Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
49
The degree to which COMCEC Member Countries adhere to the three frameworks outlined
above varies significantly. Despite a trend towards general alignment with the main
liberalisation principles of the frameworks, actual implementation among countries varies and
tends to match individual states’ degree of institutional development and exposure to the
global economy. In this sense, lessons around sequencing appear to be gaining ground.
However, country performance is diverging more markedly in the implementation of
supporting reforms, particularly as regards financial sector development and capital markets
development. In the design and implementation of these reforms, which are decisive in
attracting portfolio investment, higher-income countries appear to be faring better than their
lower-income peers.
3.1.1. LOW-INCOME COUNTRIES
Bangladesh
Bangladesh’s system of strict capital controls goes back to the time when East Pakistan was a
province under British control. Strict exchange controls are still in place, although regulations
have been significantly relaxed since then, and since Bangladesh became independent from
East Pakistan in 1971.
The IMF’s 2012 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER)
classifies Bangladesh as being in the top third on its “Restrictiveness Index” (Bangladesh’s
neighbours India and Myanmar also fall into this category). According to the report, the
Bangladeshi authorities restrict payments or transfers of interest from deposits or bonds. The
IMF notes that Bangladesh maintains an exchange restriction on the convertibility and
transferability of proceeds of current international transactions in non-resident accounts
denominated in the local currency, the taka.
Bangladesh does not treat all non-resident-owned assets in the same way irrespective of the
date of their formation, as set out in the OECD Code. However, the country has adhered to the
Code‘s objective of not making existing regulations more restrictive.
Bangladesh declared full current-account convertibility in 1994; the taka is freely convertible
in the current account. The capital account is virtually fully open to inflows and outflows of
non-resident-owned equity and longer-term debt funds; however, the capital account remains
restricted for resident-owned investment abroad and for non-resident-owned short-term
capital flows.
Bangladesh appears unlikely to remove these remaining restrictions on the capital account in
the foreseeable future. In some respects, its relative isolation from international capital
markets has meant that the repercussions of the global financial crisis on Bangladesh’s
economy, its banking sector and financial markets have been extremely limited, for example.