CPD anticipates laundered money getting remittance incentive

The Centre for Policy Dialogue (CPD) on Tuesday urged the authorities concerned to revise regulations that allow up to $5,000 remittance to get incentive without any scrutiny.

The think-tank thinks that a huge sum of laundered money might have come to Bangladesh under the facility.

CPD also urged the Bangladesh Bank to mop up to reduce the excess liquidity from the banking system and increase private credit growth.

The think-tank came up with the observation at a virtual dialogue titled ‘CPD’s Reaction on MPS FY2021-22: To what extent does the monetary policy meet the needs of the economy’ held on Tuesday.

“A 2 per cent incentive against the remittance sent by the expatriates worked as an incentive. Similarly, it has raised questions about the inflow of remittance considering the current global situation during the pandemic,” said CPD research director Khondaker Golam Moazzem.

As per Bangladesh Bank directives, an expatriate is allowed to send $5,000 without documents and s/he will be entitled to 2 per cent incentive against the money sent.

As there is a chance to abuse the opportunity to resend the money laundered from Bangladesh, we think it is time to scan the process of sending $5,000 without questions and documents, said Moazzem.

“This should be monitored properly so that no one can take the opportunity to send back laundered money taking the opportunity.”

On the other hand, this ceiling should lower to $1,000 to $2,000 so that the money entering into the economy cannot make the market unstable, said the economist.

How to reduce excess liquidity

As the excess liquidity increased sharply in the banking sector, while the private credit demands are slow, the think-tank offered a recipe to reduce it.

“Excess liquidity is also a sign that the demand for loans is low, which is likely since the real economy is still experiencing the repercussions of the Covid-19 shock,” said CDP Executive Director Fahmid Khatun in her keynote presentation.

The advance-deposit ratio (ADR) of all banks fell to a three-year low of 0.81 in November 2020, while the interest rate also declined, said Fahmida.

To reduce excess liquidity, Fahmida suggested considering mopping up money from the market.

On the other hand, the central bank can increase CRR (Cash Reserve Ratio) requirement to mop up excess liquidity, she added.

Meanwhile, the think-tank opined that the central bank did not take active steps in reducing the prevailing excess liquidity in the banking system but assured that it would not hesitate to act if needed.

It appears that the targets set for private sector credit and economic growth may not be met, considering the rapidly worsening Covid-19 situation in the country, said CPD.

Inflation targets should be practical, based on updated consumption basket, said Fahmida.

The governance of the banking sector will be an important determinant for better recovery of the economy, she opined.

Despite stellar economic growth in the pre-pandemic years, private sector credit growth targets were not met in the last few years. In the current context, increasing private investment is significant to generate employment, the think-tank opined, suggesting to raise consumption.

“Only low interest rate cannot increase private investment. There are related issues including business climate, required skilled human resources and ease of doing business issues,” said Professor Mostafizur Rahman, a distinguished fellow of CPD.

If Bangladesh can increase aggravated demands and brings the largest portion of the population under vaccination, private investment will increase, said Rahman.

The economists suggested cash transfer for the poor and ultra-poor who fell victim to Covid-19 and lost jobs and income to increase domestic demands.

The think-tank also suggested extending the deadline of loan repayment taken from the stimulus package and bringing more small and new entrepreneurs under the coverage of packages to help them recover.