A significant rise in import of capital machinery in recent months has raised doubts among the customs authorities and economists over flight of capital through over-invoicing by a certain quarter sensing political transition.
While both local and foreign investment scenario has remained gloomy, import of capital machinery increased by 15.01 per cent in the July-September period of the current fiscal year compared to that of last year.
Investment in the private sector fell in 2013 while import of capital machinery and raw materials showed an upward trend.
Local and foreign investment registered with Board of Investment (BoI) in fiscal year 2012-13 fell by 24 per cent while it declined by 10 per cent in FY 2011-12.
Following the upward trend of import of capital machinery, both the Bangladesh Bank (BB) and the Customs department of the National Board of Revenue (NBR) have taken cautious steps to check capital flight.
The Customs intelligence wing recently instructed the field offices to thoroughly examine the imported capital machinery before release. Also the BB has instructed commercial banks to closely monitor the Letters of Credit (LCs) that importers open for capital machinery.
Sources in the Customs wing acknowledged that they also smelt such over-invoicing as some of the importers are claiming some ordinary machinery as high-end ones.
World Bank (WB) chief economist for Bangladesh Dr Zahid Hussain also suspected capital flight through over-invoicing on import of capital machinery.
"Capital machinery import is increasing amid unfavourable investment climate. It doesn't make any economic sense," he said.
He said capital flight in terms of cash was feared in August-September when exchange rates in kerb market were depreciating while inter-banking rates were appreciating.
There was a 1.2 per cent difference in US dollar price between kerb market and inter-banking rates until February which rose to 4.1 per cent in September, he said.
Currently, exchange rates of US dollar are Tk 79 and Tk 77 respectively in the kerb and inter-banking markets respectively. This reduced the scope of repatriation of cash money.
"The possibility of capital flight could not be ruled out under these circumstances," he said suggesting strict monitoring by the central bank on this issue.
Dr Mirza Azizul Islam, former Finance Adviser to the caretaker government, cited four reasons for increase in capital machinery import. These include capital flight through showing inflated prices of capital machinery.
"It can be speculated due to political transition. Showing inflated prices on duty-free items is used as a strategy of capital flight as no taxes are involved in prices of the machinery," he added.
However, Dr Islam said three months' data is not sufficient to comment.
It could be an impressive growth over the negative trend on capital machinery import in the corresponding period, he said. Import of capital machinery registered a fall of 17.45 per cent in the July-August period of FY 2012-13 that was 44.23 per cent in the corresponding period.
"Some investors also may have imported capital machinery eying improvement of the current political situation in January," he added.
In similar vein, Dr Salehuddin Ahmed, former Governor of the BB, said the financial market is not showing any sign of investment. So it can be speculated that some people are shifting money in the political transition period.
The Customs department has found import of capital machinery through Inland Container Depot (ICD), Dhaka dropping slightly. But it increased marginally in Chittagong Customs House (CCH).
A senior Customs official, preferring anonymity, said usually Customs officials do not thoroughly examine the capital machinery that is imported under duty-free facility. He said some importers show higher purchase value on their imported capital machinery which seems illogical.
"Mainly, capital machinery that has been imported under duty-free facility by some export-oriented industries show inflated prices by nearly 60 to 70 per cent," he added.
"While there is no sign of increase of both local and foreign investment, capital machinery import is going up. It is quite suspicious," he said.
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