The phrase, 'look before you leap' might be befitting for the government's reported move to allow overseas investment by Bangladeshi entrepreneurs. It is important to take stock of all the relevant factors before making a decision that has far-reaching implications. Though the authorities have drafted the 'Capital Account Transaction Guideline, 2018' that would allow only the exporters to invest a part of their proceeds abroad, there are a few questions that need to be answered first in the greater interest of the country. The Bangladesh currency Taka has been under pressure for sometime following slow growth of both exports and remittance inflow as against sizeable growth of import payments. All these developments have led to erosion in the value of taka in the recent months against the greenback.
Media reports have revealed that the draft guideline, which will be placed before the cabinet for approval, contains many loopholes and inconsistencies. If it is approved in its present form and investment made abroad without proper monitoring and supervisions, the economy might encounter a few problems. The 'Foreign Exchange Regulation Act 1947' stipulates how the foreign currencies are to be regulated. It empowers the Bangladesh Bank to decide, after consultations with the government, what kind of overseas investments are to be accorded approval. The central bank has now prepared this draft guideline on instruction from the Financial Institutions Division of the Ministry of Finance. But the central bank did not seek the opinion of relevant parties and stakeholders while drafting it.
Concerned circles are apprehensive of the possible capital flight from the country during the current election year. The foreign exchange reserve has also come under pressure because of the mismatch between inflow and outflow of funds. Besides, they feel that a great deal of deliberation, discussion, studies and research works should have been undertaken before adopting such a guideline. In order to prevent both abuse and misuse of funds, there is no alternative to putting in place a rigorous mechanism for supervision of approved overseas investments. Also, the country's business sector needs to be offered more incentives to invest in the special economic zones at home. That would also contribute to enhancing exports. If investments overseas are encouraged instead, the local currency will become weaker, which in turn may have a negative multiplier effect on the entire economy.
Already the Bangladesh Bank reserve declined to US$ 32.16 billion at the end of May 2018, which was over US$ 33.49 billion even in June 2017. During the July-March period of the current fiscal year, imports shot up by 24.5 per cent, while exports increased by only 6.5 per cent. As a consequence, the price of US dollar has risen. The central bank is selling dollars in the market on a regular basis to overcome the crisis. The exchange rate of US dollar in June 2017 was Taka 80.59, which has now risen to Taka 83.70. The rate in the kerb market is even higher.
Following scrutiny of the draft guideline on foreign investment, it has been found that the draft guideline lacks any strategy to monitor the investments to be made by Bangladeshis abroad. Besides, it has not been specified clearly under which law defaulters would be prosecuted if they fail to bring back profits and capital to the country. Consequently, there will remain scope for misuse of investments under this guideline. So, it would be wise on the part of the government to undertake a thorough review of the proposed guideline and finalise it only after elaborate consultations with all the stakeholders.
