A report released by the Center for Policy Dialogue (CPD) titled State of Bangladesh Economy in FY2023-24, highlights severe inflationary pressures on the economy and suggested reducing tariffs on at least 27 essential items to decrease market prices.
It said Bangladesh spends the highest on food items in terms of its GDP amid high inflationary pressure and measures must be taken to ensure that tariff reduction directly benefit the consumers.
CPD research director Khondaker Golam Moazzem unveiled the report on Sunday at the meeting at CPD office in the city It said Bangladesh average annual expenditure on food is $146 USD when per capita GDP at $7,805 USD to show that 8.86 percent of the GDP account for spending on food.
Taking per capita purchasing power (PPP) on food in terms of GDP in different countries in 2022 the report shows South Africas spending on food is $489, with a GDP per capita of $13,262, resulting in only 3.69 percent of its GDP spent on food.
Uzbekistan spends $469 on food at per capita GDP of $8,696 which translates to 5.39 percent of its GDP. Sri Lanka spends $577 on food from a per capita GDP of $13,012, equating to 4.44 percent.
These figures illustrate Bangladesh dedicates a significantly higher percentage of its GDP to food compared to South Africa, Uzbekistan, and Sri Lanka.
This disparity underscores the susceptibility of Bangladeshi households to food price inflation.
Since April 2020, Bangladesh Bank has faced significant criticism for its monetary policy. The central bank initially capped interest rates, fixing lending rate at 9 percent and deposit at 6 percent.
However, with inflation rates soaring above 9 percent and nearing 10 percent, this policy has proven counterproductive. Cheap borrowing led to economic instability, and depositors suffered negative real returns as inflation outpaced deposit rates.
To correct it, Bangladesh Bank introduced the Six-month Moving Average Rate of Treasury Bills (SMART) mechanism in July 2023, raising the policy rate by 50 basis points to 8.5 percent.
Further adjustments in January 2024 saw the rate increase from 7.75 percent to 8 percent. These changes reflect a shift towards a more market-based interest rate.
Additionally, the introduction of the Crawling Peg Mid-Rate system on May 8, 2024 aimed to stabilize the exchange rate at BDT 117 per dollar allowed banks to buy and sell dollars within a designated band. However, the value of BDT depreciated by over 29 percent over two years worsening inflation by increasing import costs.
The CPDs findings showed inflation rate had significantly outpaced initial projections, indicating a deeper economic crisis. The combination of high food expenditure, ineffective monetary policies, and significant currency depreciation has left Bangladesh in a precarious economic state.
Households, already sensitive to food price fluctuations, are now facing intensified inflationary pressures.
While the central banks recent measures to adjust interest rates and stabilize the currency are steps in the right direction, the situation remains fragile and demands vigilant monitoring and adaptive policy responses to mitigate the adverse impacts on the population, CPD report said.
It said to effectively control inflation; the government must implement coordinated policies across various departments. Strengthening Bangladesh Competition Commission is essential.
This can be achieved by developing a database to monitor market players, addressing market manipulation, and enforcing a zero-tolerance policy against cartels.
Revising the Competition Act 2012 to include anti-trust clauses and penalties to curb monopolies is also necessary. Supporting low-income households through direct cash support, extending social protection, and providing stimulus packages to small businesses is needed to mitigate inflations impact.
Additionally, reducing tariffs on at least 27 essential items will decrease market prices, with measures to ensure that these reductions benefit consumers directly.
