A REPORT published in a national daily on Wednesday said Bangladesh Bank has set up a 10-member committee to explore the possibility of using foreign exchange reserves at the central bank for financing government development projects. One of the major tasks of the committee is to suggest whether the government can take loan from the foreign currency reserve of over US$ 43 billion lying with the central bank.
We would say it is true Bangladesh Bank has huge idle reserves but this is very unusual and raises question whether it can be lent for funding government or private sector projects. The idea of using reserves was originally floated in July last year but experts have at the same time pointed at the huge risk against using such fund for long term lending. India’s central bank governor resigned under pressure against such a move of the present government before the last election.
It appears big business houses and a section of government officials tend to justify the lending saying that keeping reserves in foreign banks brings only 1 to 2 per cent interest, so lending for development financing would be highly rewarding. But the big question is the safety of the fund from powerful money launderers and the risk involved in its recovery particularly against loan for big infrastructure projects. Banks which may process such loan may fail to recover the same.
Our banking sector is plagued with non- performing loans after errant borrowers failed to amortize loans they took from commercial banks and nonbank financial institutions. State owned banks are already on the brink. Despite many moves, the high growth of non-performing loans could not be checked. Meanwhile, government borrowing may just leave the loan burden on the future generation, private business houses may continue as delinquent defaulters with central bank money too.
It appears that a local corporate group has submitted a proposal to the Bangladesh Bank through a state-owned commercial bank for over $900 million loan to build a power plant without any feasibility study. But what is the guarantee that such loan would be paid back although political pressure is at work to open central bank’s reserves for commercial lending. We would say the central bank should just sidetrack such a pressure.
