Economists in a latest task force report have blamed poor leadership and the Financial Institutions Division for the erosion of the Bangladesh Bank鈥檚 autonomy.
They observe that poor leadership at the central bank over the past 10鈥�15 years, coupled with the formation the Financial Institutions Division under of the Ministry of Finance in 2010 by the now deposed Awami League regime, has significantly diminished the central bank鈥檚 independence.
The observation was revealed in a document titled 鈥楾ask force report on re-strategising the economy and mobilising resources for equitable and sustainable development鈥� presented by planning adviser Wahiduddin Mahmud to the chief adviser, Professor Muhammad Yunus on January 30.
The report was prepared by 11 renowned economists and other experts.
The establishment of the FID in 2010 introduced dual regulation of the banking sector by Bangladesh Bank and the FID, the report said, observing that the presence of dual regulators exacerbated governance failures instead of strengthening oversight mechanisms.
The move to establish the FID contradicted the Bangladesh Bank (Amendment) Act, 2003, which granted the central bank autonomy over its operations, monetary policy formulation and implementation, the report stated.
The FID鈥檚 mandate itself reflects how it undermines Bangladesh Bank鈥檚 sovereignty, according to the report.
It holds the authority of 鈥榓dministration and interpretation of the Bangladesh Bank Order, 1972, and the orders relating to specialised banks as well as matters concerning the state-owned banks, insurance, and financial institutions.鈥�
By assuming this role, the ministry of finance effectively established its control over the central bank鈥檚 governance, the report noted.
Following the FID鈥檚 establishment, banking sector governance significantly deteriorated.
Bank licences were granted based on political considerations, non-performing loans surged, and regulatory oversight weakened.
In 2013, the government approved the establishment of nine private commercial banks despite widespread concerns over their economic justification.
Referring to a study, the task force report mentions that 95 per cent of banking officials believed these banks were unnecessary.
The Bank Company (Amendment) Act, 2013 mandates that new commercial banks should be licensed based on economic necessity and prevailing financial conditions.
But in Bangladesh, political influence has outweighed economic rationale in bank licensing, the report says.
Over time, bank licences have increasingly become tools for embezzling public funds, the report highlights.
Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank Limited, told 抖阴精品 that there was a conflict of interest between the roles of the Financial Institutions Division and Bangladesh Bank, adding that their responsibilities should essentially be separated.
He suggested that the central bank should function as a constitutional body, accountable to the parliamentary standing committee.
He emphasised that the focus should not be just on empowering the central bank, but also on who was leading it.
Mahbubur underscores institutional reforms to establish a proper structure for the central bank.
The right person must be appointed to lead Bangladesh Bank, with transparent mechanisms in place, including clear eligibility criteria and job descriptions聽 for the governor and deputy governors, to ensure accountability, he stressed.
M Masrur Reaz, chairman of Policy Exchange Bangladesh, states that while the central bank has never enjoyed full autonomy, its independence was completely eroded during the 15-year rule of the Awami League-led government.
He criticised the Awami regime for undermining Bangladesh Bank鈥檚 independence, citing undue influence from the head of government and the finance minister.
Reaz emphasised the need for the government to evaluate and strengthen institutional mechanisms to minimise political interference and the influence of powerful business groups.
He also stressed that the accountability of the central bank governor should be ensured through oversight by a more independent body, such as a parliamentary standing committee, to safeguard the institution鈥檚 autonomy and integrity.
The taskforce on economic reforms suggests strengthening loan sanctioning processes, depoliticising bank boards, upholding Bangladesh Bank鈥檚 independence and enacting legal reforms to address deep-rooted governance issues, enhancing transparency, and ensuring financial stability.
鈥業n order to remove dual regulation and stop political influence the MoF鈥檚 FID should be shut down. The functions of the FID can be performed by the Bangladesh Bank,鈥� according to the task force report.
The government repeatedly recapitalised state-owned commercial banks burdened with high non-performing loans, allocating Tk 15,705 crore between FY2008鈥�2009 and FY2016鈥�2017, the report further said, adding that these bailouts failed to improve these banks鈥� financial health.
Political encroachment was also evident in the appointment of Bangladesh Bank governors.
Under the previous government, these appointments became politicised, prioritising the ruling party鈥檚 interests over public welfare.
This directly violated the Bangladesh Bank (Amendment) Act, 2003, which states that 鈥楴o person shall hold office as governor or deputy governor who is a member of the legislature, a local government, or employed in any capacity in public service.鈥�
Despite this legal restriction, the previous government appointed a career bureaucrat as Bangladesh Bank governor, further eroding the institution鈥檚 independence.
Political interference also extended to coercion and forced resignations.
On January 5, 2017, intelligence agencies abducted senior officials of Islami Bank and forced them to resign.
The same year, businessman S Alam Group secured control over seven private commercial banks, leading to their financial distress.
Shariah-based banks, in particular, faced severe liquidity shortages after their takeover.
The governance crisis was further exposed by the 2016 cyber heist, in which international hackers stole Tk 679.6 crore from Bangladesh Bank鈥檚 treasury account at the Federal Reserve Bank of New York.
Despite the magnitude of the breach, no central bank officials were held accountable.
Instead, efforts were made to suppress the issue, with the Criminal Investigation Department deferring its investigation report for the 80th time as of October 2024, said the report.