Debt rescheduling cycle fuelling inflation: Dr Farashuddin

Former governor of Bangladesh Bank, Dr Mohammed Farashuddin, has highlighted significant issues plaguing Bangladesh’s economy including persistent high inflation, continued rescheduling of loans, and the government's reliance on printing currency to meet liquidity shortages. 

Speaking at the 'Conversation with the Economic Reporters’ Forum' held in Paltan on Thursday, Dr Farashuddin emphasised the detrimental cycle of liquidity being trapped in rescheduled loans which fails to support money circulation.

According to Dr Farashuddin, this cycle has led to sustained inflation rates of around 10 per cent, a situation misunderstood at the policy level of the government. "It should be stopped to get relief from high inflation," he advised, pointing out the necessity for direct intervention.

Dr Farashuddin criticised the weakening of regulations by Bangladesh Bank and questioned the silence of both the government and the International Monetary Fund (IMF) on issues of money laundering, which he described as "very harmful for the country." 

He remarked on the ineffectiveness of current strategies to combat inflation, noting that, unlike other countries, Bangladesh has struggled to control inflation rates hovering near 10 per cent for almost ten months.

"Inflation has been brought under control in all countries of the world. But we couldn't. We need to change our monitoring system to control inflation," he asserted, advocating for more direct supervision rather than reliance on passive monitoring methods.

Addressing social disparities, Dr Farashuddin discussed the growth of the capitalist economy and its correlation with decreasing kindness and increasing inequality. He stressed the need for both economic and political actions to mitigate the widening gap between the rich and the poor.

On the topic of bank mergers, Dr Farashuddin emphasised that such decisions should be consensual and not forced, reflecting standard practices worldwide. He said that the decision to merge BDBL, BASIC Bank, and Rajshahi Krishi Unnayan Bank (RAKUB) was unnecessary, because these banks have been set up for special needs.

Highlighting the issues of debt default and the high volume of short-term deposits leading to banking problems, he criticised the disproportionate response to loan defaulters of varying scales. "If the defaulters become too big, then it is a problem. Debts must be recovered by taking action against them," he stated, advocating for stronger enforcement measures.

In his closing remarks, Dr Farashuddin addressed the issue of food inflation, blaming unscrupulous food officials and mill owners for exacerbating consumer prices. He recommended that the government take special measures to increase food stocks in government warehouses to bring relief to the country.

The event also featured comments from ERF President Refayet Ullah Mirdha and Secretary General Abul Kashem, further enriching the discussion on these pressing economic issues.