Narrow USD rate gap between formal and informal channels

The government should narrow the gap between informal and formal rates of the US dollar against the taka with a view to attracting remittances through official channels and augmenting foreign currency reserves, a noted economist said recently.   

Abul Barkat, a professor of the economics department of the University of Dhaka, said a lot of people have gone abroad to work in the last couple of years.

However, the amount of remittances coming through legal channels doesn't reflect this since most of the funds are coming to Bangladesh through informal channels.

"This is because there is a huge gap in the dollar rate between the formal channel and the informal channel. When there is a wide gap, even a lunatic wouldn't send his hard-earned money through a formal channel since a lesser amount of money reaches his family," he told The Daily Star in an interview.

Prof Barkat alleged that there are 12,000 bank branches in Bangladesh and of them, 10 per cent are authorised dealer branches.

"At each branch, there are at least five to seven middlemen, who are engaged in manipulation. Thus, the system that is supposed to eliminate corruption is itself corrupted," he alleged.

He recommended narrowing the gap between the informal and formal channel rates of the US dollar.

Prof Barkat claimed that the reserve situation is being fabricated.

"The IMF always noted that the accurate calculations would reduce the reserves level by $8-10 billion dollars from the published amount. The amount that has been invested can't be retrieved instantly."

In order to reverse the current trend and increase the reserves, the country will have to increase export income and remittance receipts, he said. 

If remittances and exports fail to fetch enough US dollars for Bangladesh and the reserves keep falling, the country would require loans from the International Monetary Fund (IMF), according to the economist. The government plans to secure $4.5 billion from the multilateral lender.

Judging from the health of a few economic indicators, Prof Barkat said the economy is in a poor state, so the country is borrowing from the IMF and the World Bank.

He said in Bangladesh, many mega-projects have been implemented and some have become operational. The country will start paying off loans taken for these projects from next year.

"From 2027, the paying of instalments against the loans taken for four to five mega-projects will begin. We can't pay off these loans by printing the taka. We will need dollars to pay the instalments."

"But if the foreign currency reserve continues dwindling, how will these loans be paid off?" he questioned.

"So, if we want to enhance the reserves, we will have to bring huge changes to the exchange rate and put a stop to informal transactions."

Prof Barkat alleged if all private banks are properly audited, at least 50 per cent would be found to be in a bankruptcy situation.

"How are these banks still surviving? Preserving each other's black money and a few other factors are keeping them alive. Amid so many problems, there is absolutely no reason for so many banks to remain profitable in a small country like ours," said Prof Barkat, a former chairman of state-owned Janata Bank.

He said he has calculated that in the last 50 years, Tk 90 lakh crore to Tk 95 lakh crore worth of black money has been generated in Bangladesh.

"So far, no one has challenged my claim. During this period, Tk 10 lakh crore to Tk 15 lakh crore has been laundered. Those who are loan defaulters are also the ones who are laundering the money—they are the very same people."