Foreign investments by local businesses okayed
Five-year road map laid out for local and foreign investorsNazmul Ahsan
The finance minister, Abul Maal Abdul Muhith, approved a five-year road map withdrawing restrictions on capital account convertibility allowing local businessmen to invest abroad and facilitates foreign direct investments in the country.
Muhith approved the road map that the Bangladesh Bank worked out on Monday. He directed the central bank to act on the latest decision so that business environment could be attractive to both local and foreign investors, a ministry official told New Age on Wednesday.
‘The minister approved the plan liberalising foreign exchange regulations to bolster local and foreign investments,’ the official added.
A central bank official said that the strategies in the road map would not harm the economy as its implementation would take time but experts said that the decision was ‘too early’ in view of ‘high-risk elements’ associated with the policy change.
Former caretaker government adviser AB Mirza Mohammad Azizul Islam said that the decision was too early.
‘Risk elements in the decision are high while more than $16 billion reserve is not a valid ground for allowing local investments in foreign countries as the reserve is good when import is low,’ he told New Age.
The road map envisages the outflow of capital owned by Bangladeshis for investments abroad, allowing short-term foreign investments in the currency market and bringing about reforms to minimise regulatory and administrative bottlenecks centring on FDI implementation in the economy.
The central bank officials said that current account had for long been open as there had been on restriction on the repatriation of foreign currency from Bangladesh for higher studies and medical treatment.
They also said that prospective local investors were stopped from investing outside the country through an official process or banking channel as the capital account was not convertible.
‘Restrictions on capital account will now be phased out,” a finance ministry official said.
He said that the central bank would soon set up a high-profile multi-stakeholder consultative body to make suggestions about the opening up and attracting foreign investments.
‘The policy decision needs to be implemented carefully to insulate the economy from any possible shocks and to attract more FDI,’ a central bank official said.
The liberalisation of the foreign exchange regime is aimed at creating a better environment for trade and investments as part of a phased approach, finally easing resident business environment abroad to promote global integration, according to the road map.
The proposal said that there were scopes and the clear need for simplifying and minimising the documentation, reporting and bona fide check routines for current and capital account transactions to reduce compliance costs for authorised dealers and the cost of business.
The proposal, however, said that increasing external openness could heighten the exposure of domestic financial and real sector business to external shocks from turbulences in the global economy, requiring preparedness for risk management capabilities and requiring market developments bringing up the needed risk management and hedging tools.
Central bank and ministry officials said that a group of influential businessmen had for long been pushing the government to withdraw the current restrictions on capital account convertibility.
Mirza Aziz advised the government not to open up the capital market for short-term foreign investments by way of the road map and urged efforts to increase local investments.
‘With the creaky, poor infrastructure and political instability being in place, local investors rallying for capital account convertibility would not be that interested,’ he added.
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