The country's macroeconomic situation has moved beyond the comfort zone due to a rising inflation, depleting foreign exchange reserves, widening trade deficit, falling Taka, and ongoing power and fuel shortage, according to the Centre for Policy Dialogue (CPD).
At a media briefing titled "Recent Challenges Facing the Bangladesh Economy: A Brief Overview" on Sunday, CPD warned inadequate measures to counter the challenges stemming from Covid fallouts and the Russia-Ukraine war may see the discomfort turning into a panic soon.
In the keynote presentation, CPD Executive Director Fahmida Khatun said many countries are now witnessing a fall in their gross domestic product (GDP) due to the war fallout.
Terming the stagflation – high inflation combined with high unemployment and stagnant demand – very rare since 1970, she said Bangladesh is also at economic risk.
She said prices of some commodities rose by up to 50% in the local market though official data claimed 7.56% inflation in June.
"Though it is very urgent to control the money flow to tame inflation, there are no such initiatives in the monetary policy. Even though Bangladesh increased the policy rate, there are many distortions in the market. Apart from that, even if the policy rate increases, there will be no benefit due to the interest rate cap," Fahmida Khatun said.
Claiming of a partial Covid recovery, the economist advocated for targeted government help to individuals and industries who sustained a massive blow by the pandemic.
Appreciating the government's belt-tightening measures such as discouraging import of luxury items and austerity in energy consumption, she also called for proper implementation of the initiatives.
Claiming that the energy crisis has become evident due to import dependence without investment in exploration, Fahmida Khatun urged the government to take effective initiatives in gas exploration.
Her recommendations also included boosting revenue, preventing capital flight and exploring bilateral loans besides the global lenders.
Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre (PPRC), said although parts of the economy have recovered from the pandemic fallout, the average income of the poor is still below pre-Covid levels.
Commenting that about 21 lakh people became poor between January and May due to inflation, he said the number is more than 50 lakh as per the estimation by several international organisations.
He said major achievements of the sustainable development goals such as health, nutrition and housing are being affected due to the economic crisis. The dropout rate is increasing at the secondary level. There will be a negative impact on a long stretch ranging from job market to demographic dividend.
Noting the crisis has highlighted the country's economic vulnerabilities, he called for taking effective measures to deal with the challenges.
AB Mirza Azizul Islam, former adviser of the caretaker government, said private sector investment should be increased to maintain people's income and to ensure employment.
"The government released poverty data in 2019 last. Many believe the number of people living below the poverty line has increased to 30% from 20% in 2019. This issue needs to be acknowledged," he commented.
Salehuddin Ahmed, a former governor of the Bangladesh Bank, said there are many issues in the banking sector, and they are all identified. Problems such as corruption, wastage and money laundering were already there, as the international economic crisis has just compounded those.
"The banking sector is like the nerve of an economy. If there is a severe weakness here, and corruption, mismanagement, non-compliance of norms; then how will the economy move forward," he commented.
CPD Distinguished Fellow Mustafizur Rahman said the competitiveness of exports and remittances has decreased over the past few years, but the value of Taka was artificially maintained by selling dollars.
"Now as the forex reserve depletes drastically, Taka witnesses a 10% depreciation suddenly, causing a huge pressure on the economy."
He said, "If the price of a product increases by 10% in the international market, the import cost increases by 33% due to weaker Taka. This situation would not have arisen if Taka was depreciated gradually with proper consideration."
Claiming around $60 billion has been laundered in the past ten years, Mustafizur Rahman criticised the budget for allowing the syphoned off money to be legalised.
Urging the government to continue talks with the International Monetary Fund (IMF) and the World Bank for loans, he said, "For our benefit, we must accept the reforms that the IMF is talking about."
Mostofa Azad Chowdhury, senior vice-president of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), said uninterrupted electricity supply must be ensured to maintain exports.
Mohammad Tamim, professor of Bangladesh University of Engineering and Technology (Buet), said excessive import dependency for primary fuel instead of ramping up energy exploration led to the power shortage.
"For self-reliance, we needed gas and coal. But due to protests against foreign investment and the environment issue, we could not explore the two sources of primary energy," he said.