The central bank has urged the government to be cautious before allowing equity investment abroad by the local companies as it has already received lots of applications for such investments, sources said.
Bangladesh Bank (BB) in a letter to the Ministry of Finance (MoF) said recently that the government should consider a number of factors like foreign currency reserve, FDI inflow, export growth and remittance inflow before permitting capital account convertion.
It said the convertibility can only be considered if adequate foreign currency remains in hand after meeting necessary import cost.
“We have been receiving a good number of applications seeking permission for making equity investment abroad. If all the applications are considered, the pressure on central bank foreign exchange reserve may heighten,” a high official of BB told The New Nation on Tuesday preferring anonymity.
“If export earnings show continuous rise, remittance inflow and foreign investment continue to increase for a long period then equity conversion would not make any harm to the country,” he added.
Making equity investment abroad for resident Bangladeshis is not open under the existing Foreign Exchange Regulation Act. But under sub-section 6 of section-4 of the Act, the central bank can give permission for capital account transactions to interested businessmen in consultation with the government.
The central bank needs MoF’s consent first before permitting anyone to make investment abroad, officials added.
In its letter, the BB mentioned that among the applications, three separate business groups wanted to send US$ 20 million to Malaysia for acquiring two companies there, set-up a garment factory in Haiti for which it needs to send $10.44 million, and establish a bank in Gambia by sending $7.0 million respectively.
“Though the foreign exchange reserve crossed $32 million in Bangladesh quickly, its current growth rate is very slow,” the central bank in its letter to the MoF said, adding that import of fuel oil, capital machinery and consumer goods increased significantly in recent months.
Side by side, the global economic crisis has lowered export earnings and remittance inflow, it noted.
The BB said Bangladesh’s foreign currency earning is mainly dependent on export earnings and remittance. Though aggregated export earnings shown a positive trend till February this fiscal year, remittance earnings are showing a negative trend.
But because of growing imports and low remittance inflow, the current account has gone to negative territory by around $0.80 billion in February last. With the current foreign currency reserve, import needs for 7/8 months can be met.
The central bank also said until November last year some Tk 2.77 trillion remained idle in the banking system. It further said minimum domestic investment needs to be 32 per cent of gross domestic product (GDP) to attain the optimum growth target of GDP.
However, a senior Finance Ministry official told The New Nation that sending money abroad through unofficial channel has been increasing as capital account is kept non-convertible.
Referring some reports he said in recent years billions of dollars have been siphoned off from the country. He said permission for investments abroad on a limited scale can be given.
When contacted on Tuesday, Executive Director of Policy Research Institute of Bangladesh Dr Ahsan H Mansur said the capital account should have been made convertible when the reserve situation was good.
“Though the foreign exchange reserve growth has slowed down, it has not declined until now,” he said suggesting allowing equity investment abroad on a limited scale.
Mansur, however, suggested that the government should tag conditions like employment generations for Bangladeshi nationals in investments abroad.
