Central bank must exercise its autonomy to keep economy on track

The Bangladesh Bank needs to function with full autonomy, as stipulated in the law, to keep the economy on track for strong growth, noted bankers said at the Second Bangladesh Economic Conference-2021, organised by Daily Banik Barta and City Bank in Dhaka on Wednesday.

The Bangladesh Bank's autonomy now exists on paper but not in practice, mentioned Salehuddin Ahmed, former governor of the Bangladesh Bank, adding the central bank must raise its voice on different issues.

The existing banking law in Bangladesh is very well defined and is of international standard, but is not properly complied with, he observed and stressed the need for following the law properly.

Mentioning that the central bank should neither over-regulate the banking sector nor show absolute laxity, Salehuddin said the central bank has to work in the interest of the government and industries.

Economist Wahiduddin Mahmud said, "We have been able to formulate a good law to manage our banks. But, we have not yet learned what the regulations might be so that many banks do not fall into the hands of a single family."

In this situation, if more credibility and integrity are not ensured in the banking sector, it will be difficult to move ahead.

Mohammad Farashuddin, former governor of the Bangladesh Bank, said the central bank has to play a tougher role to curb money laundering. In this case, the Bangladesh Bank can work in coordination with other government agencies, he suggested.

The job of the central bank is to control inflation, preserve the value of the currency and keep an eye on banking regulations. In this case, there is no alternative to work independently, Farashuddin added.

Referring to the existing discrepancy in providing incentives, he said large entrepreneurs got 80% of the incentives given during the Covid pandemic, depriving small traders.

He urged the authorities to think more about the issue.

He also mentioned that Bangladesh should continue its efforts to overcome the losses induced by Covid.

AK Azad, managing director of Ha-Meem Group, told the conference that even though there is a single-borrower exposure limit, the central bank often approves loan proposals that exceed the limit. If this practice can be stopped, the amount of defaulted loans can be reduced and interest rates also can be reduced further, he observed.

He also said that banks often are forced to lend money under political influence.

AK Azad further said if the Bangladesh Bank is given autonomy in different areas, then there will be more employment and the economy will be expanded further.

Fazle Kabir, governor of the Bangladesh Bank, presented the keynote at the conference. He said Bangladesh is now the 41st largest economy in the world and that it will be the 25th largest by 2035.

The world economy was in turmoil due to Covid, he said, adding the number of new entries into the poverty line have increased at an alarming rate.

He went on to say the economy of Bangladesh has shown much resilience when compared to other countries in the world. The Bangladesh Bank has taken the lead in keeping the backbone of the country's economy straight and overcoming the losses caused by Covid.

Mashiur Rahman, economic affairs adviser to the prime minister, said that non-performing loans in the banking sector have increased a lot. Banks often face liquidity crises. But it is not supposed to happen if loans are repaid properly.

He called for reining in the willful defaulters.

Atiur Rahman, former governor of the Bangladesh Bank, suggested increasing the current rate of incentive on foreign remittance from 2% to 3%.

Remittance is one of the three biggest contributors to the economic recovery from Covid-19, he mentioned.

Abdur Rauf Talukder, senior secretary to the Finance Division, told the event that coordination between the Bangladesh Bank and the Ministry of Finance is needed to give further momentum to the economic growth.