Economy needs real solutions, not quick fixes

The economy is inarguably under stress. High inflation, low foreign exchange reserves, flagging remittance, dollar crisis, decreasing exports are just a few of the challenges faced by Bangladesh. The new government may put up a confident and courageous face, but they have more than a fair share of economic problems to contend with.

Panelists made these observations at the BIPSS Policy Circle discussion on 'Bangladesh: The Economy Under Stress' held today, Sunday, at a hotel in the capital city.

The expert panel comprising Fahmida Khatun, executive director of the Centre for Policy Dialogue, and Parvez Karim Abbasi, assistant professor at the East West University's department of economics, spoke of various aspects of the economy, the challenges and possible ways ahead.

The discussion was moderated by Maj. Gen. ANM Muniruzzaman (retd), president of Bangladesh Institute of Peace and Security Studies (BIPSS).

Inflation and the depletion of foreign exchange reserves were the short term challenges that called for immediate attention, Fahmida Khatun said in her opening remarks.

She said that the whole world was facing inflationary pressure at the moment and so was Bangladesh. The onset of the Russia-Ukraine conflict, leading to the disruption of the supply chain, was among the reasons for this predicament. In 2023 the inflation rate had reached almost 10 per cent in the country. From December it started to recede, but very little. Now it stands at 9.4 per cent.

Raising the issue of foreign exchange reserve depletion, economist Fahmida Khatun said the reserves had stood at USD 48 billion two years ago. Now it had dipped to less than USD 20 billion. This was alarming as Bangladesh depends much of imports.

She stated that the monthly average import bill was USD 7 billion and so there was less than enough to meet three months' bill in the reserves.

She further said that the central bank had taken up some policies to address the issue, like controlling imports, starting  with a ban on the import of luxury items. But then the import of capital machinery and other important items started going down too.

Coming to the point of what the government has been doing to tackle the challenges, the CPD executive director spoke about inflationary pressure. For long, since April 2020, the interest rate was fixed and no change made. The logic offered was that if interest rates were high, there would be less investment.

But, she pointed out, even with low interest rates there was no investment. She said that they recommended to the government that the interest rate be left to the market. The suggestion was not heeded until it came as part of the IMF conditionalities.

Discussing the reasons behind the depletion of foreign exchange reserves, Fahmida Khatun said firstly, exports were not increasing as they should. Though overseas employment has seen an increase, remittance hadn't increased from that sector. Remittance was coming in, but through informal channels, hundi. Even if the migrants wanted to send their remittance through banking channels, they couldn't because of the dollar shortage. The banks were buying at Tk 110 per dollar, but this was Tk 125 in the kerb market. Why would the migrant workers send remittance through the banking sector then where they would get less than the open market, even with the government incentive added, she asked.

Parvez Karim Abbasi began his deliberation by raising the point of rising income inequality.

He said, one of the promises of the government was development. The ruling Awami League also believes in social justice. But the rising income inequality goes against this consensus.

It is the oligarchs who are skimming all the profits, he contended, and this is leading to great degrees of disparity in the economy.

He also pointed to the rising levels of unemployment among the youth and the education-employment enigma. Education was highest among the tertiary level graduates. There was a demand-supply imbalance.

Another challenge to the economy, Parvez Karim Abbasi argued, was growing public debt. There was fundamental weakness in the banking sector, rife with crony capitalism. And the problems are getting worse.

He saw this state of affairs as the result of policy myopia. The government was advised to let go of interest rate control, but it refused to budge till June 2022. But even then, the small and medium enterprises did not get much access to these loans.

Coming to the readymade garment (RMG) sector, the economics professor said that the US and the European Union were the two biggest markets for RMG. But our exports to the US had dipped by 24 per cent and to the EU by 18 per cent.

And then there were the IMF conditions, the need for monetary policies. He pointed out that there were eight significant interest rate hikes but this was not effective.

Meanwhile, he said, the National Board of Revenue (NBR) had missed the revenue target for 11 consecutive years.

The BIPSS president Maj. Gen. Muniruzzaman (retd) then asked various questions and raised pertinent issues in his interaction with the panelists. He brought up issues of the lack of FDI and domestic investment, as well as the endemic corruption.

He concluded by saying that there were more difficult days ahead. He said it is imperative that we have an understanding of the problem and find real solutions, not quick fixes.

The audience, comprising former diplomats, foreign diplomats and dignitaries, retired civil and military bureaucrats, academics, media persons and others, joined in a lively question and answer session at the end of the discussion.