The worldwide geo-political uncertainty is not just going to vanish anytime soon, rather stringent austerity measures by the developed countries will compound the situation.
Against the backdrop of a looming global economic downturn, we need to reduce hidden costs of export by eliminating mismanagement so that we can retain the foreign markets. At the same time, we have to adopt austerity, especially in public spending. To meet the long-term challenges, we need to reduce the demand at both public and private levels through coordination of revenue and monetary policies.
In addition to the global economic situation, various crises have been surfacing in the domestic market, the biggest of which is inflation. Rising food prices have been a major source of inflation last month. While non-food inflation has eased a bit, the effects of the recent gas price hike and stronger US dollar are yet to be visible.
It is necessary to take immediate steps to boost the food stocks at government level and ramp up food imports by the private sector too.
Within a month, rice prices surged by Tk3 to Tk4 per kg. Prices of flour, edible oil, sugar, fish and meat spiked too. The impact of food staple rice price hike on our consumer price index is enormous. Due to this, if rice prices soar, the inflation rate shoots up.
Now the question is why did rice prices spike during the peak season when the rice market was supposed to remain stable. Traders are well aware of the key reasons for the price hike even in the peak season. They know that rice prices will tickle up further in the future.
There are differences in rice production data provided by different government agencies. The actual production may be even lower than the estimation by the Bangladesh Bureau of Statistics.
Aush harvest has been spoiled due to floods, while Aman seedbeds also got damaged. Rice traders might have reduced the supply to cash in on a rice crunch in upcoming days.
The World Trade Organization (WTO) has warned that there will be a global food crisis. It has already started in some African countries, as it will intensify in the future.
Food prices will rise all over the world, while rice production in our country has decreased. In this situation it is quite normal for traders to hold stocks, even if there are no syndicates in the market.
If the market turns volatile, the government will have to have enough stock to contain the prices. There is a big problem with the government's food stocking capacity. The World Bank a decade ago took on a project to increase the country's food stock to 25 lakh tonnes. But the project is yet to be finished.
The government is not going to achieve the rice procurement target this time due to the low prices it offers. In this situation, the government needs to increase the stock quickly – whether it is through import or through internal purchase – to deal with the food crisis.
If the government buys rice at higher prices, the millers get the benefit. The farmers will be benefited if the government could buy paddy from the farmers and then ask the millers to process it.
Rice import by the private entrepreneurs needs to be facilitated immediately. At present, there is more than 62% import duty on rice.
No one would want to import rice with this amount of duty. These tariffs should be fixed at a reasonable rate. And it has to be done immediately since when the global food crisis would turn severe, no one will go for rice export.
In order to keep the overall economic pressure under control, Bangladesh, like other countries, needs to shake off the expansionary monetary policy and adopt a contractionary one.
If the 5.5% deficit budget is implemented, there will be a huge risk of inflation. We need a strong belt tightening. That could be in the implementation of the annual development programme. If the cost of ADP's import-oriented domestic financing is kept under control, inflation too will come under control as the domestic demand would decline.
Besides, the demand for foreign currency will decrease and the pressure on the exchange rate will ease up. In this case too, inflation will come down a bit.
Zahid Hussain, former lead economist, World Bank Dhaka office
Zahid Hussain spoke to TBS Senior Staff Correspondent Jahidul Islam over the phone