OUTGOING FISCAL 2017-18

High import payment indicates increase in capital flight

Jasim Uddin | Published: 00:00, Jun 04,2018 | Updated: 00:09, Jun 04,2018

 
 

Bangladesh Finance Minister Abul Maal Abdul Muhith. -- New Age file photo.

A phenomenal growth in import payment in the outgoing 2018 financial year raised suspicion about an increased capital flight from the country in the period.
Fast rising import became a major concern for the country’s growing imbalance in the external sector as it put huge pressure on trade balance, current account balance and overall balance of payment, experts and economists said.
Foreign exchange reserves also bear the burden of excessive import payment.
Trade mispricing and capital flight are historically found to be more extensive during the election years, they said.
They sought government’s intervention in controlling excessive import of luxury and unnecessary products along with initiation of investigation into the possible money laundering.
According to Bangladesh Bank data, import payments (including customs clearing and forwarding) in the first nine months (July-March) of the FY18 grew by 24.50 per cent to about $ 43.6 billion. The import payment in FY17 was $47 billion.
In the face of high import payments, the country’s trade imbalance stood at a record high $13.20 billion in July-March period of FY 2018 which was $7.04 billion a year back, the data showed.
Current account balance also reached negative $7.08 billion in the period from negative $1.37 billion in the same period of the past financial year.
Overall balance of payment stood at negative $1.4 billion, lowest since FY11, which was $2.6 billion in July-March period of FY2017.
Centre for Policy Dialogue distinguished fellow Debapriya Bhattacharya said on Sunday that money was being laundered through import, particularly through misdeclaration.
‘We also strongly believe that trend of money laundering rises in the run-up to the national elections,’ he said.
Excessive import payment also already put pressure on external sectors by creating deficit in overall trade balance and current account balance which ultimately would appear as a major risk for the economy, he said.
The government should temporarily control import of luxury goods and products having zero duty as capital flight may occur through import of these items, he said.
CPD in its State of the Bangladesh Economy (third reading) released on Sunday suggested examination of whether there was any capital flight by the unscrupulous traders taking advantage of zero duty on rice imports as it registered a high growth surpassing the domestic demand.
The research organisation also emphasised on scrutiny and monitoring of the import of items under ‘other category’ as traders opened letter of credit worth $13 billion to import products under the category during July-March period on FY18.
Washington-based Global Financial Integrity in its 2017 report estimated $53-$75 billion illicit financial outflows, accounting for 12-17 per cent of the country’s total trade, in 2005-2014.
In 2014 alone, $8.97 billion (about Tk 72,000 crore) was siphoned out from the country, it said.
According to the study, 9-13 per cent of the $70.07 billion international trade of Bangladesh was laundered mainly by traders from the country in 2014.
Debapriya said that external sector was put under such a huge pressure just because of phenomenal import rise despite growth in remittance inflows, export earnings and foreign aid disbursement.
Export rose by 6.4 per cent and remittance earnings grew by 17.7 per cent in July-April while the country received record high foreign aid of $3.5 billion in July-February of FY18.
Foreign exchange reserves now hover around $33 billion, covering five months’ imports. It is highly likely that the pressure on reserves will continue in coming years following settlement of letter of credits, CPD said.
The World Bank in its Bangladesh Development Update released in April said that capital flight remained a concern in Bangladesh and this was heightened in an election year.
World Bank Dhaka office lead economist Zahid Hussain said that huge import of goods, particularly capital goods and industrial raw materials, and growth credit disbursement was not reflected in private investment in the period.
Private investment, as a share of GDP, grew by only about 0.15 percentage points in the year, according to the Bangladesh Bureau of Statistics.
Though there are some rationales in import growth because of rise in import food grains, capital machinery and other materials for implementation of mega projects and hike in price of fuel in international market, there are no explanations of over 20 per cent growth in the period, Zahid Hussain said.
The government should look into the possibility of money laundering through import payment, he told New Age in the past week.
Policy Research Institute executive director Ahsan H Mansur said that volume of letter of credit was robustly increasing creating pressure on trade balance and current account balance.
He said that trade imbalance would reach record $18 billion and current account balance $10 billion by the end of the year.
He said that the main reason behind the excessive rise in import was money laundering.
‘It is obvious that money is being laundered through import,’ he said, adding that the price of export was also not also and there might be the case of over-invoicing for laundering.

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