Controlling the inflation rate should get prominence in the next national budget. The social safety net needs to be widened so that the fallout of inflation rate does not affect the poor people. At the same time, the price of dollar has to be adjusted gradually so that the pressure of inflation rate does not become too high.
These comments were made at a roundtable in ‘Challenges of economy and the expected budget’ that Prothom Alo organised at its Karwan Bazar office in the capital city on Saturday. Economists, researchers and businesspersons took part in the discussions.
The discussants said the economy of Bangladesh had reached the current critical situation due to the dollar crisis because of increased import, high price of goods in the international market, and gradually increasing rate of inflation inside the country. They said though the government has acknowledged the crisis, it has not taken enough initiatives to face the situation. This situation is increasing risks for the economy. Some of the discussants advised the government to adjust the dollar price step by step so that that does not ignite inflation.
One of the discussants termed the current management of economy as “administration-based”. They further said meetings of different committees on the economy do not take place regularly. Such is not happening even when the country is going through this current crisis. It seems the economy is running on auto-pilot.
The discussants insisted on economic reforms in different sectors. They said the emphasis should be on short-term reforming measures. At the same time, previous reform measures, which are yet to be completed, in different sectors like revenue management, financial sector, local government and a few others need to be carried out. Several discussants said the economy has been facing the crisis because of not carrying out the reforms.
Prothom Alo’s head of online Shawkat Hossain moderated the programme. Prothom Alo editor Matiur Rahman, associate editor Abdul Quayum, managing editor Sajjad Sharif and some senior journalists were also present.
Dollar crisis
At the outset of the discussion, BCMA (Bangladesh Cement Manufactures Association) chairman Alamgir Kabir expressed grievances about the dollar price. He said, “Bangladesh Bank is saying the conversion rate is Tk 87.5 for each dollar. But the central bank also knows the dealer banks or the commercial banks are selling dollars over at Tk 90. Why is this difference? Does this mean the Bangladesh Bank has no control? We are not understanding, who is controlling the economic policy. We are not being able to fix what would be the dollar price for the goods we want to import tomorrow.”
Alamgir Kabir further said, “We get 3-4 months for paying the LC loan for importing goods. We sell goods considering the import price. We sold goods assuming dollar price at Tk 85 or 86. But when the time has come to pay the LC loan, we are being forced to pay Tk 95 for every dollar. This is unexpected. Who would bear the responsibility? It is we who are bearing the burden of extra price.”
Addressing the roundtable, Mutual Trust Bank Managing Director Syed Mahbubur Rahman said, “The dollar crisis has emerged now, whereas there was a huge flow of dollars around this time last year. The main reason is the volume of import was comparatively small in the last year. The expatriates also remitted their earnings through legal channels as other communication was halted. We all were excited about the increase in forex reserve because of remittance earnings. But the situation has reversed now. Imports have increased hugely. Luxury goods are also being imported. Against this, the remittance has slumped. This has led to the dollar crisis.
Highlighting the problems in the banking sector, Syed Mahbubur Rahman said, “90 per cent of the stimulus to businesses were provided by the banks to recover from the slump due to Covid-19. Bangladesh Bank refinanced us, the government has subsidised the interest. But at the end of the day, risks increased for the banks. Around 60-70 per cent of the SME loans, provided at low interest rate, are not being returned. As a result, the loan repayment time is being increased.”
Three factors to be stressed
Distinguished fellow of Centre for Policy Dialogue (CPD), Debapriya Bhattacharya, said three factors of the economy need to be given importance. Those are – analysis of the current economic condition, what is prescribed and what needs to be done to implement the prescribed steps. He said a critical situation is ensuing in the economic sector. The government has acknowledged that albeit reluctantly. But the steps the government is taking to face the crisis are scattered and inadequate.
Debapriya Bhattacharya further said, “We have taken GDP to the place of a unique deity. It needs to be dethroned from there. Importance should be given to economic stability including controlling the inflation rate. The target of economic stability is the lower income people. Purchasing capacity of the low income people needs to be protected. These poor people need to be protected through social safety nets even if the budget deficit remains big.”
This economist said, “This is the result of not reforming the sector for so long. Currently we are in an administration-based economic management system. I don’t know whether the currency adjustment committee held any meeting amid this crisis. Though a statement on economic matters is supposed to be given at the Jatiya Sangsad (parliament) every three months, no such thing is being done. The parliamentary standing committee on the finance ministry held 3-4 meetings in the last three years. The economy runs on auto-pilot.”
He further said the current crisis needs to be seen as an opportunity and necessary reforms needs to be made. Reforms should be made in the revenue sector, financial sector and local government. But we are not seeing any policy initiative.”
Big crisis in inflation rate
UNDP’s country economist Naznin Ahmed thinks controlling the pressure of rate of inflation should be seen as the priority of the next budget. She said, “If we immediately adjust the dollar price to Tk 95-96, it will surely affect the inflation rate. But this inflation is not for poor people only, rather the cost of importing raw materials for industries and capital equipment will increase."
She advised adjusting the dollar price gradually.
Naznin Ahmed further said, “We keep reserve for critical times in a family. Now the Bangladesh Bank is releasing money from its reserve. This is a right decision. But regulatory steps should be taken to decrease the difference in dollar price in the bank rate and kerb market. Bangladesh Bank held a meeting with foreign exchange dealers 2-3 days ago. It should have been done earlier.”
She further said, “We are passing a challenging time. That’s why we would use the savings. Dual currency policy is alright for a short term but that should not turn into a system like the power sector (quick rental power plants).
Policy Exchange chairman M Mashrur Reaz said, “Currently inflation is global phenomena. It was speculated that global demand of luxury goods, supply, labour market and all other things would increase when the fallout of Covid-19 would decrease. But we could not tackle the situation because of weak management of economy. We increased the time limit for settlement of UPAS-LC from 120 days to 360 days. Later, that was brought back to 120 days in November-December last year. As a result the demand of dollar increased. Such weakness in management destroys the environment for investment.”
Mashrur Reaz further said, “We are lagging behind Indonesia, Vietnam in terms of investment and commerce capacity, business cost and capability.”
He said, “We have a lack of leadership for economic policy. Alongside the lack of leadership, there is a regulatory capture in the country. Policy of a whole sector changes just to give benefit one of two firms.”
Budget and social safety
Research and Policy Integration for Development (RAPID) chairman MA Razzaque advised to increase allocation in budget to bring more poor people under the social safety net.
He said currently 6.2 million people are being provided with 30 kg rice for five months under pro-food projects. For this, there is allocation of Tk 30 billion (3,000 crore) in the budget. If the allocation is increased by another Tk 60 billion (6,000 crore), that would ensure food safety for 18.6 million (1 crore and 86 lakh) people. The allocated Tk 90 billion (9,000 crore) would just be .8 per cent of the total budget.
MA Razzaque also advised the government to increase deficit in the budget to rein in the inflation rate. He also advised to devalue the money against dollar and regulate import.
Professor of Economics Department at Dhaka University, Sayema Haque, considered inflation as the main challenge now. In this context, she proposed to increase the ceiling of tax free income at the individual level.
Sayema Haque also proposed to widen the social safety net coverage in cities alongside the villages. There are just 4-5 projects under the social safety net for people living in cities. The lower and lower middle class people in cities are in crisis, she added.
Education sector
Bangladesh Institute of Development Studies (BIDS) researcher Tahreen Tahrima Chowdhury said many students have dropped out during the of pandemic. There could be special allocations to bring them back at school. Out of the box steps need to be taken to mitigate the loss in the education sector.
* The report, originally published in the print edition of Prothom Alo, has been rewritten into English by Shameem Reza