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Economists call for leaving interest rate to be fixed by market

  • Published at 09:45 pm July 3rd, 2019
Unnayan Shamannay
Logo of Unnayan Shamannay

They have warned that an imposed interest rate will make it difficult to overcome the existing liquidity crisis

Economists have suggested leaving the interest rates to be determined by the market trend instead of being set by the government.

They think it always brings positive return when market determines the interest rate, and if it is forced, chaos takes place in currency market. 

They have warned that an imposed interest rate will make it difficult to overcome the existing liquidity crisis.

They came up with the observations at a discussion session titled “National Budget and Inclusive Development” organized by Unnayan Samannay in the capital on Wednesday. 

Atiur Rahman, former governor and chairperson of Unnayan Samannay, said it seemed from the FY 2019-20  budget that the government was determined to reform the financial sector. 

“Regarding the financial sector, some legal reforms have been included in the budget. Through the Insolvency and Bankruptcy Act the government has taken initiatives for borrowers' exit as well as punishment against wilful loan defaulters," he said. 

He suggested that banks could be merged and bank company law amended for keeping the market running while necessary operational freedom should be given to the central bank to open new door for inclusive development at financial sector. 

He also mentioned some points regarding VAT Act which he feared would create chances for tax evasion. 

The small and medium-sized enterprises (SMEs) would be discouraged because of five percent refundable VAT on import of necessary machinery.

To make life easier, he said, the inflation must be brought under control. He also observed that for the education sector the budgetary allocation should be six percent of gross domestic production (GDP) but in the budget it is only two percent. 

Considering the health budget, Bangladesh lagged behind compared to many Asian countries, he said, suggesting that the health sector allocation should have been 10 percent of the national budget but it was only 4.9 percent. 

“However, in the national budget the government has taken many innovative and progressive attempts which really project inclusive development. But implementation of the budget will be the biggest challenge," he added. 

Taufique Ahmed Chowdhury, former  director general of Bangladesh Institute of Bank Management   (BIBM), said inclusive development required inclusive funding and noted that budgetary measures taken to reform the financial sector were against inclusive development.

“The government has announced action against wilful defaulters but did not mention what action actually will be taken and it is very much uncertain who will define the wilful and un-wilful defaulters,” he said. 

Professor M Abu Eusuf of the Department of Development Studies at Dhaka University said every year the government made some block allocations for some sectors, which remained unspent.

“There is no action plan on our budget that’s why the budget is not being implemented properly," he said.