Defaulters have become powerful figures within govt: Rehman Sobhan

Defaulters have become powerful figures within the government, said noted economist and the Chairman of the Centre for Policy Dialogue (CPD) Professor Rehman Sobhan.

"Loan defaults have become the new normal. If one person repays a loan after six months and another doesn't even after 10 years, then those two cannot compete," he said, explaining how the culture had become prevalent, at an event organised by the Economic Reporters Forum (ERF) on Monday.

He alleged that business leaders went to politicians and asked for their loans to be rescheduled. The politicians, in turn, called the bankers to ensure that the request was met.

"Reschedules and write-offs are happening. But not repayment," he said.

On the political side, he said Bangladesh's official position is that defaulters cannot participate in the election. 

"But before the election, we see that there is a scope to make 5% down payments on loans and reschedule those. Once the payment is made and the person is elected, they don't make any more repayments," he said. 

He said the violation wasn't punished and the defaulters continued to remain in power.

"Defaulters have become integrated with the government."

"We now have two economies and two societies in our country. Those who have economic power have captured political power. Now, everything is entwined with business. Politics and economy are integrated," he said. 

The noted economist said normally governments retain autonomy over businesses. "But when government leaders become businessmen, then it's a problem."

He said such a situation could be seen from the highest echelons of power to the lowest rungs.

Rehman Sobhan said this nexus needed to be broken, even if it was said that doing so would be impossible.

IMF won't be able to help if reserves fall to $10 billion

If the foreign reserves reach $10 billion, it will be a cause for concern as even the International Monetary Fund (IMF) won't be able to help then, he said.

Rehman Sobhan said the economic condition of Bangladesh was not like that of Sri Lanka, but there remained a cause for concern over the reserves. 

"We have a large export sector. Along with that, there is remittance or expatriate income, which is much higher than Sri Lanka," he further said, adding that is why he does not believe that the overall economic situation of Bangladesh can ever be like that of Sri Lanka.

Inward remittances dropped to $1.34 billion in September, the lowest in 41 months, according to the Bangladesh Bank data released on Sunday, though August saw the highest number of workers going abroad in a single month and a record 11.3 lakh in FY23.

Bangladesh's foreign exchange reserves continue to slide and stood at $21.15 billion on 26 September in line with the IMF reserve calculation method, according to central bank data. 

In this regard, noting that remittance inflow in the country has been declining, he said, "But that does not mean that expatriate income has actually decreased. Instead of coming through formal channels, expatriate income is coming through informal channels – the main medium being hundi. 

"Instead of being deposited in the Bangladesh Bank, reserves are being deposited in hundi, therefore, outside the country." 

So, it has become quite convenient for those who smuggle money abroad, he remarked.

Mentioning that there has been a big change in the culture of the country's financial sector, the economist said, "Non-repayment after borrowing has become the norm. 

"It is not done by large businesses. Rather, those who are involved in such events introduce themselves as big politicians," he said.

"Representatives of the World Bank, the IMF – who are now coming to Dhaka and asking to reduce defaulted loans, their fathers and grandfathers have also come here and said the same things. But loan defaults are not declining," he added.

ERF General Secretary Abul Kashem moderated the event chaired by the organisation's President Mohammad Refayet Ullah Mirdha.