Govt measures to boost economy add pressure on citizens

Special Correspondent: The economic measures implemented by the government to stimulate the economy have inadvertently increased the burden on the general population. Common people are expressing their frustrations at local markets, as commodity prices have surged. For the past two years, inflation has hovered around 10 percent, according to official figures. Despite expectations, investment levels have not risen significantly, and employment opportunities have not improved. Consequently, most people’s real incomes have decreased due to persistent inflation.
One primary reason for the economic hardship is the poor state of the economy. The government is now turning to the International Monetary Fund (IMF) to address these issues, adopting various drastic measures during these challenging times. The value of the dollar and the interest rates have been increased, while imports are being controlled. Additionally, subsidies on electricity and fuel have been reduced, leading to higher prices, with further increases in electricity prices announced. These actions are creating additional pressure on commodity prices, particularly affecting low-income individuals.

The government and the central bank maintain that while some austerity measures may temporarily raise inflation, it will eventually decrease. However, there is significant skepticism regarding this optimistic outlook. The government’s strategy of demand contraction to control inflation has been coupled with inadequate market management and ineffective measures to prevent money laundering and fraudulent loans. Despite the stated commitment to a contractionary monetary policy, some banks have adopted more lenient approaches, leading to inconsistencies.
The sudden bank merger initiative has also caused alarm among depositors, shaking public confidence in the banking sector. Concerns have been raised that private sector loans, primarily utilized by entrepreneurs and businesses, are directly impacted by rising interest rates and dollar values, thus increasing business costs. Weak market supervision has led to traders raising prices excessively, exacerbating the situation for consumers who are struggling to meet daily expenses.
Following the IMF’s advice, Bangladesh Bank implemented market-based interest rates on May 8, raising the policy interest rate by 50 basis points to a maximum of 10 percent. Additionally, a new dollar system, the ‘crawling peg,’ was introduced, setting an intermediate rate of Tk 117. As a result, importers are now paying Tk 119 to Tk 120 per dollar, further elevating costs.
Former Bangladesh Bank governor Salehuddin Ahmed criticized the delay in adopting market-based interest rates and the maintained dollar rate, which he argues eroded reserves. He stressed the need for export diversification and increased remittances by curbing illegal transfers. Ahmed also emphasized the necessity of strict action against money laundering to stabilize the dollar market and boost confidence among remittance senders. Regarding the bank mergers, he highlighted the lack of detailed policies, leading to uncertainty among depositors.
Rizwan Rahman, former president of the Dhaka Chamber of Commerce and Industry, pointed out the uncontrolled outflow of dollars and the need to curtail the import of luxury goods. He advocated for strict measures against money laundering and fraudulent loans and suggested reducing the difference between the hundi and bank dollar rates to encourage legal remittances.
Bangladesh Bank’s Executive Director MezbaulHaque acknowledged that raising interest rates alone would not control inflation and highlighted the need for a comprehensive approach. He noted that contractionary monetary policies have strained market liquidity, necessitating strengthened bank collections and efficient management.
The global trend of raising interest rates following the Russia-Ukraine war was not matched in Bangladesh, where subsidies for low-income people were not sufficiently provided. From April 2020 to June last year, Bangladesh Bank capped the maximum interest rate at 9 percent. During the COVID-19 pandemic, reserves increased due to higher export earnings, record remittances, and reduced illegal transfers. However, reserves have since plummeted from $48 billion in August 2021 to $18 billion.
In 2020, the central bank allowed loan defaulters to remain default-free, leading to a significant increase in defaulted loans, which reached Tk 156,000 crores by the end of December. Mohammad Nurul Amin, former managing director of private NCC and Meghna Bank, attributed inflation in Bangladesh primarily to ‘cost-push’ factors, noting the heavy reliance on imports for raw materials, capital equipment, and food products. He criticized past decisions to maintain low interest rates and dollar values, arguing that proactive measures during good economic times could have mitigated the current crisis.
A managing director of a private bank expressed concern over inconsistent policies and the sudden shift to austerity measures, which have not been uniformly applied. The central bank’s recent initiative to merge struggling banks without addressing the underlying issues has fueled depositor panic, leading to increased withdrawals and a severe liquidity crisis.
Bangladesh Bank’s report on April 11 revealed a rapid increase in money circulation, reaching Tk 305,200 crores. The trend of withdrawing money intensified after Ramadan Eid, exacerbating the liquidity crisis. Banks like ICB Islamic Bank and Padma Bank are struggling to refund depositors, further undermining confidence in the banking sector.
The government’s economic measures, intended to stabilize the economy, have inadvertently increased the financial burden on the general population, particularly low-income individuals. The mixed approach to monetary policy, inadequate market supervision, and sudden bank mergers have contributed to a complex and challenging economic environment.