Bangladesh Bank (BB) Governor Atiur Rahman yesterday urged local firms to borrow from abroad saying that the authority gave a nod at the beginning of the fiscal year to local firms to borrow $598 million from foreign sources.

“I really ask you to look for foreign loans and it is cheaper and easier to get now,” said Rahman at a luncheon meeting of businesspeople and top executives.

So far, local firms have taken out loans from foreign sources in diverse sectors like shipping, power, footwear, IT, telecom, agriculture, steel and readymade garments, said the BB governor, who is also the chairman of a Board of Investment committee related to the approval of applications on getting foreign loans.

"I do not take more than two days to clear applications,” added Rahman.

Foreign Investors' Chamber of Commerce and Industry (FICCI) organised the meet at Sonargaon Hotel, where the central bank chief also called upon foreign investors here to help improve the image of the country by showcasing its achievements in various sectors.

Rahman urged investors to go outside Dhaka to understand the investment potential in Bangladesh. The economy of the country has been growing at 6 percent annually in the past decade, although the country suffers from poor infrastructure, power shortages, corruption and political instability.

The BB governor said when corporate houses will borrow from foreign sources, it will help maintain a steady exchange rate and ease pressures on the foreign exchange reserves.

The BB chief's appeal comes at a time when the central bank is following a monetary tightening stance to curb the money supply and cut excess demand, in a bid to bring down inflation to a single digit by the end of the financial year ending June 30.

Average inflation stood close to 11 percent in February. On a monthly basis, inflation dipped to 10.4 percent in February from 11.59 percent in January.

Volatility in exchange rates has eased and a liquidity crunch in the banks has reduced with the interest rate on inter-bank lending falling.

The rapid growth of government borrowing from the banking sector has created a crowding-out effect in credit flow to the private sector, Rahman said.

Government borrowing -- currently worth Tk 16,500 crore -- will have a limited crowding-out effect on the private sector and the target of 16 percent credit growth to the private sector could be maintained despite a higher projection of government borrowing, he said.

Citing the performance of exports and farm, industrial, and service sectors in the first half of the current fiscal year, the central bank chief expects the economy to grow 6.5-7 percent by the end of the year.

Noting the prospects of Bangladesh, he said the country has entered into a phase of demographic dividend as the ratio of working population is rising against a backdrop of a falling fertility rate.

He said the country needs to cash in on its demographic dividend to attain 8 percent growth to cut poverty and become a mid income country by 2021.

"The demographic dividend does not last for ever. At some point, this bulge in the working age population will transform itself into a bulge in the elderly population.”

"We must use the next ten years to create higher productivity jobs, intermediate the savings that this working population has to invest in our country's infrastructure, institutions and build foundations to prepare for when this demographic dividend is over," he said.

"The next ten years is the best opportunity we have to drastically cut poverty," said Rahman, recommending skills development for the labour force along with education to tap the opportunity.

The governor also suggested local entrepreneurs, especially banks, to explore the possibilities to open branches in Myanmar that has taken measures to make reforms after its election.

FICCI President Syed Ershad Ahmed demanded making BB an independent body, free from the interference of the finance ministry.

Referring to the BB move to issue licences to open new banks, Ahmed wanted the authority to clarify whether there is a need for more commercial banks in the economy.

The Daily Star/Bangladesh/ 29th March 2012