Rise in import payment of capital machinery

The rise in the country's import payments for capital machinery should have signaled positively for energising its stagnating investment scenario. To be precise, import payments registered a 52 per cent growth in July-August this fiscal year (FY) compared with that of the corresponding months of the last fiscal. Bangladesh Bank data show import of capital machinery increased to $196.74 million in July against $130.12 million during the same month last year. This rise in import of capital machinery has caused many an eyebrows raised, especially in view of the long-persisting lacklustre investment activities in the economy affecting its vital sectors. The situation, no doubt, seems a trifle dubious. The scenario does not offer a view that ideally should be in harmony with the ground realities. A still more conflicting aspect that also does not support the 'unqualified' rise in import of capital machinery is the downward trend in private sector lending by the banking system.

Economists and bankers have already expressed concern over the mismatch in this state of affairs. Although rushing to a conclusion from the unexpected rise in letters of credit (LC) settlements of capital machinery imports -- attributing it to capital flight -- is too early, the concerns must not be ruled out. One of the reasons why economists tend to hold that capital flight through over-invoicing may be the case is that zero duty applicable to capital machinery makes such alleged capital fight not too difficult. There may be other factors as well. One being the difference in the kerb market exchange rate and the inter-banking one that may be found too tempting for the illegal operators. On the flip side, there are optimists who hold that businesses are looking forward to a congenial environment during the remaining part of the current tenure of the incumbent government.

Whatever the speculations, suspicious rise in capital machinery imports must be looked into. Agencies responsible to examine and bring the matter under scrutiny are the central bank and the customs authority. There is clearly a problem for the government as to how to go about the matter, though knowing fully well that money laundering is rampant on various counts. The case with the suspicious increase in capital machinery imports may be just one of the components. The Finance Minister has recently instructed the National Board of Revenue (NBR) to come up with elaborate plans to detect suspicious imports through over-invoicing.

However, the reality is: more than the customs, it is the central bank which is better equipped to handle the matter. The customs authorities do not have any mechanism to detect transfer pricing, a channel through which over-invoicing may take place. So, it is the central bank which has to act to check on the alleged irregularity. Experts are of the view that an automated monitoring system connecting all commercial banks with the central bank may help in closely monitoring all transactions pertaining to exports and imports. The central bank may also tie up with the NBR in this connection to strengthen its vigil.