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Economists divided over BB’s favour to cheap foreign credit

Economists have appeared divided over Bangladesh Bank’s allowing private sector to borrow cheap foreign loans.

They exposed the division while speaking at a discussion on July-December monetary policy yesterday.

Some discussants said such type of foreign loan is alarming for the country’s financial market while others said it is important to be competitive in the global market for the private sector.

Bangladesh Bank Governor Atiur Rahman participated in the discussion as chief guest at Bangladesh Institute of Development Studies (BIDS).

Director General of BIDS Mustafa K Mujeri was moderator of the programme.

Former BB Governor Salehuddin Ahmed was very critical about the central bank’s decision to encourage local corporate houses to take foreign loans.

He said: “The banks are yet to reduce their interest rate on lending, which encourages entrepreneurs, even defaulters, to go for foreign loans. Many of them are eligible for loans in the local financial market.”

“The central bank should be more analytical rather than being dependant on some data provided by the banks,” he said.

Echoing Ahmed’s view, former advisor to caretaker government Mirza Azizul Islam said: “The foreign borrowing is risky mainly due to currency mismatches.”

He was pessimistic over achieving targets set in the latest monetary policy statement.

“In my view, even attaining the target set for private sector credit at 14% will not be possible.”

Centre for Policy Dialogue Executive Director Mustafizur Rahman said fluctuation in the rate of LIBOR (London inter-bank offered rate)

might affect the local corporate houses who have been borrowing the foreign loans.

“It is risky in case of medium to long-term borrowers as the rate of LIBOR fluctuates,” he said.

Rahman suggested the central bank to tighten its supervision on non-performing loans that are growing in the banking system, which is bad for the financial sector.

Supporting the BB’s allowing private sector to borrow from the foreign sources, Executive Director of Policy Research Institute of Bangladesh Ahsan H Mansur said customers should have have their own choice. “Foreign loan makes private sector to be competitive in the global market,” he said.

He said bad borrowers are causing problems both for depositors as the rate of interest on deposits are falling. They are also causing problems for good borrowers as the lending rate is not falling due to development of the default culture, he said.

BB Governor Atiur Rahman defended allowing foreign loan for the private sector, he said local companies have been competing globally but manufacturers of other countries had access of cheap borrowing like 3-4%.

He said, “How will they compete if they don’t get the same cheap borrowing facility?”

On rising bad loan, he said,  “If any bank fails to realise its instalments, the BB instantly send electronic mails and the next day central bank inspectors will visit the branch.”

World Bank’s lead economist Zahid Hussain, BIDS research director Zaid Bakht, Change Management advisor to  BB Md Allah Malik Kazemi, BIDS senior research fellow Monzur Hossain, BB chief economist Hassan Zaman and Professor of Economics at Dhaka University MA Taslim also spoke at the function.

Courtesy: The Dhaka Tribune

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