Are we looking at a scorching summer of inflation, power woes this Ramadan?
As the summer heat builds, so do the challenges too. Are we prepared for what’s coming? Or will this season of fasting and heat test the nation’s limits like never before?
The interim government faces an uphill battle as it prepares for the impending challenges of Ramadan and the summer season. The problems ahead are not new, but this year they carry a sharper sting.
Take, for instance, the perennial Ramadan sticker shocks. While this has become an inevitable ritual, this time the burden on consumers could be heavier. Midway through the fiscal year, the government raised VAT and taxes on more than 90 products and services, a decision that has left economists, politicians, and the public scratching their heads. Why introduce tax hikes now, when inflation has been stuck in double digits for nearly three years, forcing consumers already digging deeper in their wallets?
Compounding this is the impact of rising policy rate, which after multiple hikes now stands at 10%. Banks' lending rates have also soared to 14-15%. Businesses are feeling the heat as production costs climb, competitiveness erodes, and new investments grind to a halt. With job creation stalling, the ripple effects are hitting every corner of the economy.
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And then there's the looming power crisis. The government owes private power producers a whopping Tk12,000 crore, and now they are sounding the alarm. In just one week, they've held two urgent meetings with top officials from the power ministry. Their message is clear: without these overdue payments, they won't be able to import the fuel needed to run their plants. If this isn't resolved, power supply could falter to meet the increased demand just as Ramadan begins in the first week of March, leaving the country vulnerable to outages during one of the year's most critical periods.
Also, boro irrigation and cultivation may be affected badly because of the looming power shortage.
As the summer heat builds, so do the challenges too. Are we prepared for what's coming? Or will this season of fasting and heat test the nation's limits like never before?
Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), questions the rationale behind increasing VAT and taxes amidst persistently high inflation. According to estimates by the National Board of Revenue (NBR), the tax and VAT hikes are expected to generate around Tk12,000 crore, of which Tk7,000 crore will be allocated to fund the proposed increase in dearness allowances for government employees.
"Inflation remains high, but it is no longer a demand-side problem, as people are struggling just to cover their daily essential expenses," she tells The Business Standard.
For an immediate solution to inflation, Fahmida recommends that the interim government focus on supply-side measures and better market management. She suggests that the government increase procurement efforts to address supply shortages effectively.
The CPD executive director also points out a lack of coordination within the government, warning that this disarray could further weaken the economy and hinder job creation.
"The country needs reforms, but survival must come first," she says.
Dr Mustafa K Mujeri, former director general of the state-sponsored Bangladesh Institute of Development Studies (BIDS), expresses concern that the government appears to have increased VAT and taxes without fully assessing the consequences.
"This is not the right time to raise taxes. It has backfired on the government, creating chaos in the market and potentially driving inflation even higher," says Mujeri, who is also a former chief economist of the Bangladesh Bank.
He also voices apprehension about the proposed hike in gas prices, which is set to more than double the current tariff. "This increase will raise production costs and further fuel inflation," he warns.
Mujeri suggests that the government should explore alternative ways to boost revenue without increasing taxes on essential goods. For example, he recommends measures to reduce corruption, curb tax evasion, and improve the efficiency of revenue collection processes.
He also urges the government to prioritise ensuring uninterrupted power supply. "Failing to do so will not only disrupt industrial production but also adversely impact irrigation during the crucial boro cultivation season," he says.
According to the Bangladesh Power Development Board, electricity demand during the daytime peak on 16 January stood at 10,240 megawatts, with no load shedding reported. However, nationwide electricity demand is expected to exceed 16,000 megawatts during summer due to rising temperatures, irrigation needs, and increased demand during Ramadan.
Local power producers have warned that if the government does not settle their outstanding bills within a few days, they will be unable to import the fuel required for power generation.
Meanwhile, India's Adani Group has threatened to halt power supply to Bangladesh from its 1,600MW coal-fired plant in eastern India unless Bangladesh clears its unpaid bills, which currently amount to approximately $800 million.
