BY FAYAADH SALEHIN AHMED
For the second half of the fiscal year 2023-24, the Central Bank of Bangladesh has prolonged it’s contractionary monetary policy by regulating the policy rate and the effectuation of a crawling peg exchange rate with the sole prevision of stabilizing the internal and external value of the Taka while synchronously accomplishing the targeted projections to stimulate coveted investment, employment and economic growth.

First and foremost, with an objective to retain inflationary pressures down to targeted 6 percent; the Bangladesh Bank heightened the policy rate by 25 basis points to 8 percent in the mid of January, 2024. Consecutively to this, due to insignificant changes in the price level; the Central Bank again took the initiative of uplifting the policy rate by 50 basis points to 8.5% in the month of May, 2024 to inhibit the rapid growth in general price level. However, due to the limited influence of purchasing power on crucial food products, the general consumers are still compelled to pay substantial prices for fundamental essentials. As a result, with reality negating our claim convictions, the yearly swelling rate of
9.89% in May 2024 set the new benchmark since October 2023, as prices for food and refreshments, communication, amusement, education, and various merchandise experienced rapid escalation. While only food inflation increased by 10.76% in May 2024 when as opposed to the same month the year before.

Cartel activity might also be a contributing factor for rising food inflation in Bangladesh. A more up-to-date example could be of potatoes, whose prices have risen by 134% in the last year.

The Department of Agricultural Marketing estimates that domestic demand for potatoes in Bangladesh this year would be about 9.5 million tons. However, actual output is estimated to be 10.9 million tonnes, leaving a surplus supply of 1.4 million tonnes

Despite the oversupply of potatoes, prices have continued to climb, which agricultural specialists blame on particular cartels’ unethical actions. These unscrupulous individuals have been able to artificially increase prices by limiting the flow of potatoes into the market, even during the peak harvest season, when an abundance of supply should have resulted in reduced prices for consumers. Addressing the structural challenges that have resulted from the creation of these merchant syndicates may be a more effective method to stabilize the country’s overall food inflation.

A rise in the policy rate is also expected to fuel hot money inflows in the nation hence elevating the balance of payment situation, however due to the inadequate track record of National Bureau Statistics; such data is made confidential.

Furthermore, consecutive to the implementation of the crawling peg exchange rate system, the value Taka slipped 6.36% to BDT.117/dollar on May 9, 2024. Till this day the taka has lost 36% of its value against the US dollar since the beginning of 2022. Such amateur stances contradict our primary goal of stabilizing price levels, as if the Central Bank allows the taka to depreciate, Bangladesh will witness higher import prices, resulting in imported inflation, which is contrary to the objective of raising the policy rate in the first place. Not only

that, but the intended objective of stimulating exports and elevating our country’s balance of payment deficit had not been accomplished, as merchandise exports plummeted 16.06 percent year on year to $4.7 billion in May 2024, following the most recent devaluation.

Complicacies may arise to successfully address these repercussions if appropriate fiscal policy measures are not implemented that complement the monetary policy. Primarily due to inept planning, the government’s fiscal policy positions mainly address structural problems, the most noteworthy of which are rooted in deficiencies in the infrastructure. A substantial amount of governmental spending is usually paid for by tax revenue collected from the National Bureau of Revenue (NBR). Notwithstanding the prevailing skepticism among economists over its achievability, the government has set a determined revenue target of Tk.5.41 lakh crore for the fiscal year 2024–25 in the budget for FY24–25. This is a 13.2% increase from the revised objective of the previous year.

The existing notion of disbelief against its attainability is not only based on the poor track record of accumulated deficits, the current budget also suggests that BDT 4.4 billion in foreign grants make up the probable total revenue of BDT
5.454 billion, leaving a BDT 2.516 billion fiscal shortfall.

The government utilizes an arrangement of domestic and international borrowing to reduce this fiscal imbalance, with foreign debt accounting for 36% of the deficit. Although credit from abroad offers considerable instant cash flow, it also raises future repayment responsibilities.

Several capital investments in large scale infrastructure projects have been taken by Bangladesh which may not yield the expected outcome. The Rooppur nuclear power plant’s loan repayment of $11.38 billion shall commence from 2027 as the grace period ends in 2026, this will cost us annual repayments of
$500 million dollar annually for a span of 20 years; other examples are inclusive of but not limited to Train line to Cox’s Bazar and Padma Rail Line. In addition to the rapidly declining foreign reserves of the country, only the principal amount for our external debt repayments is expected to increase by 28% from $2.48 billion in FY 24 to $3.17 billion in FY 27 while the proportion of external interest payments on the budget is also expected to increase to 2.6% in FY27.

The ability of the government to obtain further funds from abroad is more probable to decline in the future if revenue growth fails to maintain pace with economic expansion, based on our imprudent decision-making regarding debt and development projects. This raises an alarming issue concerning how our nation will be able to scrape off this accumulating pile of foreign debt from its shoulders in the near future?