January 5, 2024
DHAKA – Inflation in Bangladesh is currently at over 9 percent, which is unacceptable, said Atiur Rahman, former governor of the Bangladesh Bank, yesterday.
“It should be brought down to 4-5 percent or 5-6 percent,” he said.
Bangladesh’s prime challenge in this new year will be controlling this high inflation, said the economist.
“So, controlling inflation should be the number one priority now. We hope that the government will handle the issue more strictly after the national elections,” Rahman told a public lecture.
Titled “Thoughts at the start of the year: Which way is Bangladesh’s economy headed?”, the event was organised online by research and advocacy organisation Unnayan Shamannay, of which Rahman is the chairperson.
According to the Bangladesh Bureau of Statistics, inflation in the country stood at 9.49 percent in November.
The rate has been persistently high since June 2022 for the fallouts of the pandemic and the Russia-Ukraine war which caused global commodity prices to spike, hitting hard import-dependent nations such as Bangladesh.
According to Rahman, Bangladesh will have to apply conventional and non-conventional tools to tackle inflation.
“We can see that it will not be possible to control this inflation only with its monetary policy. The monetary policy must be kept contractionary, but we also need to work on the fiscal policy,” he said.
Because of such a high inflation, people with low incomes are in great danger, he said.
“Inflation in villages is at double digits which is more dangerous. Food inflation there is close to 12 percent,” said Rahman.
The devaluation of the taka against the Us dollar has permeated into commodity prices, he said.
“Basically, it is imported inflation. To deal with this, exchange rates need to be stabilised and tariffs on essential goods should be reduced. Then the common man will get some benefit,” he said.
Moreover, social benefits should be increased for those who are the most vulnerable to inflation, said Rahman.
“We are facing the biggest challenge this year. We fear that the challenges we faced last year will spill over to this year,” said Rahman regarding the present situation of the economy.
Earlier the main strength of the economy was macroeconomic stability, he said.
“I think there are concerns over that strength now. If we calculate, in 2023, remittance inflow will likely be $52 billion, but import will not be less than $70 billion,” he said.
“Even if the remittance stands at $22-23 billion, there will be a gap in the current account balance. And it will be in the negative,” said Rahman.
If it is not possible to fill the gap, the pressure will shift elsewhere and it will also put pressure on the financial account, he said.
So, there will be a gap between earning and spending of dollars, he said, adding that foreign direct investment (FDI) could fill up the gap.
“I hope for economic stability to return this year. If political stability is restored, foreign investment may rise. Unless the FDI increases, the deficit will persist,” said Rahman.
“And, if there is a deficit in the economic sector, it creates a negative balance of payments and puts pressure on the reserve,” he said.
In this situation, import bills are paid from the reserve, Rahman said.
“This is why we passed last year amidst a crisis. There was pressure on exports as well as growth. I hope that we will concentrate on these issues,” he said.
“This year, we should set the exchange rate near the market-based rate. It may be 2-3 percent higher or lower than the market rate,” he said.
Despite successes in many sectors, it should be remembered that about 3.20 crore people are still below the poverty line, he said.
Besides, 2-3 percent of the population is slightly above the poverty line and they can fall below it at any moment, he said.
“We have to work for them. Besides, we have to handle the country’s economic transformation very carefully,” he added.