Overdependence on foreign loan by private sector creates financial crisis in any country as such type of trend leads to outflow of money in the form of repatriation of principle, interest and dividend, said leading bankers, economists and experts on Tuesday. They made the opinion at a seminar in Dhaka at a time when Bangladesh has been receiving huge amount of private sector foreign loans in the last few years.
Bangladesh Bank organised the daylong SAARC Finance seminar on ‘management of external sector openness – South Asian country experiences’ at the Ruposhi Bangla Hotel in the capital.
They bankers, economists and experts also put emphasis on establishing a deeper understanding among the SAARC countries to face challenges of external risks.
Former caretaker government adviser Mirza Azizul Islam delivered the keynote speech in the inaugural session of the seminar.
Aziz said the dependence on external private flows to finance investment and accelerate growth was fraught with many risks.
The sustainability of these flows does not entirely depends on the recipient countries’ policies as a rise in interest rates in the source countries for their own macroeconomic reasons may dry up new inflows and even cause an outflow, he said.
The external private sector loan flows inevitably generate return flows creating pressure on the balance of payment and it may severely destabilise the exchange rate with grave implications for the real sector of the economy, Aziz said.
He said, ‘Excessive dependence on external financial flows exposes an economy to the double jeopardy of an exchange rate crisis and a financial crisis which reinforce each other and causes a vicious spiral’.
In his keynote paper, Aziz mentioned that in recent times some effort was being apparently made to attract non-foreign direct investment flows.
It will be worth reminding that the East Asian economic crisis of 1997-1998 was substantially triggered by dramatic reversal of these external private sector loan flows which had earlier contributed to accelerate growth, he said.
BB governor Atiur Rahman, who attended the seminar as chief guest, said in today’s globalised world economy, external trade openness was crucially important for growth as it freed up efficient domestic products from demand limitations of the local markets.
But, besides heightening instability risks from demand volatilities in external markets, trade openness brings in major adjustment pains with the opening up rendering many domestic output activities uncompetitive, he said.
Atiur said, ‘Openness to global capital flows likewise spurs growth by attracting investment inflows, but at the same time heightens instability risks from volatile trends of global capital flows arising both from speculative position taking and from spillovers of persistent imbalances in major economies.’
BB change management adviser Allah Malik Kazemi said the country’s readymade garment sector had been expanded by using the openness of business sector.
He said, ‘We want FDI, but the BB imposed restriction on outflow of capital considering the country’s business volume.’
‘The central bank has taken initiative to expand the openness on the basis of our necessity,’ he said.
BB deputy governor Abu Hena Mohd Razee Hassan and economic adviser Md Akhtaruzzaman, among others, addressed the seminar.
-With New Age input
