Banking industry now an orphan, says CPD

High budgetary projection is nothing but ‘fiscal illusion’

FE Report | Wednesday, 18 April 2018

The private think-tank Centre for Policy Dialogue (CPD) Tuesday termed the country's banking sector an 'orphan' and wanted the government to form an 'independent commission' to critically assess the problems and make appropriate recommendations for prudential banking.
'The banking sector has become an orphan and its regulators are abusing it', said CPD's distinguished fellow Dr Debapriya Bhattacharya while presenting the budget recommendations for the fiscal year (FY) 2018-19 at a press conference in Dhaka.
He also described the banking system a 'physically challenged' one.
"We earlier termed the year 2017 as a year of banking scam," Dr Bhattacharya said.
The banking sector regulator, he claimed, was adopting various measures in breach of its own monetary statement coming under pressure, he added.
Bhattacharya termed the employment growth 'employment sans income' due to an increase in the unemployment rate among the educated people, women and rural population.
"Despite increased number of employment, average real monthly income suffered erosion in FY 2017, by (-) 2.5 per cent. The decline is higher for female labour, by (-) 3.8 per cent," CPD said in its presentation.
Bhattacharya suggested strengthening surveillance to check capital flight in the election year through trade mispricing of capital goods import. He said there has been substantial private sector credit growth. But he wanted to know its destination because of the lacklustre investment growth.
For the banking sector, he suggested reining in the rate of interest, exchange rate and credit flow.
"Policy consistency should be exercised in view of the monetary policy statement," he said.
The government has changed the Cash Reserve Ratio (CRR) within a short period after unveiling the monetary policy, he said.
Initiatives to boost liquidity supply contradict the government's earlier conservative monetary stance, he added.
He said the outcome of GDP growth, 7.0 plus, did not contribute to employment growth.
Prof Mustafizur Rahman, Executive Director of CPD, expressed his doubt over achieving higher GDP growth in such a situation.
He said average income has gone up but real income of employed workforce is reducing.
Regional disparity has increased on employment, Bhattacharya said, adding that employment increased in service sector, not in the manufacturing sector.
The CPD also found inconsistency in the government's data and documents on the rate of growth, income generation, employment generation and industrial production.
Bhattacharya said private sector investment remained almost stagnant during the last three years, worsening the unemployment scenario.
He said the government will have to focus on macro-economic stability in the upcoming budget.
In the programme, CPD research fellow Towfiqul Islam Khan presented the budget recommendations for the FY 2018-19.
He suggested that the government cut corporate tax rates cautiously assessing its impact, increase the tax-free threshold for individual taxpayers to Tk 0.3 million from existing Tk 250,000, reduce the minimum tax rate for individual taxpayers to 7.5 per cent from 10 per cent.
He said the government may face Tk 500 billion shortfall in its revenue collection target, both tax, non-tax, in the current fiscal year.
Bhattacharya said high projection of the budget is nothing but a 'fiscal illusion'.
"There is water in the budget and water level may rise," he said.
On the country's capital market, Khandoker Golam Moazzem, Research Director of CPD, said there must be separate code of conduct for institutional investors in the share market.
"We have found some allegations that 21 banks invested in the stock market beyond their exposure limit last year. In this case, there is no basic difference between small and institutional investors," he said.
Responding to a question, Dr Fahmida Khatun, Research Director and head of research at the CPD, said black money whitening facility in the budget is not legally acceptable as it goes against the interest of genuine taxpayers.
She said the government should let the 'problem' banks die or merge those with other banks as Bangladesh doesn't need so many banks.
Mustafizur Rahman said CPD is not against cut in corporate tax rather it would suggest to 'revise, review and refine' the rates.
"The budget should refrain from reducing corporate tax on an ad-hoc basis, in a hasty manner and without a rigorous analysis. Adjustments of corporate tax rates, if required, should be done in a staggered way over medium term in order to absorb any revenue shock and provide investors predictability as regards investment decisions," CPD said in its recommendations.
In the budget recommendation, CPD said leather sector showed an impressive growth but its export earnings declined by 3.0 per cent.
It expressed doubt that domestic consumption may lead the growth.
Mr Towfiqul Islam said the budget deficit may not widen this year due to lower expenditure.
Also, the export target is unlikely to be fulfilled this year as export growth of non-traditional products has come down.
He said the government's weakness in taking policy decision affected the banking sector.
"Recapitalisation has to be checked as it is not justifiable to use taxpayers' money for salvaging state-owned banks," he said.
He said an independent commission is required for banking sector.
Mr Islam suggested that the Bangladesh Bank (BB) and Securities and Exchange Commission (SEC) prepare code of conduct for institutional investors of stock market and expedite joining hand with the strategic partner for the market.
He also recommended offering export incentives including special bonded warehouse facility to other exporting sectors along with readymade garments.
He said 2.0 per cent cash incentives for exporting RMG goods to European market may be reviewed to offer it to other destinations.
The CPD suggested keeping special allocation of around US$1.0 billion in the upcoming budget for Rohingya refugees for their food security, sanitation, shelter, site management and health.
The think tank leaders recommended creating a trust fund for non-governmental organizations worth Tk 5.0 billion to help them deliver to the cause of the Sustainable Development Goals (SDGs).
The CPD also proposed imposing tax on agricultural income if it crosses a certain limit, introducing a comprehensive property tax and inheritance tax, launching electronic tax deduction at sources (e-TDS), establishing public expenditure review commission for ensuring accuracy of cost estimation of public investment projects and laying emphasis on special economic zones (SEZs).

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