Domestic policy mismanagement is the main reason of such inflation rather than the rise in global energy and food prices, the study conducted by Research and Policy Integration for Development (RAPID) revealed on Sunday.
"The previous government held the hikes in global
energy and food prices as well as the Russia-Ukraine war responsible for high and
sustained inflation in the country, while the main
reason is mismanagement in domestic policy," Dr Md Deen Islam, research director of RAPID, said.
He shared the findings of the study with journalists at a workshop titled "Current Macroeconomic Situation and LDC Graduation" and held at the CIRDAP auditorium in the city. Shafiqul Alam, press secretary to the chief adviser, was present virtually as the chief guest.
Islam said unprecedented government borrowing from the Bangladesh Bank had contributed significantly to swelling money supply.
He said real wages had not grown at the same rate as inflation in recent years and there was more than a 6 per cent loss in purchasing power in the 2023-24 fiscal year alone.
This loss in purchasing power had serious consequences for poverty and vulnerability, he said, adding an additional 3.82 million people might have become extreme poor.
Besides, 7.86 million people had fallen below the poverty line while another 9.82 million had become vulnerable, the researcher noted.
Bangladesh had started implementing a contractionary monetary policy by raising the policy rate to an all-time high of 10 per cent, Islam said, adding a monetary policy should be designed based on long-term trends rather than short-term fluctuations.
A monetary policy based on core inflation is a more appropriate policy response to ensure continuous growth in the productive capacity of the economy and the gross domestic product (GDP), he said.
Combining domestic demand and supply data with corresponding international figures can help make decisions well ahead of time, lowering import costs, added Islam.
Speaking about implementation challenges and priorities for the next budget, RAPID Executive Director Dr M Abu Eusuf said effective and efficient budget execution remains an extremely challenging task as the economy had already been showing signs of a slowdown prior to the student-led uprising in July-August.
An 8 per cent diversion of the annual development programme (ADP) spending would help double the funds for nine critical social protection programmes for the vulnerable, he said.
"Just a 2.3 per cent diversion of ADP spending can help double the funds required for three major food-based social protection programmes - food friendly programme, open market sales, and food for work," he also said.
Effectively managing rising interest payments and public debt demands careful and prudent fiscal management, noted Eusuf, adding revenue collections had consistently fallen below budgetary targets in recent years. "Setting realistic revenue targets and achieving those remain a critical challenge."
Tax exemptions are given without any evidence-based assessment and remain largely influenced by politically-connected groups, the researcher said, adding, "Halving tax exemptions could double education funding and triple health allocations."
The chief adviser's press secretary said the previous government had manipulated data to show development and the incumbent one is working to scrutinise the data, such as GDP and per capita income.
The government is yet to decide on least developed country (LDC) graduation, Alam said, adding, "It is scrutinising which one is beneficial - graduating as per the schedule or deferring the process and acting accordingly."
Readymade garment exporters want to extend the graduation period for two to three years to sustain duty-free access in the major markets, he said.
There were many who said work orders were shifting from Bangladesh in the September-November period, but the data showed a 10 per cent export growth on average, Alam said, terming it "very good."
RAPID Chairman Dr Mohammad Abdur Razzaque said the government should decide immediately whether it would go for LDC graduation scheduled for November 26, 2026 or seek additional time.
Bangladesh is on the verge of graduating from the LDC group and the government can request an extension of the timeframe with valid reasons, he said. "However, this would be unprecedented, given the earlier United Nations General Assembly decision."
A clear graduation timeframe strengthens the country's position to negotiate extended preferential arrangements, Razzaque said, adding exporters and businesses need a definitive timeframe to adapt to new trade rules and market dynamics as well as transition to non-preferential market conditions.
A settled timeframe reduces uncertainty for buyers and investors, safeguarding trade relationships, while a fixed date creates urgency among stakeholders, preventing confusion and complacency and ensuring timely preparation for the post-graduation challenges, he explained.
Razzaque said the previous government inflated GDP growth figures, but even with corrections, Bangladesh would still have met the LDC graduation criteria.
The so-called middle-income trap has nothing to do with LDC graduation and Bangladesh remains far away from transitioning from a middle-income country to a high-income one, he added.
He further said the main concerns for the private sector with regard to post-LDC adjustments are trade preference erosion and the loss of policy space for direct support, adding reforms are needed to tackle those.
Munni_fe@yahoo.com