Alarm bells are ringing in Bangladesh’s banking sector. Islamic finance, usually touted as a pillar of ethical capitalism, is embroiled in a printing frenzy, raising troubling questions about accountability and stability. Ahsan H. Mansoor, Executive Director of the Policy Research Institute (PRI), isn’t mincing words: “It’s a ticking time bomb,” he warns.
Highlighting the poor state of the banking sector, Policy Research Institute (PRI) Executive Director Ahsan H Mansoor said, that now is the time to take effective measures without announcements. But nothing was seen in the new monetary policy. 10 to 15 banks in the country have reached a weak state. For these weak banks, the country should start mergers and acquisitions.
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The biggest misfortune is that even though Bangladesh Bank has stopped lending to the government by printing money, it is printing money to some Islamic banks. Again these banks have no accountability.
He made this comment at a round table meeting on ‘Economy: Challenges of the new government’ organized on Saturday. Economists, researchers, business leaders, and teachers were present at the meeting.
Ahsan H. Mansoor said, Bangladesh Bank stopped printing money with one hand and printing money with another hand. It is given to sustain a few Islamic banks. On the one hand, there is talk of being tough, on the other hand, it is also being announced that banks will not be closed. This is sending the wrong message to the entire sector. Now it should be said, that the weak bank will be closed.
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This researcher-economist said under the governor’s authority, money is being funneled to Islamic banks. No one has the authority to give people’s money to any bank like this. There should be accountability for giving money like this. Why the banks have become so bad in two or three years, the reason has to be explained. Instead of taking the initiative to restore trust, money is being printed and given to the bank. This trend must be stopped.
Ahsan H Mansoor said the new government should take some steps in the short term. In this, quick initiatives should be taken to restore stability in inflation and macroeconomics. Inflation should be reduced by raising interest rates. Increasing the interest rate will also stabilize the dollar exchange rate. The bank’s liquidity crisis will also be resolved. Money outside will return to the bank. Besides, the confidence of the depositors should be restored. What is going on in the Islamic banks should be stopped
The executive director of PRI said that another problem in the country’s economy is the deficit of financial accounts. Big corporates that previously took out foreign loans at low interest rates are now repaying them as the dollar appreciates. Besides, taking new loans has stopped. This deficiency has been created for this. Fiscal account deficits, dollar-crisis, and inflation have to be fixed with interest rates. If inflation decreases, interest rates will decrease again. Apart from this, if the financial deficit is not fixed, the dollar crisis will not be resolved.
Ahsan H Mansoor said that the policy interest rate has been increased by 25 basis points in monetary policy. This will not work. The smaller the steps, the longer the problem will persist and grow. 9/6 Interest rates have already hurt the economy in many ways. Even if the ‘crawling peg’ method is introduced to determine the price of the dollar, it should be kept close to the market. Otherwise, the new method will not work.
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This economist said that one of the reasons for the instability in the price of the dollar is the power sector. It is time to reconsider the agreements that have been made in the power sector. Power business can no longer be considered a risk-free business. Besides, the price of electricity should be market-based. The contracts that are being made should be disclosed. Especially the contracts executed with companies like Adani should be disclosed. A single company should stop awarding work and award it on a competitive basis. If not, it will seem like a stone is sitting on the chest. All in all, there have to be major reforms in the power sector. Besides, the tax rate should be rationalized in all cases.
Ahsan H. Mansoor said the reason for the increase in the price of products, the price is increasing due to the increase in the exchange rate of the dollar and the shortage of products. There is still a shortage of products despite domestic production and imports.