Bangladesh is an emerging economy in the world and there are many aspects to life in Bangladesh worth writing about. But what strikes many of us in the macro sense as standing out and deserving comments is the continued rise of the Bangladesh economy in the backdrop of current energy crisis, inflationary spike, and the post-Covid realities, writes ENAYET RASUL BHUIYAN
Energy price is central to production and supply activities in different fields. Prices of different forms of energy — electricity, gas, and fuel oil– were substantially increased several times during the last few years and another round of increase has been enforced recently. Higher energy prices had the unwanted impact of making production processes costlier by increasing one of the most important factor costs of production. Wages, rents and other costs may or may not have been adjusted upwards in this period. But higher energy prices have certainly set the stage for price increases across the board for many commodities, the demand for higher wages, higher rents, and increases of charges for services in many areas.
ENERGY PRICE HIKE AND INFLATION WORRY
There can be no overlooking the fact that the rate of inflation reached to an uncomfortable high in the present year. Reportedly, the inflation rate at 7.56 percent has reached the highest level in 9 years. A recent issue of the London-based renowned Economist magazine has assessed the inflation rate in Bangladesh and made a forecast about inflation’s further rise in the country in 2023 which is worrying. Its forecast was that the rate of inflation in Bangladesh could increase further in 2023. Certainly, the inflation forecast contrasts sharply with what had been the rather bearable rate of inflation below 3 percent for some consecutive years before 2018.
Also, you can read: Energy Crisis Conundrum: Can Bangladesh Move Towards a Sustainable Solution?
Why the inflation type in Bangladesh is judged as the cost-push one should be obvious. There is hardly a sign that demand for many non-essential products are on the rise. Any assessment of the demand situation of non-essentials in the market would surely show up a stagnant demand condition for most of these products. The demand for products and services such as food, transportation, etc., that people consider as indispensable are inelastic. The demand for these products or services do not taper off as their prices or charges rise. People in many cases are likely to even incur debt to go on consuming foods in the same quantities notwithstanding the rise in their prices. This inelastic demand situation for essential goods is now being exploited by a class of businessmen in the country who are resorting to the most unethical raising of prices of essential commodities in the sure knowledge that people will buy them in the same amounts and in the same frequency regardless of higher costs. But the rising prices of essential commodities is cutting into people’s purchasing power and reducing their disposable incomes which, if left uneroded, could create demand for goods and services of the non-essential categories. Thus, the essentials’ markets being costlier, is helping to slacken demand for a large number of goods and services of the non-essential categories the demand for which are income elastic.
Cost-push inflation is never good for the macroeconomy because its prime casualties are productive activities. When there is cost-push inflation, profits are squeezed and this situation leads firms to decrease production activities as there exists not the same scope for increasing production and profits like under-inflation of the demand-pull type. Decrease in production activities and other cost-cutting measures can worsen unemployment instead of creating more employment. Economic growth in these circumstances, suffer, giving rise to all the attendant problems of low growth such as less employment creation, less income, and no change in the poverty situation which can feed a vicious cycle of continuing stagnating demand in the economy which in turn discourages newer investment activities leading to a static situation in respect of the goal of economic expansion.
Investment activities are the keys to economic growth but these activities are not encouraged because creditors feel reluctant to extend greater credits to investors under inflationary conditions because debtors re-pay in monetary units which have less purchasing power than those which they borrowed. Or the creditors might increase interest rates or keep them unchanged at a higher level as hedges against inflation. At any rate, the cumulative effect of inflation comes as a damper for investment when investment is the only way to get the economy to expand for the benefits of the same to be experienced at the micro levels. Furthermore, higher export prices of commodities due to inflation might fetch temporary gains to exporters but the same are likely to disappear in the medium and long terms as the higher-priced export products might be considered uncompetitive in relation to other foreign suppliers of the products who could be prepared to supply at comparatively lower prices. Higher prices of domestically produced goods are also likely to cause a decrease in their consumer appeal and increase in the appeal to consumers for products originating from import activity or smuggling. Domestic production may decline from these factors and turn worse the associated problems of unemployment, loss of income, and further depression of the demand situation. Thus, the ravages of inflation, as a whole, are not only creating distresses for common consumers by whittling their purchasing power and decreasing their propensity to save, the same is also poised to take a toll in the form of reduced investment, loss of competitiveness and adverse balance of payments situation from the macro economy. Considering all of these factors and more, it is high time for those in charge of economic governance to look at the rising inflation rate as a serious ill which must be treated effectively with no loss of time.
UNDUE SPECULATION ABOUT FOREIGN RESERVE
Amid this energy crisis and inflationary spike condition, Amid this energy crisis and inflationary spike condition, undue speculations about the forex reserve are being voiced recently. According to latest media reports, the foreign currency reserve held by the Bangladesh Bank (BB) has decreased to $39 billion from $ 49 billion a little more than a year ago. But already much undue speculations are being expressed centered on the issue. Is BanBangladesh going the way of Sri Lanka, etc. etc. Prime Minister Sheikh Hasina has sought to allay these fears by saying that the increase or decrease in the reserve is a normal phenomenon and the current reserve position of Bangladesh ought not to invite any undue speculation.
The PM could not be more apt in her view. A country’s forex reserve dipping below the requirements of at least meeting three consecutive months of imports is considered as falling in the unsafe zone. But our current reserve of $39 billion is well above such minimum requirements. With this amount of reserve, Bangladesh can sustain uninterrupted and comfortable import operations for at least nine months.
Besides, the downsizing of the reserve is not a one-sided process. Earnings from export and remittances from workers are being continuously added to it. Thus, the prospect of the reserve only sliding and sliding with no replenishment of it is an absurd one. There can be no fear, thus, that at one point the reserve position will become too low.
Besides, the economy’s managers are too aware of the present situation. Government in Bangladesh has already intervened with draconian measures to stop the free fall of the reserve. Furthermore, an IMF loan to Bangladesh amounting some 4.5 billion dollars is in the offing to help us with budgetary support and help the balance of payments. Thus, every way one looks at it, Bangladesh is in a comfortable situation with the reserve and any excess worry with it is unwarranted and impractical.
The foreign currency reserve of a country is considered as one of few most important indicators of the strength or otherwise of its macro economy. The reserve is a guarantee for smooth conduct of its foreign trade, capacity to carry out emergency imports of essentials such as food grains and other indispensable commodities. Seeing the size of its reserve, foreign creditors are willing to consider additional or new credits for it.
The smaller the size of the reserve, the less the chances of sustaining its external trade and more its chances of going bankrupt. In case of a paltry foreign currency reserve, foreign banks may not issue letters of credit for import of goods by such a country fearing that it may not have funds ultimately to pay for these goods.
Usually, a country must have a foreign currency reserve sufficient to smoothly pay all its import bills for a period of at least three consecutive months to be judged as meeting the minimum criterion for financial solvency. The longer the period of time when its total import payments can be met by its foreign reserve, the better.
One may say that US$ 39 billion is not a very big amount of money. But the point is, compared to the past when our reserve used to be meager and sometimes even slid below the amount required for three months of import operations, today the reserve is not only many times larger but nearly all of it is composed of the country’s own earnings from export activities and remittances from workers.
If we look at the US$ 5 billion or so reserve left by the previous elected BNP government, then even that far smaller reserve reflected foreign loans and aid which were added to it. But in contrast, the very substantially increased reserve nowadays is almost entirely the outcome of proceeds from higher and higher export earnings and workers’ remittance inflow. Foreign aids or loans are but a small part of it. Thus, the government of the day can surely take credit for building up this relatively impressive reserve with its policies and sustaining the same.
Another comparison should make clearer why Bangladesh and its government have reasons to be justifiably happy and proud with the reserve position. For example, our South Asian neighbor, Pakistan, has a foreign currency reserve of only about US$ 10 billion which is nearly five time smaller than our reserve size.
And out of this US$ 10 billion, the greater part consists of loans from the International Monetary Fund (IMF) and grants and other assistance from certain Arab countries. As it is, Pakistan is trying hard to get a loan of another $ 3 billion from the IMF to keep its reserve from depleting fast and bringing that country again to the edge of bankruptcy. But Bangladesh’s much bigger foreign currency reserve has been built almost entirely by its own efforts and not relying on foreign doles. It underwrites the present economic security of the country convincingly. What is notable is this sound reserve position just did not happen automatically. It is the outcome of very able implementation of policies in different fields by the government and the country’s central bank, Bangladesh Bank (BB).
ECONOMY’S IMPRESSIVE MILESTONES
Bangladesh economy has reached many impressive milestones. The country is moving forward overcoming various obstacles. The government has taken up several mega projects. The Padma Multipurpose Bridge is complete and set to revolutionize travel and communication within Bangladesh. Bangabandhu Satellite-1 contributes to boosting the country’s economy by providing all citizens with a wide range of telecommunications services (direct-to-home TV, radio, telemedicine, education, and internet access). Other mega projects fast on progress are the Rooppur Nuclear Power Plant, Dhaka Metrorail Project, Matarbari Deep Seaport Construction Project, Rampal Coal Based Power Project, Bangabandhu Tunnel Construction Project, work of 100 economic zones (with huge employment prospects), elevated expressway and more than three dozen high-tech parks and IT villages. The eighth Five Year Plan has been adopted. The villages are being equipped with all civic amenities. Today Bangladesh has become a country that can hold its head high.
The government has worked tirelessly to implement the Sixth Five-Year Plan, the MDGs, and the First Perspective Plan. The shelter project has provided shelter to 3,20,072 families till now. In the Mujib birth centenary, the government has provided 66,189 families a single home as a gift of the year. About 14,500 community clinics are at the people’s doorsteps to provide health care. The government provides scholarships and stipends to more than three crore students, various allowances to six lakh people, rice worth taka 10 lakh to 50 lakh families, subsidy to farmers in the agricultural sector. The government by implementing various incentive packages worth taka 1,21,000 crore during the Covid-19 pandemic have been playing a significant role in poverty alleviation.
Now Bangladesh is the third-largest producer of rice in the world and is also self-sufficient in fish, meat, eggs, and vegetables. Bangladesh ranks second in terms of the growth rate of fish production in inland waters. Today, the benefits of ‘Digital Bangladesh’ have spread from urban areas to rural ones.
VAST IMPROVEMENT IN SOCIAL SECTORS
The Bangladesh Bureau of Statistics (BBS) has recently published ‘Vital Statistics’ of 2020 including birth, death, health, and education. It can be seen that the life expectancy or average life expectancy of Bangladesh is now 63 years. Thirty years ago, in 1990, the average life expectancy was 56 years. The average life expectancy of Bangladesh, which became independent through a bloody war of liberation due to Pakistan’s misrule, has increased by 15 years in the last 30 years. In 2020 it was 70 years. The average life expectancy of India is less than that of Bangladesh.
In Bangladesh, 31 out of every 1,000 children under the age of five died last year. In 1990 this number was 144. There has also been a lot of improvement in the admission rate of students at the primary and secondary levels. Considering the age of secondary level, 63 percent of the children now go to school.
According to the World Bank, Bangladesh’s per capita income in 1990 was 320 USD. In 2020, it stands at 2,139 dollars. The size of Bangladesh’s economy or GDP in 1990 was only 32 billion dollars. In 2020, the GDP stood at 324 billion dollars. In the last decade, Bangladesh has become one of the fastest-growing economies in the world.
The UN announced the transition of Bangladesh from Least Development Country (LDC) to a developing country in 2018. On the golden jubilee of independence, the UN made a final recommendation to make Bangladesh a developing country.
RESILIENCE AGAINST COVID-19
In Bangladesh, the ravages of Covid-19 fell to nil deaths and well below 5 percent new cases in the January-May period this year that raised hope that Bangladesh would be soon declared as a Covid-19 free country. Unfortunately, that did not happen. But Bangladesh is still a relatively low prevalence Covid-19 country whereas major population centers in some other Asian neighboring countries are still fighting hard for the containment of the disease. Thus, while writing on the economy with its umbilical relationship to Covid, one cannot fail to highlight the point that Bangladesh has done exceptionally well to both keep Covid very limited while pressing ahead with its economic activities. This was possible because the government in Bangladesh could successfully sensitize the people on practicing safety against the disease along with bulk vaccination of the population, plus churning the wheels of the economy on full gears.
WHAT WORLD BANK THINKS ABOUT BANGLADESH ECONOMY
World Bank (WB) report in 2020 recognized Bangladesh as ‘a model for poverty reduction’. According to this report, it achieved the highest cumulative GDP growth globally from 2010 to 2020 and is now on course to become a developed country by 2041.
The World Bank thinks that Bangladesh will have more growth in the next fiscal year. The organisation’s forecast of economic growth in Bangladesh for the fiscal year 2022-23 is 7.9 percent. It is expected that there will be continuity in exports and consumption. Whether the recovery of the economy will continue and poverty will reduce further will depend on tackling the damage to the economy by helping the affected families and businesses.
BANGLADESH TO BECOME 24TH LARGEST ECONOMY
World Economic Forum considers Bangladesh to be the 24th largest economy in the world by 2030. According to the second perspective plan, there will be none in 2031 to be termed extremely poor in Bangladesh. Per capita income, human resources, and economic fragility — these three indicators determine the eligibility of developing countries. Bangladesh has achieved the desired qualifications in these three indices. There’re also four milestones set for the country to achieve: Digital Bangladesh vision by 2021, Sustainable Development Goals by 2030, a developed Bangladesh by 2041, and the century-long Delta Plan for 2100. To conclude, most of the world’s economies have seen negative growth last year due to Covid-19 pandemic. This means that the gross domestic product (GDP) of these countries is lower than the previous year. Even in high-growth countries like India, the size of GDP has reduced by about eight percent. Bangladesh was one of the very few exceptions to this trend. The economy suffered, but did not shrink in size from previous year. Despite global economic downturn in 2019-20, Bangladesh’s economy did not lag behind.
Bangladesh has limited resources – more population compared to its land mass. In order to achieve future milestones, we need to turn our huge population into a skilled human resource. Today’s young people are the leaders of the future. To turn these young generation into human resources, Science, Technology, Engineering, Arts, and Mathematics (STEAM) education should be introduced in a bigger way. Career-oriented education is essential in contemporary world. The state must give due value to the knowledge, skills, experiences, desires, and opinions of the youth overcoming present crisis and inflationary tension. Also, all citizens have to work for a developed Bangladesh free from hunger and poverty.