High inflation causes income transfer

The number of bank accounts with deposits of Tk 1 crore and more increased by around 8,000 last year compared to 2021 despite the economic crisis.

The amount of money in such accounts also rose by more than Tk 23,000 crore, says the Scheduled Banks Statistics report published by the Bangladesh Bank on Monday.

It says the number of accounts with deposits of Tk 1 crore and above was 1,01,976 in 2021, and they had a total of Tk 6,53,858.23 crore.

At the end of 2022, the number of such accounts increased by 7,970 to 1,09,946 while the amount of deposits went up by Tk 23,746.83 crore to Tk 6,77,605.06 crore.

Due to the Covid-19 pandemic, the country’s economy was going through a huge crisis in 2021. As the pandemic subsided, the economy was supposed to turn around at the beginning of 2022. But due to the Russia-Ukraine war, which started in February 2022, the crisis has rather deepened.

The war also led to high inflation globally. Analysts said the living expenses of Bangladeshis have increased due to soaring inflation and the additional money is going to the pockets of a specific group, causing the number of accounts with very large deposits to go up.

Prof Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, told The Business Post high inflation is driving income transfer.

“For example, the cost of living has increased now. This extra money is going to the pockets of a specific section. Therefore, even in the midst of the crisis, the number of such accounts is increasing.”

Former director general of Bangladesh Institute of Bank Management Toufic Ahmad Choudhury said the increase in the number of such accounts proves some people and organisations are gaining even during the economic turmoil.

Besides, due to the economic crisis, there is no new investment and money is not flowing out of investors’ accounts, he said.

The financial sector researcher also said the number of such accounts and their deposits are increasing every year but the tax-GDP ratio is not. “This means the revenue board is not collecting taxes from all the owners of such accounts.”

According to the International Monetary Fund’s World Economic Outlook Report 2022, Bangladesh has the lowest tax-GDP ratio in the world.

The ratio was only 9.61 per cent here while it was 26.41 per cent in Bhutan, 23.96 per cent in Nepal, and 20.04 per cent in Thailand.

0.08% account holders have 42% deposits

Almost half of the deposits in such accounts is in the hands of less than 1 per cent of the total account holders in the banking sector.

According to the central bank report, at the end of 2022, the total amount of deposits in all banks stood at Tk 15.88 lakh crore. The total amount of deposits in accounts having Tk 1 crore and more was Tk 6.77 lakh crore, which was 42.6 per cent of total deposits.

Besides, at that time, the number of total bank accounts was 13.62 crore and 1.09 lakh (0.08 per cent) of them had a balance of Tk 1 crore and above.

Mustafizur said this trend shows income and wealth are concentrated only among a certain group of people in society, which is increasing inequality.

The economist said the problem can be solved by increasing direct taxes.

“Besides, the taxes not paid by such account holders should be collected. The government’s revenue will then go up while inequality will also reduce.”