The limited-income people have found meeting daily expenses an uphill battle nowadays due to exorbitant commodity prices, transport costs, power-gas bills, and some other issues.
Inflation has started falling globally, but it still remains above nine per cent in Bangladesh. The policymakers are still debating who is to blame for the rise in inflation. They claim it to be imported and blame the Covid-19 pandemic and the subsequent Russia-Ukraine war.
The same scenario was presented in the concluding session of the two-day research almanac of the Bangladesh Institute of Development Studies (BIDS) on Thursday.
However, economists at the event noted that the price hike is not entirely imported, and there are internal factors behind it. Whatever be the reason, there is no noticeable initiative or discussion to bring inflation down.
Let alone inflation, the country has been going through various types of macroeconomic crises throughout the year, said economist Ahsan H Mansur. "One year has passed, how many more days will go like this?" he asked.
BIDS director general Binayak Sen moderated the session in a hotel in the capital's Gulshan area on Thursday, with the prime minister's economic affairs advisor Mashiur Rahman present as the chief guest. State minister for planning Shamsul Alam and Bangladesh Bank governor Abdur Rouf Talukder attended the event as special guests.
Before assuming the position in the central bank, Abdur Rouf Talukder served the finance ministry as secretary. He is now one of the key policymakers of the country. At the BIDS event, the central bank governor shed light on the government's stance on various issues, including forex reserves, interest rates, the dollar crisis, remittance, imports, and hundis.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI), and Mustafizur Rahman, distinguished fellow of the Center for Policy Dialogue (CPD), were the panel speakers at the event.
Mashiur Rahman pointed out that investments in the country's private sector have remained stagnant throughout the last several years. It should be increased. Industrial production will not go up if private sector investments do not rise, and it will eventually make increasing revenue difficult for the government.
Two determinants of inflation
State minister for planning Shamsul Alam said it is quite impossible to keep inflation in check by increasing interest rates. The current price hike is not driven by cost, demand, or money supply. It is imported inflation that requires a different type of treatment.
Generally, inflation does not rise and fall at the same rate. It comes down gradually once production and supply increase. This is why it is necessary to improve the supply chain.
Abdur Rouf Talukder said the last budget speech of the finance minister and the monetary policy of the central bank clearly mentioned that the prevailing inflation is not driven by money supply. It is not triggered locally, and that is why a strategy was adopted to reduce demand and intervene in the supply system. Imports of luxuries and unnecessary goods are being discouraged. The government, as well as the central bank, has also taken various initiatives to encourage the small and medium enterprise (SME) and agriculture sectors.
“We want to boost production and increase employment by improving the supply system. We have taken initiatives to reduce import dependence so that we can sell our own products,” he added.
Crisis in place for a year
Ahsan H Mansur said the country has been going through various macroeconomic crises, including rising exchange rate, inflation, and interest rates, throughout the past year. The forex reserve is still shrinking while uncertainty persists over the currency exchange rate.
There are concerns that the exchange rate cannot be maintained at the current level if the forex continues to fall steadily. One year has passed since the crisis arose. How long can the current situation be maintained? asked the economist.
Regarding the falling forex reserve, he suggested that the government set a lower ceiling for itself and try not to fall behind it. Later, it should strive to increase the reserve as per the commitments made to the International Monetary Fund (IMF).
Ahsan H Mansur also said there is no significant discussion about inflation, with only newspapers reporting on public suffering. Also, there is no noticeable initiative to bring down inflation.
“What tools have other countries used, and what are we doing? The Aman season has ended and the Boro season is coming. There was a good production of paddy, but the price did not fall. Almost all food products returned to the previous price level in the international market, but the price is not dropping in Bangladesh," he said, adding that all these issues indicate that inflation here cannot be explained solely by the exchange rate.
He further said the high exchange rate may have pushed up prices by 20 to 25 per cent, but the prices of oil and sugar jumped here by more than 100 per cent.
"We should think about why the price is not dropping. If India can bring down inflation below the threshold of 5 per cent, why can't we?" he added.
How much did the government perceive the situation?
Distinguished fellow of CPD Mustafizur Rahman said the Russia-Ukraine war commenced in February before the announcement of the last budget. A USD 20 product became USD 40 in the meantime, but the budget was prepared in its own conventional way.
There were signs that the war would have an impact, but the authorities did not perceive it. Now, the growth forecast has been revised down, the forex reserve has dropped to USD 30 billion, and the exchange rate of the dollar against the local currency rose to Tk 105.
Then, what is the value of such programmes to the policymakers? he added.
Mustafizur further said the authorities should check whether the remittances are coming from other countries after recycling. They should also work on the vicious cycle of hundi as it is too tough for the authorities to outplay hundi with incentives.
When will the dollar crisis end?
The central bank governor said there have been many discussions about the dollar exchange rate.
“We have reviewed all calculation methods. We have an idea of what the value of money should be. There was a time when the Bangladesh Bank would fix the exchange rate. When reserves were increasing, no problems arose regarding the exchange rate. But the situation turned acute last year, and we saw that there is no method to hold up the reserve by freezing the exchange rate. Then we moved towards a floating exchange rate. It created multiple exchange rates for dollars," said the governor.
He further said the prevailing method does not align with the IMF policy. “We have said we are at crossroads. The dollar price ranges within a gap of 2 per cent in all cases. It will be the same in all cases in the future. Within another three or four months, the dollar will reach a market-based uniform price."