Keep lending rate free floating: Economists

The government should allow banks to determine their lending rates according to the market demand considering the current inflation situation like it did in the case of the taka-dollar exchange rate, said economists.

They added that should the government decide to leave the lending rate to the market, the rate will increase, which people have to accept.

"Now the savings rate in banks is 6%, whereas the inflation rate is 6.5%. So it is negative for the depositors. So, you have to pay interest rate on free float and you have to accept that the interest rate will increase," distinguished CPD fellow Professor Mustfizur Rahman elaborated at a discussion meeting jointly organised by the Policy Research Institute (PRI) and Ekattor tv.

Zahid Hussain, former lead economist at World Bank Dhaka office said, "Bangladesh Bank's decision to leave the exchange rate to the market is correct. But where the dollar is being sold at Tk92 or more, the central bank is selling at a rate of Tk88. This is counterproductive."

He emphasised on keeping the demand management and supply on track.

AB Mirza Azizul Islam, former finance advisor of a caretaker government, said, "The coverage of social safety network needs to be increased and its smooth distribution needs to be ensured. We often see that those who are deserving do not get this facility while those who are not supposed to come under this facility get it. The budget should have guidelines in this regard."

He further said it is not possible to deal that with the current inflationary pressures with a contractionary budget.

Zahid Hussaid however thinks although the budget is contractionary, there is scope to increase the budget deficit.

Dr M Masrur Reaz, chairman at Policy Exchange of Bangladesh said, "For exports we must think of alternative sources. Countries like India, Italy and Indonesia are doing that."

PRI Executive Director Dr Ahsan H Mansur, the moderator of the event, said expending massive sums of money while not modernising loss-incurring state-owned companies is equivalent to "draining the budget".

"We are keeping state-owned institutions and not allocating funds for modernisation. Over Tk1 crore were spent for institutions like Bangladesh Railway. Similarly, thousands of crores are allocated for organisations including Teletalk," he said.

"The budget is not just an account of income, expenditure or arithmetic. It involves many issues, including social issues and investment. The current instability needs to be overcome through monetary and fiscal policy," added Dr Mansur.

Binayak Sen, director general at the Bangladesh Institute of Development Studies, said the reason for the plight of the jute industry is lack of modernisation.

Professor Mustfizur Rahman urged that focus be kept on people's purchasing power, standard of living and distribution rather than calculating growth in the forthcoming budget.

Field level NBR officers were the only obstacle for VAT Act in 2012

The issue of failed revenue reform and non-implementation of the much talked about VAT Act of 2012 came up in the discussion. The then NBR member Barrister Jahangir Hossain said the VAT Act of 1991 was much better than the current one.

Ahsan H Mansur asked if the field level officers blocked the law to be implemented in 2012? In response, Jahangir Hossain said, "Obviously. No one from outside did it."

He also said a study needs to be done on the law currently being implemented.

"NBR's challenges have increased but its capacity has decreased," he added.

Dr Selim Raihan, executive director at South Asian Network on Economic Modelling, Farid Uddin, former NBR member, Syed Mahbubur Rahman, managing director of Mutual Trust Bank and Shamsul Huq Zahid, editor of The Financial Express spoke among others at the event.