Policy-makers who have expressed concern that Bangladesh Bank’s relaxation of rules for repatriation of foreign investment in unlisted companies, may increase capital flight, are missing the big picture.
Controls on the flow of capital in and out of the country are far too tight and need to be liberalised.
Even though an estimated 60% of the country’s $137bn economy is related to global trade and investment, the government is stuck in an outdated mindset which seeks to restrict flows of capital.
Bangladesh’s entrepreneurs have to endure interminable hurdles to meet legitimate business expenses abroad. Existing rules needlessly hamper payments for essential business materials and services as well as important educational and medical expenses for individuals.
Far from serving a helpful purpose, the rigidity of capital controls increases the scope for bureaucratic corruption and encourages foreign exchange payments via informal and illegal channels, contrary to the aims of anti-money laundering laws.
It also puts Bangladeshi businesses at a huge disadvantage to competitors from other countries if they are seeking to invest overseas.
The country’s success in growing remittances and trade are helping to create record foreign exchange reserves. We must abolish any regulations which prevent these flows from being put to productive use.
Changing the mindset to allow people and companies to easily buy and use foreign exchange via the banking system is the best way to eliminate the flaws in the present system. If transactions are taxed at a small rate, this can also benefit government finances.
We need to stop obstructing opportunities and deregulate foreign exchange rules to encourage dynamism and attract new investment.
