STAR BUSINESS REPORT

The rise in non-performing loans, red-hot inflation, illicit fund flows and lately an uptick in the poverty rate are the direct outcomes of the Bangladesh Bank (BB) losing its autonomy, according to economists.

In its paper, local think tank Policy Research Institute (PRI) says regulatory forbearance had allowed bad debts to balloon to Tk 420,335 crore by March this year.

Besides, inflation reached 11.66 percent in July last year and has stayed high compared to neighbouring countries, eroding real incomes, said PRI’s Principal Economist Ashikur Rahman while presenting the paper at a roundtable.

The programme, titled “The Imperative for Central Bank Independence”, was organised by PRI with support from the UK International Development (UKID) in Dhaka yesterday.

According to the paper, widespread money laundering and capital flight have deepened liquidity shortages and weakened public trust in the financial system. Meanwhile, persistent inflation and financial instability have reversed the poverty reduction progress.

PRI recommended insulating monetary policy, bank licensing, regulation, supervision and government debt financing from political or executive interference.

The paper also said that the Bangladesh Bank Order-1972, despite its 2003 amendments, is outdated and unsuited to the needs of a modern central bank tasked with ensuring price and financial stability and encouraging sectoral development.

“The establishment of the Financial Institutions Division under the Ministry of Finance and weak central bank leadership over the past decade have severely curtailed Bangladesh Bank’s operational independence,” says the paper.

Amir Khosru Mahmud Chowdhury, standing committee member of BNP and also a former minister, attended the event as the chief guest.

Khosru said the BNP believes in central bank autonomy, but he argued that independence alone will not work unless other financial institutions are also strengthened.