Bringing down inflation will be extremely challenging: PRI

Staff Reporter :
Speakers at public dialog said that in the prevailing situation bringing down inflation, restoring foreign exchange rate stability, rebuilding foreign exchange reserves, and managing the fiscal situation despite revenue shortfalls will be extremely challenging.

The speakers also said a lack of freedom and justice leads to a negative impact on development.

They came up with the remarks while speaking at the public lecture on “Macroeconomic Challenges and Policy Options in Bangladesh” at the Annual BIDS Conference on Development (ABCD) organized by the Bangladesh institute of development studies (BIDS) at a city hotel on Thursday.

Speaking at the event, Policy Research Institute of Bangladesh (PRI) Executive Director Dr Ahsan H Mansur, said, “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.”

Explaining the rising inflation, he said the rate began to increase in the post Covid-19 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, Dr Mansur said.

He also 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 have 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 per cent, 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 to 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.

Salehuddin Ahmed, former governor of Bangladesh Bank, advised policymakers to recognise the country’s macroeconomic problems first in order to solve them.

“Political commitment is needed to deal with the economic crisis. But the problem is that in Bangladesh, policy makers, business and political stakeholders get mixed up,” he added.

In his key-note paper, SR Osmani, a professor of development economics at the University of Ulster in the UK, said, “When we talk about development, we can’t ignore justice and freedom as they are interrelated.

If you want development, you will need to ensure freedom and justice.”

“Freedom and justice support development and the absence of them hinder development.

If there is a lack of freedom and justice, credit discrimination occurs and the poor don’t get adequate funds.

Moreover, it can lead to social instability like the Arab Spring in the Middle-East,” Osmani added.