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Bangladesh continues to grapple with persistently high inflation levels although many countries, including the neighbouring ones, have managed to mitigate inflationary effects.
South Asian countries, including Bangladesh, experienced significant inflationary pressures in recent past following the global economic recession of late.
Economists, however, attribute Bangladesh's struggle to rein in inflation not only to economic factors but also to challenges such as the inability to curb money laundering and the influence of market syndicates.
According to the Bangladesh Bureau of Statistics (BBS), headline inflation in Bangladesh was reported at 9.67 percent in February, down from 9.86 percent in January. However, it remains higher than the government's target. This elevated inflation rate persists in Bangladesh for over a year.
Reducing inflation is a key condition for obtaining loans from the International Monetary Fund (IMF). To meet this requirement, the government aims to bring inflation down to 7.5 percent by the end of the current fiscal year.
Consequently, monetary policy tightening measures have been implemented from January to June to curb inflation. These measures include increasing the policy interest rate to reduce the money supply in the market. Additionally, the central bank has adopted the crawling peg method to determine the value of the dollar.
Furthermore, plans have been announced to establish a private enterprise 'asset management company' to recover defaulted loans. Despite these efforts, inflation has not shown significant signs of decline.
While talking to The Daily Messenger, the economists said that despite the dollar and reserve crisis in the country, the government could not reduce its own expenditure. Deflationary inflation has become rampant due to measures such as printing money on the reverse as the money supply in the market increases.
Professor MM Akash from Dhaka University's Economics Department told The Daily Messenger that maintaining the stability of the taka against the dollar is challenging due to the ongoing dollar crisis. He highlighted that more dollars are exiting the country than entering, primarily due to fraudulent dollar laundering activities. Akash emphasised that unless this trend is addressed and reversed, it will hinder efforts to reduce inflation.
“Also, there is a wide gap between producer and consumer prices. This is due to unnecessary change of hands and various forms of extortion. Due to additional costs, the price is increasing at the final stage. As few companies have access to supply, they are the ones who determine the price of the product. As a result, even if the government fixes the price, it is not working,” he added.
He feels that the situation will not change unless some punitive measures are taken against those who are laundering money, those who have formed syndicates. But he also thinks that it is not easy. Because crony capitalism is prevalent in Bangladesh.
According to the Asian Development Bank, two years ago due to the corona pandemic and the Russia-Ukraine war, there was massive inflation in the world as well as South Asian countries. However, most South Asian countries, except Bangladesh and Pakistan, have been able to rein in their inflation.
Sri Lanka stands out as a compelling example in this context. Just a couple of years ago, the nation teetered on the edge of bankruptcy, yet it has managed to stage a remarkable recovery since then. World Bank data reveals that during the crisis of 2022, Sri Lanka's inflation soared to over 49 percent. However, by July 2023, this rate had decreased significantly to 6.3 percent.
Encouragingly, the Asian Development Bank forecasts that Sri Lanka's economy will gradually begin to rebound starting from 2024.
Inflation in neighbouring India was 11.1 percent in October 2022. It fell to 4 percent in January this year. Shaktikanta Das, head of the Central Reserve Bank of India, gave this information at the meeting of the World Economic Forum on January 16. He said that this was possible due to tightening of monetary policy of the country.
Nepal’s inflation rate stood at 5.3 percent in January 2024, down from 8.19 percent in September 2023. In January this year, inflation in Bhutan was 4.2 percent. It was 5.07 percent in October last year as well. Inflation in Pakistan was 28.3 percent in January this year. It was a record 38 percent in May 2023.
Asian countries Singapore and South Korea feared skyrocketing inflation after the end of the Covid pandemic and the start of the Ukraine war. In April 2022, the two countries announced to tighten the monetary policy. Along with that, they also increased the interest rate of the central bank. The move was aimed at curbing inflation at the risk of reducing production.
In this regard, Khondaker Golam Moazzem, the research director of the Center for Policy Dialogue (CPD), told The Daily Messenger that countries like Bangladesh, which have low reserves, have to pay high prices for energy imports, resulting in a shortage of dollars and an increase in import costs. In this case, cost reduction has to be done very strictly, which did not happen in Bangladesh.
According to him, there is inflation in government expenditure. Government spending has not been cut as hard as it should have been. On the contrary, new notes were printed and given to the government, loans were taken from private sources. As a result, inflation also increased due to the excess of cash in the market.
He said, “Sri Lanka has been able to reduce inflation by showing strictness in reducing import costs and government expenditure, but Bangladesh has not been able to do much in these areas. As a result, although Sri Lanka’s inflation has decreased, Bangladesh’s has not.”
Messenger/Disha
