Economist Zahid Hussain. Illustration: TBS
Economist Zahid Hussain. Illustration: TBS
Global geopolitical uncertainty is not just going to go away anytime soon, rather stringent austerity measures taken by developed countries will make the situation worse.
In the face of an impending global economic downturn, we must reduce the hidden costs of exporting by eliminating mismanagement in order to retain foreign markets. At the same time, we must embrace austerity, especially in public spending. To meet the long-term challenges, we need to reduce demand at the public and private levels through the coordination of fiscal and monetary policies.
In addition to the global economic situation, various crises have surfaced in the domestic market, the most important of which is inflation. Rising food prices were a major source of inflation last month. While non-food inflation has eased somewhat, the effects of the recent rise in gasoline prices and the strengthening US dollar are yet to be seen.
Immediate action is needed to increase food stocks at the government level and also increase food imports by the private sector.
In one month, rice prices jumped from Tk 3 to Tk 4 per kg. The prices of flour, edible oil, sugar, fish and meat have also increased. The impact of rising staple rice prices on our consumer price index is huge. For this reason, if rice prices skyrocket, the rate of inflation skyrockets.
Now the question is why rice prices increased during the high season when the rice market was supposed to remain stable. Traders are well aware of the main reasons for rising prices even in high season. They know that rice prices will increase further in the future.
There are differences in the rice production data provided by different government agencies. Actual production may even be lower than the Bangladesh Bureau of Statistics estimate.
Aush’s harvest was marred by flooding, while Aman’s nurseries were also damaged. Rice traders may have reduced supply to take advantage of a shortage of rice in the coming days.
The World Trade Organization (WTO) has warned that there will be a global food crisis. It has already started in some African countries, because it will intensify in the future.
Food prices will increase all over the world, while rice production in our country has decreased. In this situation, it is quite normal for traders to hold stocks, even if there are no unions in the market.
If the market becomes volatile, the government will need to have enough inventory to contain prices. There is a big problem with the government’s food storage capacity. Ten years ago, the World Bank launched a project to increase the country’s food stock to 25 lakh tons. But the project is not finished yet.
The government will not meet the rice supply target this time due to the low prices it is offering. In this situation, the government must rapidly increase the stock – whether by import or internal purchase – to deal with the food crisis.
If the government buys rice at higher prices, the millers benefit. Farmers would benefit if the government could buy paddy from farmers and then ask millers to process it.
Importation of rice by private entrepreneurs should be facilitated immediately. At present, there is more than 62% import duty on rice.
No one would want to import rice with that amount of duty. These tariffs should be set at a reasonable rate. And this must be done immediately because when the world food crisis becomes serious, no one will export rice.
In order to keep the global economic pressure under control, Bangladesh, like other countries, must get rid of the expansionary monetary policy and adopt a restrictive policy.
If the 5.5% deficit budget is implemented, there will be a huge risk of inflation. We need a strong tightening of the belt. This could be in the implementation of the annual development program. If the cost of ODA’s import-focused domestic financing is brought under control, inflation will also be brought under control as domestic demand will decline.
In addition, the demand for foreign currencies will decrease and the pressure on the exchange rate will ease. In this case, too, inflation will decrease a little.
Zahid Hussain, Former Principal Economist, World Bank Office in Dhaka
Zahid Hussein spoke to TBS Senior Correspondent Jahidul Islam by telephone