policy Research Institute, Ahsan H Mansoor, said interbank rates were only used when the central bank was selling dollars, while at the same time world prices raw materials had a significant impact on Bangladesh’s balance of trade.

“I think the external debt component of the budget will take its toll. We also have to bear the burden of huge external debt. The only reason for that is to keep interest rates low. It will affect the balance sheet,” a- he declared.

Highlighting the differences between the interbank rate and the market rate for the dollar, he said that another rate should now be taken into consideration: the money changers’ rate.

“Due to the pressure in the market, the price of the dollar is fixed by it, which leads to a chaotic foreign exchange market. I think that the Bangladesh Bank still has not found a solution to stabilize the rate of exchange.

On a question on the agricultural side, he said that the government was doing a lot for the farmers, but the increase in fertilizer prices would be a problem amid rising diesel prices.

Dr Zahid Hussain, a former senior economist at the World Bank’s Dhaka office, said international politics had become tricky now and warned against suffering because of complacency.

Mentioning that economists will highlight the trade-offs of any decision, he said, it is the responsibility of economists to call it what it is.

“We tend to blame,” he said of the punishment of six bank treasury chiefs, adding that their only crime was profiting, although both imports and exports increased, making bankers’ profits a natural consequence.

“Regulators regulate banks, not individuals. A bank’s job is to buy low and sell high; they did it for their organization. Yet the regulator took action against the individuals,” he said.

Zahid Hussain also gave his support for removing remittance subsidies, saying it could save Tk 4,000-5,000 crore.

“We say that remittance income increases because of subsidies. But is this really the case? Remittances increased during Covid-19, but this was due to the closure of the curbside market. If it increased because of the subsidy, then why did it decrease? It is time to rethink our subsidy regime,” he said.

He also called for accelerated revenue mobilization, especially for key development projects. “We want to achieve double digit gross domestic product, but it is still stuck in single digits. Taxes from citizens do not reach the government in full, part is collected through intermediaries. We need to reform taxes and have separate tax policy and tax administration,” he said.

Kazi Mahmood Sattar, Chairman of IPDC Finance Limited and Chairman of RSA Advisory Limited, said traders expect instability in the market as they cannot make much profit when it is stable.

He however said that if exporters were buying dollars at Tk 96-98, then the LC settlement at Tk 110 was simply not correct.

He also said that inflation should have been controlled by increasing the price of silver instead of demand, adding that the price of oil should have been adjusted beforehand.

Referring to the need for a stable decision from the regulator, the IPDC Finance Chairman said, “Our economy has improved a lot over the past 10 years and the banking sector has provided a lot of support to the country. over the past 50 years. The banks have worked hard on the industrial growth that we have achieved in 30 years. I think the regulator needs to gain more trust in the market.”

At the start of the webinar, MGK Jewel, Senior Relationship Manager of Eastern Private Banking, gave a presentation on the past and present economic crises of the country and the world.

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