Unqualified rise in imports of capital machinery

Against the backdrop of the country's sluggish investment for most part of 2014, a sudden rise in import of capital machinery in the later period of the year has caused eyebrows to raise. The trend appears a trifle dubious as there were not enough visible grounds to prompt a sharp leap in the import of capital machinery-- obviously with hefty amounts in foreign exchange. Media reports, quoting the central bank data, say that the country's capital machinery imports registered a 21.29 per cent increase during July-November, 2014 compared with the corresponding period of the preceding year. In value terms, the rise stands at $1.15 billion. The Bangladesh Bank data showed that the overall settlement of letters of credit (LCs) registered a 11.36 per cent growth during the same period.
That the situation is unusual is attested by the dull business environment, despite the apparent calm throughout 2014. There was no sign of any increase in import of capital machinery during the first half of the year. Economists and bankers have already expressed concern over the mismatch in the state of affairs. Although rushing to a conclusion attributing it to 'money laundering' is too early, the concerns must not be ruled out. One of the reasons why economists tend to hold that 'money laundering' through over-invoicing may be the case is that zero duty applicable to capital machinery makes such alleged capital fight not too difficult. On the flip side, however, there are optimists who hold that businesses are looking forward to the current year when things might look altogether different.
Still, it needs to be recognised that the development does not offer a picture in harmony with the ground realities. One of the conflicting features that also does not support the 'unqualified' rise in import of capital machinery is the downward trend in private sector lending by the banking sector. The reversed situation causing large import payments has raised the suspicion that money might have been laundered abroad. The central bank has reportedly taken an initiative in this regard suspecting money laundering.  
The suspicious rise in capital machinery imports must be seriously looked into. Agencies responsible to examine and bring the matter under scrutiny are the central bank and the customs authority. More than the customs personnel, 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 National Board of Revenue (NBR) in this connection to strengthen its vigil.