Central bank's independence must to rescue economy: Khasru

BNP Standing Committee member and former commerce minister Amir Khasru Mahmud Chowdhury has called for ensuring the independence of Bangladesh Bank to address the country's worsening economic challenges, arguing that political interference has severely undermined the central bank's effectiveness.

He made the remarks while speaking to journalists following a discussion titled "The Imperative for Central Bank Independence," organised by the Policy Research Institute (PRI) with support from UK International Development (UKID) in Dhaka today.

"The Bangladesh Bank must be made independent. During our time, we never appointed politically affiliated individuals to the central bank," said Khasru. "We even abolished the Banking Division because it served no real purpose, but it was later reinstated – and that only created further complications."

The BNP leader claimed that the most significant economic reforms in the country were carried out under the BNP government. He criticised banks for short-term deposit collection and long-term lending, saying this imbalance has fuelled the growth of non-performing loans (NPLs).

He also noted that central bank reforms alone would not yield results unless the country's capital market was strengthened. "There is practically no capital market in Bangladesh. Without developing it, central bank reforms will be meaningless." 

Khasru stressed the need for better coordination between monetary and fiscal policies, as well as greater automation in financial systems to enhance transparency. "The future economy is a cashless society. We must move towards full automation," he added.

Laying out his party's economic vision, Khasru pledged to create one crore jobs within 18 months through growth in the IT sector, local and foreign investment, and overseas employment opportunities.

"Even after years of looting, the banks have somehow survived – which is surprising. The real reforms in the economy were done under BNP rule," he asserted.

Political Intervention and Governance Flaws

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), noted that public trust in the central bank is critical, especially during crises of high inflation and low reserves.

She highlighted that the true extent of NPLs only began to surface after the political transition on 5 August, arguing that the previous government had used the central bank as a political tool. Examples included the interventionist move of capping interest rates at 6-9% and the heavy borrowing by the former government from the central bank, which created immense financial pressure.

Fahmida stressed that while strong laws are necessary, the process of appointment and tenure for the governor and deputy governors is equally vital. "If the person selected for that chair lacks academic excellence, transparency, and accountability, those laws will remain merely on paper," she warned. Fahmida also cited the undue influence of the Financial Institutions Division and political lobbying for loans as continuous problems, calling the financial sector a lifeline of the economy.

Economist and public policy expert M Masrur Reaz accused "oligarchs" of misusing the country's bank assets. He stated that the injection of high-powered money into the economy in 2023 fuelled inflation, arguing that the former government's excessive borrowing from the central bank had "completely sunk the economy." 

Masrur stressed that while reforming the "revenue culture" will take time, all solutions require political sincerity.

Mohammad Akhtar Hossain, chief economist of the Bangladesh Bank, agreed that the central bank's independence is "essential." He concurred that solving financial sector issues is impossible without political will.

Industrialist Syed Nasim Manzur corroborated the negative private sector impact, specifically citing the instability of foreign exchange and the surging US dollar price. He called for better coordination between fiscal policy and monetary policy, the elimination of the Financial Institutions Division's influence over the central bank, and the formation of a stronger monetary policy committee.