Why did the common people take to the streets during the July-August movement? Bangladesh Bank Governor Ahsan H Mansur believes that mismanagement of the economy and high inflation are significant reasons behind the protests. He made this statement during a roundtable discussion organised by Prothom Alo on 14 September.
Globally, inflation is the economic indicator that most significantly impacts politics. Researchers have shown that high inflation makes a government highly unpopular. Professor at the Department of History and International Affairs of Princeton University, Harold James, wrote in 2023 that in democracies, election outcomes often depend on market prices. However, there are also examples of authoritarian regimes facing difficulties due to high inflation.
High inflation is often referred to as the silent killer of the economy. The people of Bangladesh have witnessed just how ruthless this killer can be over the past two years, making the cost of living unbearable for low-income people. Inflation has not decreased due to a series of wrong decisions by the previous Awami League government, whereas most countries have successfully controlled inflation through effective monetary policy.
It is true that the interim government inherited this high inflation. According to the Bangladesh Bureau of Statistics (BBS), the inflation rate in August was 10.49 per cent. In September, it slightly decreased to 9.92 per cent, although ordinary people are not seeing any impact of this decrease on their cost of living. Rather, prices of almost all commodities have risen.
The people expected that the new government would at least provide relief from the pressures of inflation.
Economic adviser Salehuddin Ahmed stated on 9 October at the secretariat, "We are working to control inflation. It will take some time." He urged people to be patient, but given the current market conditions, it has become difficult for them to remain patient
Priority should be controlling inflation
The government currently has many agendas including ensuring justice for student killings, bringing back laundered money, reforming the police, administration, electoral system, and constitution, addressing mismanagement in the banking sector, and preparing a white paper.
However, it is essential to note that two issues primarily affect the lives of ordinary people: law and order, and market prices. Therefore, the interim government must prioritize these two areas.
Salehuddin Ahmed reiterated on 9 October, "We are working to control inflation. It will take some time." Again, he called for patience, but in the prevailing market conditions, it has become difficult for people to do so.
In this situation, there must be public trust in the government's policies aimed at reducing inflation. The government needs to convey that it genuinely prioritizes controlling inflation. It is not that no measures have been taken; import duties on various goods have been reduced, and policy interest rates have increased. However, the impact of these measures is not yet visible in the market.
Visible steps required to control inflation
A few isolated measures now will not yield any result in controlling inflation. The entire situation must be taken into consideration holistically.
1. Understand public sentiment: Policymakers need to know the true situation of the market before taking any steps. Almost all countries conduct an "inflation expectation" survey to gauge consumer, business, and investor sentiment about whether prices will rise in the future. Research shows that inflation dynamics largely depend on these expectations. If businesses expect a 3 per cent increase in inflation, they will adjust their prices accordingly. The workers also demand a wage hike by 3 per cent. As an impact of this, inflation genuinely goes up by 3 per cent.
Sources said Bangladesh Bank previously conducted this survey quarterly, and it was even included in the 2018 monetary policy. However, the survey was halted due to excessively high inflation expectations. In the current situation, the monetary policy department of Bangladesh Bank should quickly resume this inflation expectation survey.
2. Maintain commodity supply: Bangladesh imports most of its food products from the global market. In July and August, wheat imports dropped by 8.2 per cent, and imports of all consumer goods fell by 3.2 per cent, with sugar imports decreasing by 52.5 per cent. Ensuring a steady supply of all necessary products is now a significant challenge for the government. Rising tensions in the Middle East are causing prices for oil and other goods to increase in the global market. Therefore, the government must also plan future imports strategically.
3 Enhance market monitoring: Alongside ensuring proper supply, there is a need to strengthen market surveilance. There are issues with extortion in the transportation of goods. Products go through multiple handovers from producer to consumer, and despite the government change, the extortion practices remain unchanged. The problem lies in administrative weaknesses and law and order situations.
4. Improve law and order: Since the new government took office, the most visible measures have been in the banking sector, which has increased public confidence and deposits. However, that confidence has not yet extended to inflation control or law and order. As a result, the fear of repercussions for irregularities or extortion has diminished. If the law and order situation does not improve, investors will also lack confidence. As a result, investment and production will decrese, resulting in reduction of employment.
5. Prevent smuggling: Since the fall of the Awami League government, cross-border movement to India has decreased due to stricter visa regulations. However, the movement of goods, especially smuggling, has not stopped. Sugar is a prime example; due to high tariff rates, sugar imports have dropped, yet smuggled sugar continues to enter from India. In response, the government has reduced sugar tariffs, but this has yet to impact the market. This area also requires monitoring.
6. Elimination of uncertainty: The biggest enemy of the economy is uncertainty. Without eliminating uncertainty, public confidence will not return, and investors will refrain from investing. There is uncertainty about the continuity of government policies. Reducing uncertainty regarding how long the interim government will last could help. Entrepreneurs need to know the roadmap for reforms, which would make it easier for them to make investment decisions.
7. Reassure businessmen: The government is taking action against influential business figures associated with the previous government, some of whom engaged in irregularities, took bank loans under false names, and embezzled significant amounts of money. Public support exists for actions against these individuals, and the quicker the process, the better for the economy. This would alleviate uncertainty for other businessmen. The government’s role here is to reassure businessmen and create an environment for smooth operations.
However, business owners assert that there are substantial business groups capable of filling this gap. The government must ensure the supply chain continues by engaging trustworthy entities like Meghna Group, City Group, and TK Group
8. Listen to entrepreneurs: There are no representatives from the private sector in the interim government. This absence is evident throughout the government structure, and there is a lack of direct communication with them. This situation is detrimental to the economy. Therefore, an institutional mechanism for hearing from business owners is necessary. A consultative committee comprising representatives from the private sector could facilitate regular dialogue with the government.
9. Rebuild trust with good businessmen: Among those being investigated for irregularities by the government are major consumer goods companies like S Alam Group and Bashundhara. Their imports have declined, resulting in a significant imbalance between demand and supply in the market. A supply shortage will inevitably lead to price increases. However, business owners assert that there are substantial business groups capable of filling this gap. The government must ensure the supply chain continues by engaging trustworthy entities like Meghna Group, City Group, and TK Group. Additionally, those who have previously been unable to enter the consumer goods market due to the dominance of influential businesspeople should also be given opportunities, which would help dismantle market syndicates. The banking sector must step up in this regard and stabilise the dollar market.
With three months of the fiscal year already passed, the government should analyze the budget and economic situation quarterly and inform the public about necessary actions. This will clarify the government’s economic policies for everyone.
10. Quarterly review required: The economy is still moving slowly. The World Bank has indicated a decline in GDP growth this year. Therefore, the government must thoroughly review the overall economic situation, including public revenue and expenditure, and clearly announce where austerity measures will be implemented. With three months of the fiscal year already passed, the government should analyze the budget and economic situation quarterly and inform the public about necessary actions. This will clarify the government’s economic policies for everyone.
In times of high inflation, American economist Gunnar Myrdal received the Nobel Prize in Economics in 1974. He expressed frustration over the government’s policies, stating, “There is deep distrust among people regarding the government’s sincerity in controlling inflation, whereas strong and decisive action is required.” The people of Bangladesh desire the same today.
*This article, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam