Economists on Thursday said that Bangladesh’s banking sector has faced significant challenges in recent years due to the preferential treatment received by politically connected individuals, extending benefits from banks beyond legal boundaries.

This observation was made during a program held at the Bangladesh Institute of Development Studies office in Dhaka to introduce the book titled ‘Bangladesh’s Future Development: Agenda for Reform’.

The event, organised by BIDS and East West University, marked the launch of a book authored by former Bangladesh Bank governor Mohammed Farashuddin.

During the ceremony, Wahiduddin Mahmud, chairman of the Economic Research Group, highlighted that pervasive political influence in the financial sector has led to governance deficiencies and straying from foundational principles.

He further noted that governments coming to power without fair electoral processes often engage in patronage politics, granting undue advantages to influential factions in an effort to consolidate control over society.

Such preferential treatment to powerful groups has adverse effects on honest entrepreneurs and undermines the business environment in the country.

There are key sectors in the country that the government should shield them from political interferences, Wahiduddin said.

‘The current regime is an authoritarian government cloaked in a formal democratic framework,’ Wahiduddin said, adding that assessing its popularity was complicated due to the absence of fair electoral processes.

He also emphasised that democratic rights, freedom of expression and human rights are crucial for the economic development of a nation.

There is no instance in the world where a country achieved economic development solely through infrastructure development without investing in human capital, Wahiduddin said.

Farashuddin suggested a three-year economic reform programme for the banking sector, saying that defaulted loans affected economy severely.

Criticising the practice of loan rescheduling, he remarked that top bank defaulters were receiving preferential treatment.

Farashuddin observed that loan defaulting, tax evasion and money laundering are all interrelated, often involving the same powerful group in these activities.

He also suggested political and constitutional reforms to ensure economic reforms in the country.

He expressed concern that political leaders often desire economists to serve as their subordinates, which should not be the case.

Instead, political leaders should make decisions based on recommendations from economists, Farashuddin said.

According to the economist, maintaining the taka’s exchange rate artificially high for a decade, imposing a cap on interest rates for over two years, and having multiple exchange rates severely affected the economy, and recovery would take a considerable amount of time.

Centre for Policy Dialogue executive director Fahmida Khatun said that political influence made the country’s banking sector weak.

The nation is now grappling with the consequences of poor governance in the financial sector, a situation that did not arise overnight, she said.

Fahmida pointed out that prioritising investment solely in infrastructure, while overlooking allocations for education and public health, has created an imbalance in the country.

She emphasised that such lopsided development would not be sustainable.

Prime minister’s economic affairs adviser Mashiur Rahman, East West University vice-chancellor Shams Rahman, BIDS director general Binayak Sen, economist MM Akash and BIDS research director Kazi Iqbal, among others, spoke at the event.