The Central Bank's circular this week, asking all commercial banks to check prices of commodities in the international market before opening letters of credit is meant to serve a dual purpose. Curbing price volatility of imported goods in the domestic market is one, and clipping, as far as possible, the unabated money flight from the country is another. What the Bangladesh Bank (BB) has instructed the banks to follow is not something new but a normal practice that banks are professionally bound to adhere to. However, the BB circular may act as a strong reminder to ensure vigilance in the wake of the wobbly foreign-exchange transactions and abnormal commodity-price rise in the country.
For months the country's foreign exchange market is under stress because of soaring import payments amid global supply-chain disruptions following the Russia-Ukraine war. The country's import settlements stood at US$ 20.69 billion in the current quarter compared to US$16.35 billion in the corresponding quarter of the last fiscal. However, some regulatory measures taken up by the BB in respect of import restrictions are likely to have a sobering effect on overall import transactions in the near future. Regarding price check of imported goods before initiating import transactions by banks, the idea is that proper and methodical verification procedure will help importers procure their products from the global markets at fair and reasonable prices. Besides the price hike that has affected almost every imported consumer product, what appears to be more worrisome is money flight through invoice manipulation. This crooked method -- under-invoicing in export and over-invoicing in import -- is believed to have already taken a heavy toll on the economy in terms of foreign currency flight.
Money flight imbedded in the country's trading practices -- especially import -- is yet to face any tough deterrence, although experts believe monitoring at various levels can identify the modes of operation and effectively take measures to stop the fraudulent activity. There were occasions in the past when this criminal practice was attributed to fake imports showing highly inflated bills through over-invoicing. One clear indicator that makes one suspicious is alleged imports that neither match the demands of local market nor of the industrial sector. This was the case with the sudden surge in 'import' of capital machinery some years ago. Ground reality at that time did not suggest that imports actually took place or if at all, not in such huge volumes. Call it money laundering or capital flight, it is well established that every year, $8.0 to $9.0 billion reportedly fly away from the country, and that 80 per cent of this is orchestrated through manipulating invoices.
The National Board of Revenue (NBR) and the Central Bank are obviously the agencies on which the onus is more than on any other state bodies to address the problem. Understandably, all it takes is close coordination between the two agencies, preferably by means of jointly tracking suspicious imports - from the stage of opening of letters of credit to clearance of goods. The BB initiative, though not a new or innovative move, is still laudable. Much of its success, however, will depend on monitoring import transactions meticulously and steadfastly.
