A number of economists have said the currency of Bangladesh is overvalued than that of the neighbouring countries. China, India and Pakistan have devalued their currency. But the Bangladesh government has been providing incentives to export business and remittance income instead of devaluing the currency.
The reason is, devaluing the currency will increase the import expenditure. The question is, how long will this principle be followed? Where will the money come from in the long run? Even incentives are not being able to avert the drop in export.
Earning from remittance and IT sectors has increased but the incentives are not required as the forex reserve is not in any imminent crisis now. The target can be achieved by devaluing the currency a bit.
Sanchaypatra interest rate vs one digit interest rate
In a sudden step, the government has slashed the interest rate in post office savings certificate to half, from 11.28 per cent to 6 per cent. Earlier, the source tax rate on sanchaypatra income was increased to 10 per cent from five per cent. Interest rate in banks is six per cent while the inflation rate is six or 6.5 per cent, which means, there is no difference between depositing money in the banks and not doing so. Interest rate in post office savings certificate is also the same. Why has the government taken such a step?
Economist Rashed Al Mahmud Titumir said, “The government first took money from the banks due to fall in tax income. The money it borrowed from banks crossed the amount it fixed to take as loan in a year. Then it composed laws to take the money of autonomous organisations. Now the share of state-owned banks will be off-loaded to stock markets to reduce its loss of capital. But it is not taking steps against those who have drawn money from the banks. Reducing the interest rate of Sanchaypatra scheme will affect the pensioners, the weaker section of people. State’s expenditure regarding the interest has lessened. On the other hand, a decision has been taken to give every UNO a car worth Tk 9.4 million.”
Government loan vs private loan
How would the loan in private sector increase when the government itself has been taking a huge amount of loan? In 2011-12 fiscal, investment in private sector was 22.5 per cent of GDP which has become stagnant to 23.26 per cent in 2017-18 fiscal. Private sector’s loan has come down to 9.83 per cent, the lowest in the last 11 years.
Dangers of taking autonomous bodies’ money to state exchequer
The amount surplus money the autonomous, semi-autonomous, statutory government bodies and public non-financial corporations is over Tk 2.12 trillion. The government passed the law amid tough resistance from the opposition in parliament, even walkout. This might provide the government the money required to meet its soaring expenditure against the gradually increasing deficit of tax revenue but it will have other ramifications. The institutions might increase unnecessary expenses so that no money remains as surplus, which will permanently encourage rise of corruption institutionally. Services, research and planning would become overly dependent on the government as it would not have capital deposit and income against it. The institutions might lose their autonomous character as they would not be able to take decisions due to economic constraints. Future planning might lose its speed over assumptions of severe economic chaos and security of deposit. Overall, the institutions might lose their aspirations. If this is so, the law would remain as a black law.
Risk in securing deposits at lower level
The draft law on securing deposits said highest amount of compensation in cases of liquidation of banks and other financial institutions is Tk 100,000. This creates an environment of fear over security of deposit of middle and bigger depositors. This seems to be directly confrontational with the one-digit interest policy. When people are losing interest in depositing money at banks due to interest rate close to or lower than the inflation rate of six per cent, the government should have provided insurance security to deposit at an acceptable rate. The law composed in 2000 also ensured security of 100,000 taka deposit but it has not been re-fixed taking inflation into account even after 20 years, as India did recently. The amount of money has not been changed in the new law, the only addition is non-banking financial sector. Despite the increase in insurance expenses, new deposit would have been encouraged had the amount of secured deposit been raised.
People will deposit less amount money in banks as the government has not taken these steps, which will increase the risk of creating a negative flow of loan for a longer time. This law will encourage siphoning off money in both legal and illegal ways, when the financial sector is in turmoil over the unholy alliance of four groups – political influentials, bank owners, directors and businessmen. Sometimes we suspect whether this was a step to give indemnity to intentional loan defaulters within a legal structure. Are we getting signals through this that the banks are going to be ‘robbed’ again?
Following India
The government said it has taken decisions quickly, the way India did. But in reality, India itself has fallen in economic recession. Despite this, India has increased the amount of secured deposit to Rs. 500,000 from 100,000 taking inflation and other things into consideration.
Above all, every economy has its different characteristics. India does not have such a gargantuan amount of default loans and a tradition of government’s borrowing. This is why copying India’s policies would not be so fruitful. Former finance minister of India, P Chidambaram clearly said, the problem of Indian economy is in the demand side, not supply side. This means Indian are losing their purchase capacity. In this context, it is necessary to increase people’s purchase capacity. Proving incentives to big businessmen or corporate tax cut will not help. Rather, steps should be taken to ensure how products will be sold more.
Nobel laureate economist Abhijit said to provide cash help to farmers. Second thing is, the BJP-led government is making mistakes in economic policies as it has not been taking help of meritorious economists of India.
Sale of products of various companies and corporate firms also has declined in Bangladesh. Though the total GDP has increased very fast in the last decade, it could not expand the job market in the same way. The job growth rate has come down to 1.33 per cent from 3.32 per cent since 2010. Farmers were deprived of reasonable price of rice at the beginning of the fiscal year. Decline in sale of products, job growth, and stagnation in private and government investment and lack of reasonable price of farm products have affected the purchase power of the people of Bangladesh negatively.
In this context taking decisions hastily could lead the government to make mistakes while looking for money. This is the time to take right decisions regarding financial management coordinating the meritorious economists of the country. The contour of country’s economy will change quickly if decisions are not taken without being honest, cautious and without wisdom, especially at a time of probable recession.- Prothom Alo
