Bringing down inflation will be extremely challenging: Economists
For a long time, the Bangladesh Bank had hoped that a positive supply response would take care of the inflation, he said
- Particularly the poor and those with a fixed income are suffering
- Balance of payment issue is complicating inflation management
- Needs and demands are different among city and towns dwellers
- Cenbank's fight against inflation virtually limited to fixing interest rate
Bringing down inflation, restoring foreign exchange rate stability, rebuilding foreign exchange reserves, and managing the fiscal situation despite revenue shortfalls will be extremely challenging, experts and economists have said.
They urged the government to prepare plans for settling the debt liabilities, interest and exchange rates, and prepare a comprehensive reform approach to overhaul the financial system and increase the revenue mobilisation ahead of the forthcoming national elections.
The recommendations came at the Annual BIDS Conference on Development 2023, arranged by the Bangladesh institute of development studies (BIDS) at a Dhaka hotel on Thursday.
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Dr Ahsan H Mansur, executive director, Policy Research Institute of Bangladesh (PRI), presented a public lecture titled, "Macroeconomic challenges and policy options in Bangladesh" at a session of the event.
"Inflation has been very high for a long time. Many people, particularly the poor and those with a fixed income are suffering. The balance of payment issue is complicating inflation management," he said.
Explaining the rising inflation, he said the rate began to increase in the post-Covid period amid supply chain disruption and the problem further worsened due to commodity price shocks owing to the Ukraine-Russia war.
However, inadequate domestic policy response in a timely manner is also equally or more responsible for the degradation of the situation, he added.
For a long time, the Bangladesh Bank had hoped that a positive supply response would take care of the inflation. But their fight against inflation remained virtually unattended except fixing the interest rate, Mansur said.
Earlier, Professor SR Osmani, who also spoke at the event themed "Development, Justice, and Freedom", said justice, freedom of expression and the freedom of speech were essential for economic development.
Development comes from the contributions of both labour and enterprises; the government facilitates development, but does not provide it, he said.
Osmani continued by saying that prioritising development requires prioritising justice and freedom.
Planning Minister MA Mannan, who also addressed the event, highlighted how over two thirds of the population live in rural areas.
He said their needs and demands were considerably different than those who live in the cities and larger towns.
The minister also said those who live in rural areas care more about proper sanitation, water, electricity, and housing facilities as well as lower cost commodities.
Also speaking at the event, BIDS director Binayak Sen stressed the importance of democratic institutions.
"We have no reason to trade democracy and freedom of speech for development," he said.
"We have to return to the ideas of Bangabandhu when he wrote in 'Amar Dekha Noya Chin' following his travels to China. China has achieved tremendous success in eradicating the deprivation of basic necessities. But he said if there is no democracy and freedom of expression, the soul of man turns into stone," he added.
Dr Salahuddin Ahmed, Former governor of the Bangladesh Bank presided over the session of public lecture by Dr Ahsan Mansur.
He said that the policymakers should recognise problems prior to taking initiative to eradicate such problems.
Problems regarding lower revenue, volatile fiscal and financial positions have been discussed over the years but there are no major reform initiatives to overcome such problems.
He said that political commitment is required to ensure reforms and the policymakers should implement such initiatives. But the businessmen, policymakers and politicians are a single entity in Bangladesh.
When there is no difference between the politician and business people it will be difficult to ensure reforms, he said.
Ahsan Mansur said in his speech further said there are multiple issues creating a balance of payment crisis. But in particular, the rapidly declining foreign exchange reserves and a sharp depreciation of the local currency has contributed to it.
Stating that the challenges remain in the field of inflation, exchange rate and reserves, he said policy needs to be adopted ahead of the national elections.
He said the macroeconomic management in Bangladesh has been unnecessarily complicated by a number of domestic economic policies such as fixed exchange rate regimes despite a rapid change in global economic and financial environment.
"The global fiscal policies were changing from a very low interest rate to very high interest rate but we kept it at 6-9%, which is a big departure from standard macro management," he explained.
Besides, maintaining a virtually fixed exchange rate – for a decade despite a very high inflation compared with trading partners and competitors – reduced competitiveness.
He also suggested addressing the stressed financial system, lower tax collection, dependency on financial accounts to develop foreign exchange reserves
