Inflation, debt, fiscal constraints heighten Bangladesh’s economic concerns

Bangladesh is confronting a host of economic hurdles, ranging from soaring inflation and escalating debt to sluggish GDP growth, worsened inequality, and corruption. Compounding these issues, the government is contending with limited fiscal resources stemming from poor revenue earnings, a situation that hampers its capacity to fortify social safety nets, crucial for shielding vulnerable segments of society from the adverse impacts of inflation.

Against this backdrop, economists and policymakers have underscored the imperative for the forthcoming fiscal year's budget to prioritise accountability measures and tackle corruption head-on.

This call to action was echoed during a discussion titled "New government, national budget, and citizens' expectations" convened by the Centre for Policy Dialogue (CPD) in collaboration with the Citizens' Platform for SDGs at a city hotel in Gulshan. Fahmida Khatun, executive director of the think tank, chaired the programme.

Debapriya Bhattacharya, convener of the Citizens' Platform, said the new budget is being introduced in a very complex socio-economic and political environment, adding that besides the prevailing geopolitical issues, the government faces the challenge of LDC graduation.

He said, "In addition, there are three current problems in the economy: high inflation since last year; increasing risks of foreign and domestic debt; and a slowdown in growth."

Debapriya, also a distinguished fellow of the CPD, said inflation is disproportionately affecting marginalised communities, leading to decreases in access to food, education, and health facilities, which in turn is contributing to an increase in child marriage.

He said the government's debt – both domestic and foreign – stands at 37% of GDP, while the private sector's borrowing from external sources is 5%. This has had an impact on the exchange rate.

"Until now, Bangladesh had the reputation that the country did not default on any foreign debt. But now at least $5 billion cannot be paid on time. There are arrears in the energy sector, and many foreign investors cannot repatriate their profits. It can no longer be said that Bangladesh has not defaulted on repaying foreign debts," he added.

He pointed out that according to data from the Bangladesh Bureau of Statistics (BBS), GDP growth was 4% in the January-March quarter. In order to achieve the government's target of 7.5% by the end of the fiscal year, there must be 10% growth in the current quarter, which is deemed impossible. He added that there is a lack of investment in both the domestic and foreign sectors.

Anisul Islam Mahmud, the deputy leader of the opposition in parliament and the principal speaker at the programme, said lawmakers cannot play a significant role in budget formulation. Even, no meetings are currently taking place with standing committees to this end.

He said different countries around the world came to a standstill during the coronavirus pandemic, but Bangladesh remained active. The big question is why what was going up then is going down now after the pandemic.

"Despite the increase in export income, the foreign exchange reserve could not be increased. Government expenditure has not increased," he added.

He said, "Where are foreign exchange earnings going? I think money is being laundered. The financial sector has become weak. Ten banks are so weak that they have to merge. These banks face a capital shortfall of Tk30,000 crore and another Tk54,000 crore in defaulted loans. Who will take the liabilities of these toxic assets?

"All this is being done to convince the IMF – to show less defaulted loans. But these issues have been raised for the last 10 years. The banking sector is deteriorating. Neither the government nor the Bangladesh Bank took the initiative back then. Now they are taking action. What guarantee is there that this reform will be maintained in the future? So much is being said, but the Bangladesh Bank is not addressing those who are responsible for this situation."

The veteran parliamentarian pointed out that the interest rate has risen from 9% to 14%. Since there was no investment during the period of 9% interest, it is unlikely to occur during the period of 14% interest. Additionally, the exchange rate was Tk85, but now it has jumped to Tk110. How can an investment take place at a Tk110 exchange rate when it was not made at the Tk85 rate? All these factors need to be carefully considered together.

He emphasised the importance of good governance, especially in the face of challenges such as increased energy costs and LDC graduation.

"I recently read in newspapers that electricity prices will increase four times a year. I would have been happy if there had been discussions about reducing waste instead. It seems that the burden is being imposed on customers without transparency. It's crucial to address waste and inefficiency. Without fixing these issues, progress will be difficult," he added.

Regarding inflation, he said, "Five or six people are importing. They control the market. Unless we break the syndicate, inflation will not come down. Even if a country like Sri Lanka can reduce inflation, Bangladesh cannot."

"I have not heard that there was a shortage somewhere in Bangladesh, but the price is increasing. There is no shortage of products in any market or shop," he said. "Traders also do not say that they did not get goods. They say they had to buy it for so much money, so they are selling it at higher prices. As a result, this inflation is the result of the syndicate. Some men are powerful. They have a nexus."

Former planning minister MA Mannan said, "There is waste everywhere. It must be prevented. Accountability must be ensured. Bureaucracy needs to be reformed."

He mentioned the need to review the budget, stating, "It is necessary to see where the expenditure should be reduced and where it should be increased."

Lawmaker AK Azad expressed concern over the inefficiency in district-level hospitals, attributing it to a lack of management and corruption. He emphasised the need for accountability across all ministries to eradicate corruption.

"If accountability cannot be ensured, corruption cannot be eradicated, and nothing will happen. First of all, accountability must be ensured in all ministries. Corruption must be stopped," he added.

He also raised concerns about the quality of education, citing his company's experience of interviewing around 200 job seekers with higher degrees such as BBA, MBA, BSc, and MSc each month, but finding that 80% of them did not meet the qualifications.

Rasheda K Chowdhury, executive director of the Campaign for Popular Education, said students are falling behind in education due to malnutrition. She pointed out that Bangladesh is in the red zone for lead poisoning, which is causing brain problems in children. Chowdhury emphasised the importance of reinstating the midday meal programme to address these issues.

CPD Distinguished Fellow Prof Mustafizur Rahman said providing rations for workers and implementing mid-day meals for students should be viewed as investments rather than expenses. He argued that such measures would increase productivity and improve the quality of education.

The economist further emphasised the interconnection between food security, economic capability, and climate change. He urged the government to prioritise this sector accordingly, with special attention given to enhancing quality education, healthcare, social security, and developing institutional capacity. He stressed that, without such measures, sustainable development in Bangladesh cannot be ensured.

CPD Executive Director Fahmida Khatun, who presided over the programme, pointed out the dichotomy in the country's development: while there is growth, inequality is also on the rise, indicating a lack of inclusive development.

She also highlighted the pressure on foreign exchange reserves, stagnant investment, and high inflation, which worsens the burden on marginalised populations, leading to increased impoverishment. She emphasised the necessity of augmenting allocations for social security programmes and enhancing social infrastructure, particularly in education and healthcare.

She stressed the importance of increasing allocations for human resource development, which requires the government to boost its revenue. To achieve this, she advocated for a change in revenue management to broaden the tax base and combat tax evasion and money laundering. Additionally, she recommended an increase in direct taxes to ensure fairness in the tax system.