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OPINION

Troubles follow easy money

Shamsul Huq Zahid | September 25, 2020 00:00:00


The content of the Bangladesh Bank (BB) report for the April-June (Q4) of the immediate past financial year, published on Tuesday, is not, to a large extent, palatable.

It was not supposed to be. The ongoing Covid-19 pandemic, which was first detected in March last year in this country, has changed almost everything, including most factors of the economy. No economy, rich or poor, in the world, could escape its negative impact. In fact, the bigger economies are the worst affected.

Bangladesh economy, compared to the level of damage caused to other economies, did well in the fiscal year 2019-20. Its gross domestic product (GDP), according to the official estimate, grew at 5.24 per cent (the original target was 8.15 per cent). The official growth figure, under the prevailing circumstances, is enviable. Yet a few economists are sceptical about the GDP growth figure.

The data published in the BB's Q4 report, in relation to private sector credit disbursement, non-performing loans in banks, current account situation, budget deficit etc., for understandable reasons, are bound to arouse pessimism.

The inflation figure in particular is far more disturbing. Inflation increased to 6.02 per cent in Q4 from the previous quarter's 5.48 per cent. The 50 basis point hike might look marginal and innocuous, but, in reality, it is not so. The increase in inflation was mainly due to the hike in the prices of food items. Non-food inflation was moderate during the quarter under review.

Between March and May, hundreds of thousands of people either lost jobs or had no means of earning their livelihoods because of the pandemic. The increase in the prices of food items has only intensified their sufferings further.

The situation has turned worse in recent weeks because of an unabated rise in the prices of rice, the main staple, and other essential items. The poor and low-income people are not worried about the prices of non-food items. Even though economic activities are picking up, but it is far from normal. Fear is growing about 'second' wave of the virus infection. If the situation deteriorates, there could be some backtracking on the economic front.

Amidst all these unforeseen happenings, another disaster -- four consecutive spells of flood -- have wreaked havoc in many districts. The natural calamity, among others, caused extensive damage to crops. The prospect of Aman rice crop production, the second-largest food crop, in some parts of the country is also marred.

The price situation is likely to remain under pressure for some more time.

The central bank in the quarterly has referred to yet another factor -- unusually easy financing -- that could pose a threat to price stability in the upcoming quarters.

The easy money has been flowing into the economy in recent months. As directed by the government, the banks have been lending funds to various Covid-hit sectors at minimum interest rates.

The amount earmarked for disbursement under a number of relief packages is more than Tk1.0 trillion. The banks are however disbursing loans slowly. Yet the funds will be in circulation. If not others, the supply of food items is likely to be less than the usual because of a number of factors. That might create price instability and the poor and low-income people stand to suffer most in such a situation.

zahidmar10@gmail.com


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