Farashuddin terms monetary policy contractionary

Financial Express May 28, 2012

Former central bank governor Mohammed Farashuddin Sunday said continuation of contractionary monetary policy for a longer period is not supportive of growth and employment generation.

“I think such monetary policy might rein in inflationary pressures only. But expectation also increases inflation,” he said.

He was speaking at a seminar, titled ‘Current state of economy and way forward’, organised by the Bangladesh Bank Training Academy at the central bank’s conference room.

The former BB governor said: “There is a need for strong coordination between fiscal and monetary policies.”

He was highly critical of the National Board of Revenue (NBR) for its failure in checking under-invoicing of imported goods. “All successes of the revenue board become useless for this bad practice.”

Mr Farashuddin said a section of importers are evading taxes through under-invoicing of their imported goods, which causes huge revenue loss to the government.

He said around US$ 16 billion worth of aid still remains in the pipeline, adding: “We must use it for our economic growth.”

He said the central bank should try to enact a law on merger and acquisition.

The former BB governor was also critical of slow implantation of annual development programme (ADP), increase in public expenditure, and slow pace in investment growth.

“High public expenditure is a major challenge for the government, and the government is failing to keep quality in public expenditure.”

Mr Farashudidn said the government should consider calculation of fiscal year from January to December instead of the existing July-June for better utilisation of ADP, as the rainy season in May-June period affects its speedy implementation at the end of fiscal.

He said disparity between the rich and the poor has been widening day by day in the country.

“Only 5.0 per cent of the total population are the owners of 40 per cent assets. But only 1.0 million people are paying tax on a regular basis, leading to a poor tax-GDP (gross domestic product) ratio.”

The former BB governor said these highly rich people should recognise the government’s role in improvement of their financial condition.

He said the disparity should be eradicated, adding: “Financial inclusion of people remains a step to reduce the gap.”

Mr Farashuddin, also the founder vice-chancellor of East West University, was critical of the central bank’s poor monitoring system, and raised question: “How did Destiny transfer over Tk 40 billion?”

He said the expatriates’ hard-earned remittance remains mostly underutilised, and the government might think of utilising the remittance earning for construction of Padma Bridge.

He said the central bank’s decision relating to opening of new commercial banks is justified, as the bank-population ratio is still poor in Bangladesh, even comparing with the neighbouring nations.

“We should not count the number of banks, rather we should look at the number of branches. I think the Bangladesh Bank’s move to set up branches at 1:1 ratio for urban and rural areas is very encouraging.”

The former BB governor said Bangladesh should take immediate steps for exploring coal. “We can produce 20,000 megawatt of electricity for 50 years by utilising our coal reserve.”

He said the country’s real GDP has become almost double over the last 20 years. “We’ve effectively defied financial crisis, faced by the advanced nations.”

He said the investment-GDP ratio should be scaled up to 30 per cent from the existing 24 per cent.

Mr Farashuddin said Bangladesh’s economy is now based on narrow bases. “It should be broadened and diversified.”

Areas like leather, furniture, plastic, ship-building, high-value added fish products, and upper-end ready-made garment etc should be emphasised for speedy and higher export earning, he added.

Addressing the seminar BB Governor Dr Atiur Rahman said Bangladesh has many successful stories during the last 40 years.

“Many qualitative changes have been made over the last 40 years, we failed to rightly highlight the stories,” Mr Atiur added.

He said Bangladesh’s export earning was merely $ 700 million at the end of 1970s. “We’re now expecting export earnings worth $ 26 billion.”

Mr Atiur said the country’s foreign reserve was $ 1.6 billion in 2000, which reached $ 10.90 billion in 2011.

Bangladesh has the highest financial inclusion in South Asia after Sri Lanka, he added.