The ongoing economic crisis is not going away anytime soon but the measures taken by the government is to mitigate it temporarily, warns Centre for Policy Dialogue (CPD).
The government has to quickly find effective measures in terms of stable foreign exchange reserves, inflation management, increased revenue generation, ensuring electricity and gas supply for economic activities, and increasing social safety net programs.
CPD in their latest Independent Review of Bangladesh's Development (IRBD) report titled "Recent Challenges Facing the Bangladesh Economy: A Brief Overview,” made the recommendations.
As per CPD's findings, given the uncertainty in future trends of the Russia-Ukraine war, the price of energy is likely to be reduced slowly in the coming months and is expected to continue into 2023.
CPD Executive Director Fahmida Khatun said: “The government should pay more attention to institutionalization, revenue collection and non-performing loan (NPL) to deal with economic challenges. Because the current crisis is not short-term, but medium-term. If this continues, the country will go towards a long-term crisis.”
Highlighting the relevant information of the IMF, she further said: “IMF said there could be an economic crisis in 2023 as well. The situation in Sri Lanka is said to be worse. Although the position of Bangladesh is somewhat better, there is a need to be cautious.”
“So, it will not be easy to get out of the ongoing economic crisis. Bangladesh is in a medium-term crisis. The government should take both short and medium-term measures. The crisis can be eased if short to medium-term planning is done. But the current government measures are mostly short-term in nature. At present, macro stability should be prioritized in the medium term. Effective measures have to be taken, which will be able to ensure macro stability. The government needs to take long-term measures as well.”
In a presentation, CPD said that in recent months, Bangladesh was forced out of the comfort zone enjoyed earlier in terms of overall macroeconomic management. The macroeconomic stability considerably deteriorated owing to challenges originating from both domestic and external fronts.
It must be acknowledged that a significant number of other countries are going through similar challenges – both as a consequence of the Covid-19 pandemic and due to the aftershocks of the Russia-Ukraine conflict, the presentation mentioned.
Regarding the inflation and rising food prices, they said: “In June 2022, the inflation rate in Bangladesh reached 7.56%, which was the highest in nine years. The price of almost every food item is increasing at a higher rate than the food inflation rate published.”
The consumption basket used to calculate overall inflation was created in 2005, so it does not represent the current consumption patterns, and therefore needs to be updated. Rising inflation has a more adverse impact on people with lower income, so they need to be protected.
Highlighting the issue of abnormal food inflation, CPD said that the government says inflation is about 7.56% but the actual inflation rate is much higher in reality.
Food inflation in particular continues to rise. The food inflation rate is much higher than the published overall inflation rate. There are many essential food items that witnessed more than a 50% price hike.
AB Mirza Azizul Islam, economist and financial adviser to a caretaker government said: “It is necessary to reduce poverty, create employment and increase the social safety net. We see that those who should come to the social safety net are not covered due to various corruptions. Macroeconomics faced several challenges. To deal with them, we have to make a lot of sacrifices.”
Former Bangladesh Bank governor Salehuddin Ahmed said: “Poverty in our country is joined with global problems. Even if this problem can be overcome, the market system of our country is worse at the microeconomics level. The situation in Sri Lanka may be bad, but it is good at their microeconomics level.”
There is a lack of effective policies in the banking sector. The former governor explained: “Instead of reforming the sector, the crisis has been increased by increasing the number of directors and banks. This happened due to wrong policies. Prevention of money laundering, collection of NPL and accountability must be ensured.”
“Also, people's participation in any decision should be increased. The crisis that rose in Sri Lanka, the politicians in our country already realized it. It is very promising,” he added.
Prominent Economist Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre (PPRC) said: “Importance should be given to the overall economy. A place of injustice has been created in the personal sphere. New poor have been created due to Covid-19. These are impediments to achieving the Sustainable Development Goals (SDGs). These goals cannot be achieved through a single-minded development policy. In order to become a middle-income country, the trend of injustice against people must be eliminated.”
At a media brief at its Dhanmondi office in the capital on Sunday, CPD also urged the government to realize that renewable energy can play a vital role in energy diversification.
Regarding the electricity capacity charge or cost, Professor at the Department of Petroleum and Mineral Resources Engineering (PMRE) at Buet Dr M Tamim said: “There are generally three types of difficulties in power generation. 1. Fuel cost, 2. Operation and Maintenance Cost (O&M), 3. Capacity cost. Both public and private sector electricity have capacity costs. Now the question is whether all these are justified.”
Regarding the ongoing energy crisis in the international market and inside the country, the IRDB report stated that depending on imported LNG alone would be too burdensome for the country and this would make uninterrupted gas supply for the domestic industry and power sector uncertain.
In the report, they said: “Due to pressure on imports with limited forex reserves, domestic energy supply and power generation started to be curtailed. This is evident in the case of less supply of LNG. The maximum load curve indicates a fluctuating trend in power generation in recent months (June-July). The amount of load shedding is likely to be higher than what is officially announced (1500-2000 MW). It was 2556 MW on July 18.”
“The burden of capacity payment has emerged as an added tension as a significant part of it needs to be paid in USD. At present, the due payment is $1.5 billion.”
CPD's recommendations on what to do in Bangladesh amid the ongoing energy crisis around the world are: “The global energy crisis is likely to continue in the medium term. Higher energy prices are likely to continue in the global market in the coming months though they may recede to some extent.”
Bangladesh continues to spend a substantial amount on the import of crude and refined oil and LNG. So, necessary forex needs to be arranged for energy import. The government may borrow from the Islamic Development Bank, IMF, World Bank and bilateral sources (KSA, Kuwait, Qatar). Depending on imported LNG alone would be too burdensome and would be too uncertain to ensure uninterrupted gas supply for the domestic industry and power sector.
“Immediate measures in exploring gas in old gas exploration sites are required. Government should realize that renewable energy can play a vital role in energy diversification in the current fossil-fuel-based energy crisis,” the report highlights strongly.
Commenting that there is a global medium-term energy crisis, Fahmida said: “There is a global medium-term energy crisis. It may continue for the long term. Bangladesh spends a considerable amount on importing crude and refined oil and LNG fuel. So, it will be difficult for us to rely solely on imported LNG for power management.”
